Registration No. 2-94479
811-4161
As filed with the Securities and Exchange Commission on February 25, 1999.
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. 25 /X/
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26 /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)
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<S> <C>
Copies To:
CRAIG D. MORESHEAD, Esq. JOAN BOROS, Esq.
Jefferson Pilot Variable Fund, Inc. Jordan, Burt, Boros, Cicchetti, Beremson & Johnson LLP
One Granite Place 1025 Thomas Jefferson Street, N.W.
Concord, NH 03301 Washington, D.C. 20007
</TABLE>
It is proposed that this filing will become effective on May 1, 1999
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.
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<S> <C>
Item No.
of Form N-1A Part A-Prospectus
- ----------------------------------------------------------------------------------------------------------------------
1 Cover Page
2 Objectives, Strategies, Risks, Past Performance and Expenses
3 Not Applicable
4 Objectives, Strategies, Risks, Past Performance and Expenses
5 Not Applicable
6 About Jefferson Pilot Variable Fund, Inc.; The Investment Advisor
7 Buying and Selling Shares; Taxes and Dividends
8 Buying and Selling Shares
9 Objectives, Strategies, Risks, Past Performance and Expenses
Item No.
of Form N-1A Part B-Statement of Additional Information
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10 Cover Page, Table of Contents
11 Business History
12 Business History; Investment Restrictions; Secondary Investment Strategies;
Description of Certain Investments; Risk Considerations
13 Management of the Fund
14 Capital Stock
15 Investment Advisory and Other Services
16 Portfolio Transactions and Brokerage Allocations
17 Capital Stock
18 Offering and Redemption of Shares, Determinations of Net Asset Value
19 Taxes
20 Offering and Redemption of Shares
21 Performance of Yield Information
22 Financial Statements
Item No.
of Form N-1A Part C-Other Information
- ----------------------------------------------------------------------------------------------------------------------
23 Financial Statements and Exhibits
24 Persons Controlled by or Under Common Control
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
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<PAGE>
Prospectus: May 1, 1999
Jefferson Pilot
Variable Fund, Inc.
- --------------------------------------------------------------------------------
More information on this Fund is available free upon request, including the
following:
Statement of Additional Information (SAI)
Provides more details about the Fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference.
Annual/Semiannual Report
Describes the Fund's performance and lists portfolio holdings.
To obtain information:
By telephone: 800-258-3648 ext. 7719 (outside NH)
800-322-0235 ext. 7719 (inside NH)
By mail Write to:
Jefferson Pilot Variable Fund, Inc.
One Granite Place
Concord, NH 03301
E-mail: http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in in
Washington, DC (1-800-SEC-0330) or by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, DC 20549-6009
International Equity Portfolio
World Growth Stock Portfolio
Global Hard Assets Portfolio
Emerging Growth Portfolio
Capital Growth Portfolio
Growth Portfolio
Small Company Portfolio
Growth and Income Portfolio
Balanced Portfolio
High Yield Bond Portfolio
Money Market Portfolio
The Securities and Exchange Commission does not guarantee that
the information in this prospectus is accurate or complete, nor
has it approved or disapproved these securities. It is
a criminal offense to state otherwise.
[Jefferson Pilot Financial logo]
<PAGE>
contents
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<S> <C> <C>
Fund Management About Jefferson Pilot Variable Fund, Inc. 3
The Investment Adviser 3
Year 2000 6
A look at objectives, International Equity Portfolio 8
strategies, risks, past
performance and World Growth Stock Portfolio 10
expenses of each
portfolio. Global Hard Assets Portfolio 12
Emerging Growth Portfolio 14
Capital Growth Portfolio 16
Growth Portfolio 18
Small Company Portfolio 20
Growth and Income Portfolio 22
Balanced Portfolio 24
High Yield Bond Portfolio 26
Money Market Portfolio 28
Other Portfolio Information Additional Risk Factors 30
Shareholder Information Buying and Selling Shares 33
Taxes and Dividends 34
</TABLE>
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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.
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2
<PAGE>
fund management
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[arrow] ABOUT JEFFERSON PILOT VARIABLE
FUND, INC.
The Fund currently consists of eleven investment portfolios, 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").
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.
Shares of the Portfolios are presently offered only to corresponding divisions
of separate accounts established by Jefferson Pilot Financial Insurance Company
("Jefferson Pilot Financial") (formerly, Chubb Life Insurance Company of
America), Jefferson-Pilot Life Insurance Company ("Jefferson-Pilot Life"),
Alexander Hamilton Life Insurance Company of America ("Alexander Hamilton Life")
or their affiliated insurance companies, to fund variable annuities and flexible
premium variable life insurance policies. Shares 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. The owner of a Policy may allocate among the Portfolios the amounts
available for investment under the Policy. Jefferson Pilot Financial,
Jefferson-Pilot Life and Alexander Hamilton Life are wholly-owned subsidiaries
of Jefferson-Pilot Corporation, a North Carolina Corporation.
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.
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 affiliates, successors or assigns, or by other
insurance companies with which Jefferson Pilot Financial may or may not be
affiliated, and the Fund may add or delete Portfolios.
[triangle] THE INVESTMENT ADVISER
The investment adviser to the Fund is Jefferson Pilot Investment Advisory
Corporation (the "Investment Adviser" or "Jefferson Pilot Investment Advisory")
(formerly, Chubb Investment Advisory Corporation), a registered investment
adviser and wholly-owned subsidiary of Jefferson-Pilot Corporation. Its address
is One Granite Place, Concord, NH 03301.
The Investment Adviser provides supervisory investment advice, which involves
recommending, evaluating, monitoring, and overseeing the activities of the
Sub-Advisers. The Investment Adviser also reviews the practices of
broker-dealers selected by the Sub-Advisers. In addition, Jefferson Pilot
Investment Advisory provides the following administrative services to the Fund:
[diamond] acts as transfer agent and dividend paying agent
[diamond] provides office space and related utilities necessary for Fund
operations
[diamond] recommends auditors, counsel and custodians
[diamond] provides personnel, data processing services, and supplies
[diamond] prepares and distributes proxy statements, prospectuses, Statements of
Additional Information, reports and other shareholder communications
[diamond] schedules, plans the agenda for, and conducts the meetings of the
Fund's directors and stockholders
[diamond] prepares and files tax returns and reports which federal, state, local
or foreign laws may require
3
<PAGE>
The cost of such facilities, supplies and services is included in the investment
management fees which 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>
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World Growth Stock,
Global Hard Assets,
Small Company,
Average Daily Money Market Growth and Income, Capital Emerging High Yield Bond International
Net Assets and Bond and Balanced Growth Growth and 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-Advisers
Subject to the supervision of the Board of Directors and the Investment Adviser,
the Sub-Advisers manage the Portfolios in accordance with the stated investment
objectives and policies, make investment decisions for the Portfolios, and place
orders for the purchase and sale of Portfolio securities.
Templeton Global Advisors Limited ("Templeton"), Lyford Cay, Nassau, Bahamas,
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. Templeton and its affiliates currently serve as investment adviser
or sub-adviser to over 100 investment companies registered in the United States
and abroad. Ms. Cindy Sweeting is primarily responsible for the day-to-day
management of the Portfolio. Previously Ms. Sweeting was a Vice President of
investments at McDermott International Investments Company. Ms. Sweeting, Vice
President, joined Templeton in 1997 as a portfolio manager.
Van Eck Associates Corporation ("Van Eck"), 99 Park Avenue, New York, New York
10016, a registered investment adviser and a Delaware corporation is Sub-Adviser
to the Global Hard Assets Portfolio. Van Eck 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. 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.
Janus Capital Corporation ("Janus"), 100 Fillmore Street, Denver, Colorado
80206, a registered investment adviser and Colorado corporation, is Sub-Adviser
to the Capital Growth Portfolio and Balanced Portfolio (effective May 1, 1999).
J.P. Morgan served as sub-adviser to the Balanced Portfolio through May 1, 1999.
The change in sub-advisers to the Balanced Portfolio will not affect the
aggregate investment advisory fees paid by shareholders. Janus began serving as
investment adviser to Janus Fund at its inception in 1970 and currently serves
as investment adviser to all the Janus Funds, as well as adviser or sub-adviser
to other mutual funds and individual, corporate and charitable and retirement
accounts.
Mr. Marc Pinto has been primarily responsible for the day-to-day management of
the Capital Growth Portfolio since 1994. Previously, he was employed by a family
firm and as an Associate in the Investment Banking Division of Goldman Sachs.
Mr. Blaine P. Rollins, Executive Vice President of Janus, is primarily
responsible for day-to-day management of the Balanced Portfolio. Mr. Rollins has
managed the Janus Balanced Fund since January, 1996, and the Janus Equity Income
Fund since its inception (June, 1996). Mr. Rollins joined Janus in 1990 and
gained experience as a fixed-income trader and equity research analyst prior to
managing Janus Balanced Fund.
4
<PAGE>
Lord, Abbett & Co., 767 Fifth Avenue, New York, New York, 10153, a registered
investment adviser and partnership is Sub-Adviser to the Small Company
Portfolio. Pioneer served as sub-adviser to the Small Company Portfolio through
May 1, 1999. Founded in 1929, Lord Abbett manages one of the nation's oldest
mutual fund complexes, with approximately $28 billion in more than 35 mutual
fund portfolios and other advisory accounts. Lord Abbett uses a team of
portfolio managers and analysts acting together to manage the company's
investment. Stephen McGruder, Partner of Lord Abbett, heads the team and is the
senior portfolio manager. Important members of the team include Lesley-Jane
Dixon, Rayna Lesser and Cinda Hughes. Mr. McGruder and Ms. Dixon have been with
Lord Abbett since 1995, Ms. Rayna has been with Lord Abbett since 1996 and Ms.
Hughes since 1998. Prior to joining Lord Abbett, Mr. McGruder was a portfolio
manager with Wafra Investment Advisory Group. Ms. Dixon was an equity analyst
with Wafra Investment Advisory Group before joining Lord Abbett. Ms. Lesser
joined Lord Abbett directly from Barnard College. Ms. Hughes was an
Analyst/Director of Equity Research at Phoenix Investment Counsel and an
Associate Strategist at Paine Webber, Inc./Kidder, Peabody & Co. before joining
Lord Abbett.
Warburg Pincus Asset Management, Inc. ("Warburg"), 466 Lexington Avenue, New
York, New York 10017, is Sub-Adviser to the Growth and Income Portfolio. Warburg
is indirectly controlled by Warburg, Pincus & Co. ("W.P.&CO."), a holding
company and New York partnership. Lionel I. Pincus, the Managing Director of
W.P. & Co. may be deemed to control both W.P. & Co. and Warburg. Warburg,
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.
Massachusetts Financial Services Company ("MFS"), 500 Boylston Street, Boston,
Massachusetts 02116, is Sub-Adviser to the Money Market, Emerging Growth and
High Yield Bond Portfolios. 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 $98 Billion on behalf of approximately 3.7
million investor accounts as of December 31, 1998. MFS is an indirect subsidiary
of Sun Life Assurance Company of Canada.
John W. Ballen, President of MFS, has been employed by MFS as a portfolio
manager since 1984 and has been a portfolio manager of the Emerging Growth
Portfolio since . Toni Y. Shimura, a Vice President of MFS, has been
employed by MFS as a portfolio manager since 1987. Ms. Shimura became a
portfolio manager of the Emerging Growth Portfolio on November 30, 1995.
Stephen Pesek, a Vice President of MFS, has been employed by MFS as a portfolio
manager since 1994 and has been a portfolio manager of the Emerging Growth
Portfolio since January 15, 1999. From 1987 to 1994, Mr. Pesek worked at
Fidelity Investments as an analyst.
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"), P.O. Box 2936, Milwaukee, Wisconsin
53201, 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. Strong also acts as adviser for its own proprietary mutual funds. As of
February 28, 1998, Strong managed over $29.8 Billion in assets. 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, Mr. Ognar also manages the
Strong Growth Fund, the Strong Growth 20 Fund, and co-manages the Strong Total
Return Fund.
Lombard Odier International Portfolio Management Limited ("Lombard Odier"),
Norfolk House, 13 South
5
<PAGE>
Hampton Place, London, WC1A2AJ, UK, is the Sub-Adviser to the International
Equity Portfolio. 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 sub-adviser to one open-end investment company
and one closed-end investment company. 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 Fund and Jefferson Pilot Investment Advisory have obtained an exemptive
order from the Securities and Exchange Commission which permits Jefferson Pilot
Investment Advisory, without further shareholder approval, to replace or add
Subadvisers and to enter into Subadvisory Agreements with those Subadvisers upon
approval of the Fund's Board of Directors. The relief provided by the exemptive
order is subject to certain conditions. For example, within sixty days of the
hiring of any new Subadviser or the implementation of any proposed material
change to an Investment Subadvisory Agreement, shareholders will be furnished
all information that would be included in a proxy statement regarding the new
Subadviser or Subadvisory Agreement. Moreover, the Adviser will not enter into
an Investment Subadvisory Agreement with any Affiliated Subadviser without
shareholder approval. In addition, whenever a Subadviser is hired or terminated,
the Adviser will provide the Board of Directors with information showing the
expected impact on the Adviser's profitability and will report on such impact
quarterly. 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.
[arrow] YEAR 2000
Like most registered investment companies, the Fund faces certain risks
associated with the coming of the year 2000. The year 2000 issue relates to the
way computer systems and programs define calendar dates. By using only two digit
dates, they could fail or make miscalculations due to the inability to
distinguish between dates in the 1900's and in the 2000's. Also, many systems
and equipment that are not typically thought of as "computer-related" (referred
to as "non-IT") contain imbedded hardware or software that must handle dates and
may not properly perform with dates after 1999.
Jefferson-Pilot Corporation (the "Corporation") began work on the Year 2000
compliance issue in 1995. The scope of the project includes: ensuring the
compliance of all applications, operating systems and hardware on mainframe, PC
and LAN platforms; addressing issues related to non-IT embedded software and
equipment; addressing the compliance of key vendors and service providers to the
Fund (business partners). The project has four phases: assessment of systems and
equipment affected by the Year 2000 issue; definition of strategies to address
affected systems and equipment; remediation of affected systems and equipment;
and testing of affected systems and equipment for compliance. Testing is
performed using standard testing methodology.
The target for completion of all phases and categories is September 30, 1999.
The Corporation has completed the assessment and strategy phases for mainframe
applications operating systems and hardware. The Company's new business and
policy holder administration systems and the general ledger are on the
mainframe. Currently, approximately 62% of all mainframe systems are compliant.
With respect to significant policyholder systems, the majority of these have
been completed, with testing continuing on some of the closed block systems.
Testing is expected to be completed 1st quarter 1999. For other mainframe
systems the project is on schedule. For PC and LAN systems, the Corporation has
begun the assessment phase and intends to complete remediation and testing
during the third quarter 1999. For the majority of the Corporation's non-It
related systems and equipment, the Corporation has been advised by vendors that
the systems and equipment are currently Year 2000 compliant. Written
documentation regarding compliance is being obtained. Completion for non-IT
systems and equipment is scheduled for September 1999.
The most significant category of key business partners is financial
institutions. Their critical functions include safeguarding and managing
investment portfolios, processing of the Fund's operating bank accounts, and
sales/distribution. Other partner categories include insurance agents and
marketing
6
<PAGE>
organizations, suppliers of communication services, utilities, materials and
supplies. Critical business partners have been identified and surveys initiated.
Results of these surveys will be analyzed in 1st quarter 1999 and appropriate
testing or other due diligence conducted in 2nd and 3rd quarter 1999.
Although the Corporation expects its critical policyholder systems to be
compliant by 1st quarter 1999, there is no guarantee that these results will be
achieved. Specific factors that give rise to this uncertainty include a possible
loss of technical resources to perform the work (not yet encountered), failure
to identity all susceptible systems, non-compliance by third parties whose
systems and operations impact the Fund, and other similar uncertainties.
Specifically, from Year 2000 problems, the Fund could experience an interruption
in its ability to process purchases and sales, calculate net asset values,
safeguard and manage its invested assets and operating cash accounts, accurately
maintain policyholder information, accurately maintain accounting records, issue
new policies and/or perform adequate customer service. Should the worst case
scenario occur, it could, depending on its duration, have a material impact on
the Fund's operations.
Although the Corporation plans completion of certification of all internal
system and non-IT equipment well in advance of 2000, the Corporation recognizes
the need to plan for unanticipated problems resulting from failure of internal
systems or equipment or from failures of the Fund's business partners,
providers, suppliers or other critical third parties. The Corporation will begin
work on contingency plans for all mission critical functions in the 1st quarter
1999.
7
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A look at objectives, strategies, risks, past
performance & expenses of each portfolio
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[arrow] INTERNATIONAL EQUITY PORTFOLIO
Investment Objectives:
The International Equity Portfolio's investment objective is long-term capital
appreciation. The Portfolio will be "non-diversified" as defined in the
Investment Company Act of 1940. See "Main Risk Factors" below.
Principal Investment Strategies:
The Portfolio will seek to achieve its objective by investing at least 65% of
its total assets in equity and equity-related securities (including Depository
Receipts) of companies from countries outside of the United States. Issuers of
such securities may include smaller, emerging companies.
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 based upon criteria such as return on equity, book
value, earnings, dividends, and interest rates in each market. The Sub-Adviser
primarily looks for strong earnings growth at a reasonable price. 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.
Once purchased, a stock can be sold for positive (successful) and negative
(defensive) reasons. Positive reasons include: controlling the size of the
holding; achieving the performance objectives; and locking in a profit. Negative
reasons would include: deteriorating fundamental or technical outlook; better
ideas; and to prevent conspicuous underperformance from adversely affecting
overall Portfolio performance.
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 Portfolio may purchase securities
on a when-issued basis. The Portfolio may invest up to 15% of its assets in
illiquid securities.
Notwithstanding the investment objective of long-term capital appreciation, the
Portfolio may place up to 100% of its total assets in cash (including foreign
currency) or investment-grade short-term securities in order to respond to
unfavorable market, economic, political, or other conditions.
Main Risk Factors (See also "Additional Risk Factors" at page 30):
Since the International Equity Portfolio is not "diversified" as defined by the
Investment Company Act of 1940, 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. As a result, the portfolio will be more
susceptible to adverse developments affecting any single issuer or industry. The
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
Portfolio generally employs.
The main risk factors are as follows:
[diamond] Market Risk: Prices of stocks held by the Portfolio may fall due to
changing economic, political or market conditions, disappointing
earnings or other factors. As a result, your investment may decline in
value.
[diamond] Foreign Investments: To the extent the Portfolio invests in foreign
securities, currency exchange rate movements could reduce gains or
create losses and the Portfolio could lose money because of foreign
government actions, political instability, or lack of adequate and
accurate information.
[diamond] Emerging Growth Risk: The Portfolio is slightly tilted towards
companies that are below the index average in terms of market
capitalization. Investments in such companies may be subject to more
abrupt or erratic market movements and may involve greater risks than
investments in other companies.
[diamond] Liquidity: Many small company stocks trade less frequently and in
smaller volume than stocks of larger companies, and the Portfolio may
experience difficulty in closing out positions at prevailing market
prices.
8
<PAGE>
Financial Highlights (International Equity Portfolio)
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Net asset value, beginning of year ..................................................... $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................................................................
Net gains and losses on securities and foreign currency (both realized and unrealized) 2.16
------
Total from investment operations ....................................................... 2.16
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income .................................................
Dividends in excess of net investment income .........................................
Distributions from capital gains ..................................................... (0.04)
Distributions in excess of capital gains .............................................
Returns of capital ...................................................................
Total distributions .................................................................... (0.04)
Net asset value, end of year ........................................................... $12.12
======
Total Return (A) ....................................................................... 21.66%
Ratios to Average Net Assets:
Expenses ............................................................................. 1.55%
Net investment income ................................................................ 0.04%
Portfolio Turnover Rate ................................................................ 77.23%
Net Assets, At end of year ............................................................. $16,576,281
</TABLE>
(A) Total return assumes reinvestment of all dividends during the year and does
not reflect deduction of account fees and charges that apply to separate
accounts 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.
----------------------------------------
----------------------------------------
The tables below illustrate the risks of investing in the Portfolio by showing
changes in performance from year to year and by comparing the Portfolio's
average annual returns for 1, 5, and 10 years to those of a broad-based index.
As with all funds, past performance is not necessarily indicative of the future.
[chart]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
21.66%
89 90 91 92 93 94 95 96 97 98
</TABLE>
Best Quarter-1st quarter, 1998 +20.42% Worst Quarter-3rd quarter, 1998 -12.93%
[end chart]
<TABLE>
<CAPTION>
- -----------------------------------------------------
1 YR Since Inc.(1)
Total Return Comparison -------- ---------------
<S> <C> <C>
International Equity 21.66% 21.66%
MSCI EAFE Index 18.23% 18.23%
(1)Return calculated from inception date, 1/1/98.
- -----------------------------------------------------
</TABLE>
9
<PAGE>
[arrow] 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.
Principal Investment Strategies:
The World Growth Stock 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. The Portfolio will generally be composed of investments from
among many different industries. As a general matter, the Portfolio will be
invested in a minimum of five different foreign countries.
The Sub-Adviser employs a "value" philosophy with the goal of identifying those
companies selling at the greatest discount to future intrinsic value. While
historical value measures (e.g. P/E ratios, operating profit margins,
liquidation value) are important to the "bottom-up" selection process, the
primary factor in selecting individual stocks is a company's current price
relative to its future or long-term earnings potential, or real book value,
whichever is appropriate. Securities are evaluated with a five-year investment
horizon. A stock may be sold because there is substantially greater value in
another stock, the stock approaches the "fair value" target price, or due to a
deterioration in the fundamentals upon which the stock was purchased.
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. 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.
Notwithstanding the investment objective of long-term capital growth, the
Portfolio may place up to 100% of its total assets in cash (including foreign
currency) or investment-grade short-term securities in order to respond to
unfavorable market, economic, political, or other conditions.
Main Risk Factors (See also "Additional Risk Factors" at page 30):
[diamond] Market Risk: Prices of stocks held by the Portfolio may fall due to
changing economic, political or market conditions, disappointing
earnings or other factors. As a result, your investment may decline in
value.
[diamond] Foreign Investments: To the extent the Portfolio invests in foreign
securities, currency exchange rate movements could reduce gains or
create losses and the Portfolio could lose money because of foreign
government actions, political instability, or lack of adequate and
accurate information.
[diamond] Emerging Growth Risk: The Portfolio is slightly tilted towards
companies that are below the index average in terms of market
capitalization. Investments in such companies may be subject to more
abrupt or erratic market movements and may involve greater risks than
investments in other companies.
[diamond] Liquidity: Many small company stocks trade less frequently and in
smaller volume than stocks of larger companies, and the Portfolio may
experience difficulty in closing out positions at prevailing market
prices.
10
<PAGE>
Financial Highlights (World Growth Stock Portfolio)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Net asset value, beginning of year ............... $23.28 $23.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income .......................... 0.56 0.53
Net gains and losses on securities and
foreign currency (both realized and
unrealized) .................................. 0.12 2.97
------ ------
Total from investment operations ............... 0.68 3.50
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ........... (0.47) (0.53)
Dividends in excess of net investment
income ....................................... (0.03)
Distributions from capital gains ............... (1.59) (2.76)
Distributions in excess of capital gains ....... (0.21)
Returns of capital .............................
Total distributions ............................ (2.06) (3.53)
Net asset value, end of year ..................... $21.90 $23.28
====== ======
Total Return (A) ................................. 2.85% 15.33%
Ratios to Average Net Assets:
Expenses ....................................... 0.92% 0.91%
Net investment income .......................... 2.44% 2.33%
Portfolio Turnover Rate .......................... 33.95% 30.22%
Net Assets, At end of year ....................... $110,897,303 $105,567,503
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of year ............... $21.20 $19.00 $20.89
INCOME FROM INVESTMENT OPERATIONS
Net investment income .......................... 0.49 0.45 0.25
Net gains and losses on securities and
foreign currency (both realized and
unrealized) .................................. 3.56 2.65 (0.89)
------ ------ ------
Total from investment operations ............... 4.05 3.10 (0.64)
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ........... (0.48) (0.43) (0.25)
Dividends in excess of net investment
income .......................................
Distributions from capital gains ............... (1.46) (0.47) (0.81)
Distributions in excess of capital gains ....... (0.19)
Returns of capital .............................
Total distributions ............................ (1.94) (0.90) (1.25)
Net asset value, end of year ..................... $23.31 $21.20 $19.00
====== ====== ======
Total Return (A) ................................. 19.22% 16.35% (3.05%)
Ratios to Average Net Assets:
Expenses ....................................... 0.88% 0.96% 1.00%
Net investment income .......................... 2.20% 2.31% 1.56%
Portfolio Turnover Rate .......................... 27.50% 18.09% 18.47%
Net Assets, At end of year ....................... $91,995,634 $73,692,357 $52,903,768
</TABLE>
(A) 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. Investment returns and principal
values will fluctuate and shares, when redeemed, may be worth more or less
than the original cost.
----------------------------------------
----------------------------------------
The tables below illustrate the risks of investing in the Portfolio by showing
changes in performance from year to year and by comparing the Portfolio's
average annual returns for 1, 5, and 10 years to those of a broad-based index.
As with all funds, past performance is not necessarily indicative of the future.
[chart]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
28.55% -10.34% 22.47% 6.07% 33.73% -3.05% 16.35% 19.22% 15.33% 2.85%
89 90 91 92 93 94 95 96 97 98
</TABLE>
[end chart]
Best Quarter-3rd quarter, 1989 +15.04% Worst Quarter-3rd quarter, 1990 -16.69%
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Total Return Comparison 1 YR 5 YR 10 YR
- ----------------------- ------ ------ -------
<S> <C> <C> <C>
World Growth Stock 2.85% 9.79% 12.32%
MSCI World Index 22.78% 13.94% 8.80%
- ----------------------------------------------------------
</TABLE>
11
<PAGE>
[arrow] GLOBAL HARD ASSETS PORTFOLIO
Investment Objectives:
The Portfolio seeks long-term capital appreciation by globally investing
primarily in "Hard Asset Securities." Income is a secondary consideration.
Principal Investment Strategies:
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-Adviser 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.
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 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. 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. REITs are
pooled investment vehicles which invest primarily in income producing real
estate or real estate related loans or interests. The Global Hard Assets
Portfolio may make short sales of equity securities. Short sales may incur
higher transaction costs than regular securities transactions.
Main Risk Factors (See also "Additional Risk Factors" at page 30):
[diamond] Hard Asset Securities: greater volatility of energy and basic material
prices, instability of supply, risks associated with extraction of
natural resources, and governmental events which could affect
production and marketing.
[diamond] Illiquidity: The Portfolio may hold illiquid securities which may be
difficult to sell at satisfactory prices.
[diamond] Credit: The ability of issuers of fixed income securities to make
principal and interest payments timely.
[diamond] Precious Metals: Precious metal trading is highly speculative and its
markets are at times volatile. Prices are affected by factors such as
cyclical economic conditions, political events and monetary policies
of various countries. Due to U.S. tax law, the Portfolio may be
required to hold or sell precious metals when it would not otherwise
do so.
[diamond] REITS: REITS are subject to risks associated with real estate and in
addition, interest rate risk, heavy cash flow dependency, default by
borrowers, self-liquidation, and failure to qualify for tax exemption
for distributed income.
12
<PAGE>
Financial Highlights (Global Hard Assets Portfolio)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
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) .................... 0.17 0.02 (0.03) 0.05 0.03
Net gains and losses on securities and
foreign currency (both realized and
unrealized) ................................... (1.41) (7.30) 0.45 0.40 (2.65)
-------- ------- ------ ------ -------
Total from investment operations .................. (1.24) (7.28) 0.42 0.45 (2.62)
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ............ (0.13) (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 ............................... (0.13) (0.40) (0.43) (0.09) (0.13)
Net asset value, end of year ...................... $ 7.55 $ 8.92 $16.60 $16.61 $ 16.25
======== ======= ====== ====== ======
Total Return (A) .................................. (13.85%) (44.63%) 2.57% 2.76% (13.77%)
Ratios to Average Net Assets:
Expenses ........................................ 1.44% 1.07% 1.04% 1.01% 0.99%
Net investment income ........................... 2.13% 0.63% (0.11%) 0.24% 0.18%
Portfolio Turnover Rate ........................... 193.80% 19.70% 64.78% 23.98% 11.12%
Net Assets, At end of year ........................ $4,333,663 $5,204,654 $7,554,427 $6,867,645 $7,351,625
</TABLE>
(A) Total return assumes reinvestment of all dividends during the year and does
not reflect deduction of account fees and charges that apply to the separate
account or related insurance policies. Investment returns and principal
values will fluctuate and shares, when redeemed, may be worth more or less
than the original cost.
----------------------------------------
The tables below illustrate the risks of investing in the Portfolio by showing
changes in performance from year to year and by comparing the Portfolio's
average annual returns for 1, 5, and 10 years to those of a broad-based index.
As with all funds, past performance is not necessarily indicative of the future.
[chart]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19.24% -24.26% -5.51% -3.25% 64.29% -13.78% 2.76% 2.57% -44.63% -13.85%
89 90 91 92 93 94 95 96 97 98
</TABLE>
Best Quarter-2nd quarter, 1993 +29.53% Worst Quarter-4th quarter, 1997 -32.39%
[end chart]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Total Return Since(1)
Comparison 1 YR 5 YR 10 YR Inc.
- ------------ ------ ------ ------- ----------
<S> <C> <C> <C> <C>
Global Hard
Assets -13.85% -15.39% -5.17% -1.21%
S&P 500 Index 28.58% 24.09% 19.22% 18.48%
(1)Return calculated from inception date, 8/1/85.
- ----------------------------------------------------------------------------
</TABLE>
13
<PAGE>
[arrow] EMERGING GROWTH PORTFOLIO
Investment Objectives:
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.
Principal Investment Strategies:
The Portfolio invests, under normal market conditions, at least 80% of its total
assets in common stocks and related securities, such as preferred stocks,
convertible securities and depository receipts for those securities, of emerging
growth companies. Emerging growth companies are companies which the Sub-Adviser
(MFS) believes are either:
[diamond] early in their life cycle, but which have the potential to become
major enterprises, or
[diamond] are major enterprises 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.
The Sub-Adviser uses a "bottom-up" investment style in managing the Portfolio.
This means that securities are selected based upon fundamental analysis
performed by the Portfolio Manager and MFS' large group of equity research
analysts. Securities are not selected based upon the type of industries to which
they belong.
Notwithstanding the investment objective of long-term capital growth, the
Portfolio may place up to 100% of its total assets in cash or investment-grade
short-term securities in order to respond to unfavorable market, economic,
political, or other conditions.
Main Risk Factors (See also "Additional Risk Factors" at page 30):
The nature of investing in emerging growth companies involves greater risk than
is customarily associated with investments in more established companies. 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. Given the above-average investment risk
inherent to the Emerging Growth Portfolio, investment in shares of the Portfolio
should not be considered a complete investment program and may not be
appropriate for all investors. The main risks of investing in the Portfolio are:
[diamond] Market Risk: Prices of stocks held by the Portfolio may fall due to
changing economic, political or market conditions, disappointing
earnings results or other factors. As a result, your investment may
decline in value.
[diamond] Emerging Growth Risk: Investments in emerging growth companies may be
subject to more abrupt or erratic market movements and may involve
greater risks than investments in other companies. This is because
emerging growth companies often have narrower markets and more limited
managerial and financial resources than larger, more established
companies.
[diamond] Liquidity: Many small company stocks trade less frequently and in
smaller volume than stocks of larger companies, and the Portfolio may
experience difficulty in closing out positions at prevailing market
prices.
14
<PAGE>
Financial Highlights (Emerging Growth Portfolio)
<TABLE>
<CAPTION>
Period From
May 1, 1995
Year Ended Year Ended Year Ended Through
December 31, December 31, December 31, December 31,
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 loss ................................. (0.11) (0.07) (0.05) (0.04)
Net gains and losses on securities and foreign
currency (both realized and unrealized) ........... 5.85 3.19 2.48 3.33
------ ------- ------ -------
Total from investment operations ...................... 5.74 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 ............ (0.11)
Returns of capital ..................................
Total distributions ................................... (0.17) (0.88) (0.49) 0.00
Net asset value, end of year .......................... $23.04 $ 17.47 $15.23 $ 13.29
====== ======= ====== =======
Total Return (B) ...................................... 32.93% 20.47% 18.30% 32.91%
Ratios to Average Net Assets:
Expenses ............................................ 0.94% 1.00% 1.16% 1.63%(C)
Net investment income ............................... (0.61%) (0.61%) (0.48%) (0.84%)(C)
Portfolio Turnover Rate ............................... 77.07% 122.85% 94.58% 30.31%
Net Assets, At end of year ............................ $95,795,377 $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 Jefferson Pilot Financial Separate Account A.
(B) Total return assumes reinvestment of all dividends during the year and does
not reflect deduction of account fees and charges that apply to the separate
account or related insurance policies. Investment returns and principal
values will fluctuate and shares, when redeemed, may be worth more or less
than the original cost. Total return figures for periods less than one year
have not been annualized.
(C) Per share data and ratios calculated on an annualized basis.
----------------------------------------
----------------------------------------
The tables below illustrate the risks of investing in the Portfolio by showing
changes in performance from year to year and by comparing the Portfolio's
average annual returns for 1, 5, and 10 years to those of a broad-based index.
As with all funds, past performance is not necessarily indicative of the future.
[chart]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
32.91%(1) 18.30% 20.47% 32.93%
89 90 91 92 93 94 95 96 97 98
</TABLE>
Best Quarter-4th quarter, 1998 +27.22% Worst Quarter-3rd quarter, 1998 -13.50%
[end chart]
(1)Return calculated from inception date, 5/1/95.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Total Return Comparison 1 YR Since Inc.(1)
- ----------------------- -------- ---------------
<S> <C> <C>
Emerging Growth 32.93% 28.60%
Russell 2000 Growth Index 1.23% 17.20%
Russell 2000 Index -2.55% 14.94%
Effective January 1, 1998 the performance
benchmark of the Portfolio has been
changed from the Russell 2000 Growth
Index to the Russell 2000 Index. The Russell
2000 Index better represents the investment
style and objective of the Portfolio by
including a broader blend of small
capitalization stocks.
- ---------------------------------------------------------------------------
</TABLE>
15
<PAGE>
[arrow] 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.
Principal Investment Strategies:
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. The Portfolio may also invest in 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-Adviser perceives an opportunity for capital growth
from such securities or so that the Portfolio may receive a return on its idle
cash. Investments may also be made in foreign securities. 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 Manager generally takes a "bottom up" approach to building the
Portfolio, seeking to identify individual companies with earnings growth
potential that may not be recognized by the market at large. Although themes may
emerge, securities are generally selected without regard to any defined industry
sector or other similarly defined selection procedure.
It is the policy of the Capital Growth Portfolio to purchase and hold securities
for capital growth. However, changes in the Portfolio will generally be made
without reference to the length of time a security has been held. Thus, 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.
Main Risk Factors (See also "Additional Risk Factors" at page 30):
[diamond] Market Risk: Prices of stocks held by the Portfolio may fall due to
changing economic, political or market conditions, disappointing
earnings results or other factors. As a result, your investment may
decline in value.
[diamond] Small Company Risk: Investments in small companies may be subject to
more abrupt or erratic market movements and may involve greater risks
than investments in other companies. This is because small companies
often have narrower markets and more limited managerial and financial
resources than larger, more established companies.
[diamond] Liquidity: Many small company stocks trade less frequently and in
smaller volume than stocks of larger companies, and the Portfolio may
experience difficulty in closing out positions at prevailing market
prices.
16
<PAGE>
Financial Highlights (Capital Growth Portfolio)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Net asset value, beginning of year ................ $21.23 $17.26
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) .................... (0.09) (0.01)
Net gains and losses on securities and
foreign currency (both realized and
unrealized) ................................... 8.25 4.99
------ ------
Total from investment operations .................. 8.16 4.99
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ............
Dividends in excess of net investment
income ........................................
Distributions from capital gains ................ (1.49) (0.81)
Distributions in excess of capital gains ........ (0.21)
Returns of capital ..............................
Total distributions ............................... (1.49) (1.02)
Net asset value, end of year ...................... $27.90 $21.23
====== =======
Total Return (A) .................................. 38.47% 29.41%
Ratios to Average Net Assets:
Expenses ........................................ 1.09% 1.09%
Net investment income ........................... (0.38%) 0.02%
Portfolio Turnover Rate ........................... 54.58% 91.66%
Net Assets, At end of year ........................ $198,002,451 $124,123,995
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of year ................ $ 17.38 $ 13.38 $ 14.26
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) .................... 0.05 0.03 0.03
Net gains and losses on securities and
foreign currency (both realized and
unrealized) ................................... 3.24 5.56 (0.49)
------- ------- -------
Total from investment operations .................. 3.29 5.59 (0.46)
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ............ (0.05) (0.03) (0.03)
Dividends in excess of net investment
income ........................................
Distributions from capital gains ................ (3.36) (1.56) (0.33)
Distributions in excess of capital gains ........ (0.06)
Returns of capital ..............................
Total distributions ............................... (3.41) (1.59) (0.42)
Net asset value, end of year ...................... $ 17.26 $ 17.38 $ 13.38
======= ======= =======
Total Return (A) .................................. 19.25% 41.74% (3.26%)
Ratios to Average Net Assets:
Expenses ........................................ 1.13% 1.15% 1.22%
Net investment income ........................... 0.30% 0.21% 0.25%
Portfolio Turnover Rate ........................... 147.82% 170.32% 202.04%
Net Assets, At end of year ........................ $70,832,162 $49,853,029 $27,564,086
</TABLE>
(A) Total return assumes reinvestment of all dividends during the year and does
not reflect deduction of account fees and charges that apply to the separate
account or related insurance policies. Investment returns and principal
values will fluctuate and shares, when redeemed, may be worth more or less
than the original cost.
----------------------------------------
The tables below illustrate the risks of investing in the Portfolio by showing
changes in performance from year to year and by comparing the Portfolio's
average annual returns for 1, 5, and 10 years to those of a broad-based index.
As with all funds, past performance is not necessarily indicative of the future.
[chart]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
27.24%(1) 24.73% -3.26% 41.74% 19.25% 29.41% 38.47%
89 90 91 92 93 94 95 96 97 98
</TABLE>
Best Quarter-4th quarter, 1998 +26.13% Worst Quarter-3rd quarter, 1998 -12.19%
[end chart]
(1)Return calculated from inception date, 5/1/92.
<TABLE>
<CAPTION>
Total Return Comparison 1 YR 5 YR Since Inc.(1)
- ----------------------- ------ ------ ---------------
<S> <C> <C> <C>
Capital Growth 38.47% 23.99% 25.91%
S&P 500 Index 28.58% 24.09% 20.56%
</TABLE>
17
<PAGE>
[arrow] GROWTH PORTFOLIO
Investment Objectives:
The investment objective of the Growth Portfolio is to seek capital growth by
investing in equity securities that the Sub-Adviser believes have above-average
growth prospects.
Principal Investment Strategies:
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.
The Growth Portfolio focuses on common stocks of companies that are believed to
be reasonably priced and have above-average growth potential. Strong will
generally invest 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. The Portfolio may decide to sell a stock when the company's growth
prospects become less attractive. In identifying companies with favorable growth
prospects, the Sub-Adviser ordinarily looks to certain other characteristics,
such as the following:
[diamond] prospects for above-average sales and earnings growth,
[diamond] high return on invested capital,
[diamond] overall financial strength, including sound financial and accounting
policies and a strong balance sheet,
[diamond] competitive advantages, including innovative products and service
[diamond] effective research, product development, and marketing, and
[diamond] stable, capable management.
Notwithstanding the investment objective of capital growth, the Portfolio may
place up to 100% of its total assets in cash or investment-grade short-term
securities in order to respond to unfavorable market, economic, political, or
other conditions. The Portfolio may purchase obligations on a when-issued or
forward commitment basis, loan its portfolio securities, and borrow from banks.
The Growth Portfolio may invest up to 15% of its assets in illiquid securities.
Main Risk Factors (See also "Additional Risk Factors" at page 30):
The Portfolio is appropriate for investors who have financial goals five years
or more in the future, and who are comfortable with the risks described here.
The main risk factors for the Portfolio are the following:
[diamond] Market Risk: Prices of stocks held by the Portfolio may fall due to
changing economic, political or market conditions, disappointing
earnings results or other factors. As a result, your investment may
decline in value.
[diamond] Foreign Investments: To the extent the Portfolio invests in foreign
securities, currency exchange rate movements could reduce gains or
create losses and the Portfolio could lose money because of foreign
government actions, political instability, or lack of adequate and
accurate information.
[diamond] Emerging Growth Risk: The Portfolio is slightly tilted towards
companies that are below the index average in terms of market
capitalization. Investments in such companies may be subject to more
abrupt or erratic market movements and may involve greater risks than
investments in other companies.
[diamond] Liquidity: Many small company stocks trade less frequently and in
smaller volume than stocks of larger companies, and the Portfolio may
experience difficulty in closing out positions at prevailing market
prices.
[diamond] Active Trading: The Portfolio's active trading approach will increase
trading costs which may affect performance. High portfolio turnover
can on some occasions result in significant tax consequences to
investors. See "Portfolio Turnover" at page 32.
18
<PAGE>
Financial Highlights (Growth Portfolio)
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Net asset value, beginning of year ..................................................... $ 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) 3.16
------
Total from investment operations ....................................................... 3.11
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 ......................................................... $ 13.11
======
Total Return (A) ....................................................................... 31.14%
Ratios to Average Net Assets:
Expenses ............................................................................. 1.08%
Net investment income ................................................................ (0.47%)
Portfolio Turnover Rate ................................................................ 283.36%
Net Assets, At end of year ............................................................. $11,543,742
</TABLE>
(A) Total return assumes reinvestment of all dividends during the year and does
not reflect deduction of account fees and charges that apply to the separate
account or related insurance policies. Investment returns and principal
values will fluctuate and shares, when redeemed, may be worth more or less
than the original cost.
----------------------------------------
----------------------------------------
The tables below illustrate the risks of investing in the Portfolio by showing
changes in performance from year to year and by comparing the Portfolio's
average annual returns for 1, 5, and 10 years to those of a broad-based index.
As with all funds, past performance is not necessarily indicative of the future.
[chart]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31.14%
89 90 91 92 93 94 95 96 97 98
</TABLE>
Best Quarter-4th quarter, 1998 +25.85% Worst Quarter-3rd quarter, 1998 -10.87%
[end chart]
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Total Return Comparison 1 YR Since Inc.(1)
- ----------------------- ------ ---------------
<S> <C> <C>
Growth 31.14% 31.14%
Russell Mid-Cap
Growth Index 17.86% 17.86%
(1)Return calculated from inception date, 1/1/98.
- ----------------------------------------------------------
</TABLE>
19
<PAGE>
[arrow] SMALL COMPANY PORTFOLIO (FORMERLY, DOMESTIC GROWTH STOCK 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.
Principal Investment Strategies:
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[RegTM] Index. The
Portfolio may also invest in other equity related securities such as preferred
stocks and bonds convertible into common stock.
The Sub-Adviser utilizes an investment decision making process to capitalize on
opportunities in undervalued market sectors, industries, or individual company
situations. Common stocks are selected based on a three-step process emphasizing
relative value and fundamentals:
[diamond] First, the universe of stocks is subjected to several systematic
quantitative valuation screens to identify superior growth stock
candidates.
[diamond] Second, the portfolio manager and research team look to narrow the
list of potential holdings to those likely to produce superior returns
over a thirty-six month time frame by analyzing the dynamics of each
company within its industry and within the economy.
[diamond] Third, stocks are finally selected based on long-term growth
prospects, solid fundamentals, and good valuation support.
Notwithstanding the investment objective of capital growth, the Portfolio may
place up to 100% of its total assets in cash or investment-grade short-term
securities in order to respond to unfavorable market, economic, political, or
other conditions.
Main Risk Factors (See also "Additional Risk Factors" at page 30):
The Portfolio is appropriate for investors who have financial goals five years
or more in the future, and who are comfortable with the risks described here.
The main risk factors for the Portfolio are as follows:
[diamond] Market Risk: Prices of stocks held by the Portfolio may fall due to
changing economic, political or market conditions, disappointing
earnings results or other factors. As a result, your investment may
decline in value.
[diamond] Foreign Investments: To the extent the Portfolio invests in foreign
securities, currency exchange rate movements could reduce gains or
create losses and the Portfolio could lose money because of foreign
government actions, political instability, or lack of adequate and
accurate information.
[diamond] Small Company Risk: Investments in small companies may be subject to
more abrupt or erratic market movements and may involve greater risks
than investments in other companies. This is because small companies
often have narrower markets and more limited managerial and financial
resources than larger, more established companies.
[diamond] Liquidity: Many small company stocks trade less frequently and in
smaller volume than stocks of larger companies, and the Portfolio may
experience difficulty in closing out positions at prevailing market
prices.
20
<PAGE>
Financial Highlights (Small Company Portfolio)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
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 ........................... 0.22 0.09 0.06 0.15 0.09
Net gains and losses on securities (both
realized and unrealized) ...................... (2.59) 4.17 2.85 4.48 1.12
------- ------ ------ ------ ------
Total from investment operations .................. (2.37) 4.26 2.91 4.63 1.21
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ............ (0.19) (0.09) (0.06) (0.15) (0.09)
Dividends in excess of net investment
income ........................................
Distributions from capital gains ................ (1.63) (1.93) (2.53) (2.55) (1.32)
Distributions in excess of capital gains ........
Returns of capital ..............................
Total distributions ............................... (1.82) (2.02) (2.59) (2.70) (1.41)
Net asset value, end of year ...................... $ 16.24 $20.43 $18.19 $17.87 $15.94
======= ====== ====== ====== ======
Total Return (A) .................................. (11.78%) 23.60% 16.46% 29.72% 7.66%
Ratios to Average Net Assets:
Expenses ........................................ 0.87% 0.83% 0.85% 0.87% 0.89%
Net investment income ........................... 1.23% 0.47% 0.31% 0.95% 0.63%
Portfolio Turnover Rate ........................... 43.06% 52.92% 49.75% 64.17% 46.65%
Net Assets, At end of year ........................ $78,343,648 $81,505,107 $62,166,366 $48,517,886 $31,458,666
</TABLE>
(A) Total return assumes reinvestment of all dividends during the year and does
not reflect deduction of account fees and charges that apply to the separate
account or related insurance policies. Investment returns and principal
values will fluctuate and shares, when redeemed, may be worth more or less
than the original cost.
----------------------------------------
----------------------------------------
The tables below illustrate the risks of investing in the Portfolio by showing
changes in performance from year to year and by comparing the Portfolio's
average annual returns for 1, 5, and 10 years to those of a broad-based index.
As with all funds, past performance is not necessarily indicative of the future.
[chart]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19.34% -18.57% 33.23% 26.52% 15.89% 7.66% 29.72% 16.46% 23.60% -11.78%
89 90 91 92 93 94 95 96 97 98
</TABLE>
Best Quarter-1st quarter, 1991 +20.20% Worst Quarter-3rd quarter, 1998 -22.19%
[end chart]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Since(1)
Total Return 1 YR 5 YR 10 YR Inc.
Comparison ------ ------ ------- ----------
<S> <C> <C> <C> <C>
Small Company -11.78% 12.14% 12.91% 12.40%
S&P 500 Index 28.58% 24.09% 19.22% 17.10%
(1)Return calculated from inception date, 4/18/86.
- -------------------------------------------------------------------------
</TABLE>
21
<PAGE>
[arrow] 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.
Principal Investment Strategies:
The Growth and Income Portfolio invests at least 80% of its assets in common
stocks and other equity securities such as preferred stocks, warrants or rights
to buy equity securities, and securities convertible into common stock. The
Portfolio pursues its income objective primarily by investing in dividend-paying
equity securities. 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. However, the Portfolio may invest in securities not
currently paying dividends where the Sub-Adviser anticipates that they will
increase in value, and the Portfolio's dividend distribution will vary and may
be low. 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 Sub-Adviser generally takes a "bottom-up" value approach to stock selection.
The Sub-Adviser concentrates on looking for companies whose earning power or
asset value does not appear to be reflected in the current stock price, where
the fundamentals have changed, or where there is potential for significant
capital improvement. The Sub-Adviser focuses on financial measurements of a
company's intrinsic worth, such as price-to-earnings, price-to-book and
debt-to-equity ratios. Securities are sold when the fundamentals begin to
deteriorate, and when the valuation becomes excessive.
Notwithstanding the investment objective of long-term capital growth, the
Portfolio may place up to 100% of its total assets in cash or investment-grade
short-term securities in order to respond to unfavorable market, economic,
political, or other conditions.
Main Risk Factors (See also "Additional Risk Factors" at page 30):
Market Risk: Prices of stocks held by the Portfolio may fall due to changing
economic, political or market conditions, disappointing earnings results or
other factors. As a result, your investment may decline in value.
22
<PAGE>
Financial Highlights (Growth and Income Portfolio)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................ $17.11 $ 16.91 $14.41 $11.22 $12.35
INCOME FROM INVESTMENT OPERATIONS
Net investment income ........................... 0.15 0.15 0.18 0.15 0.13
Net gains and losses on securities (both
realized and unrealized) ...................... 2.01 4.67 3.12 3.62 (0.65)
------ ------- ------ ------ ------
Total from investment operations .................. 2.16 4.82 3.30 3.77 (0.52)
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ............ (0.15) (0.15) (0.18) (0.15) (0.13)
Dividends in excess of net investment
income ........................................
Distributions from capital gains ................ (4.21) (0.62) (0.29) (0.48)
Distributions in excess of capital gains ........ (0.26) (0.14)
Returns of capital ..............................
Total distributions ............................... (0.15) (4.62) (0.80) (0.58) (0.61)
Net asset value, end of year ...................... $19.12 $ 17.11 $16.91 $14.41 $11.22
====== ======= ====== ====== ======
Total Return (A) .................................. 12.63% 28.92% 22.88% 33.58% (4.24%)
Ratios to Average Net Assets:
Expenses ........................................ 0.86% 0.85% 0.88% 0.92% 1.10%
Net investment income ........................... 0.87% 1.03% 1.39% 1.50% 1.52%
Portfolio Turnover Rate ........................... 66.19% 129.53% 35.69% 32.30% 38.17%
Net Assets, At end of year ........................ $65,309,530 $39,678,076 $23,711,696 $13,126,023 $5,610,472
</TABLE>
(A) 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. Investment returns and principal
values will fluctuate and shares, when redeemed, may be worth more or less
than the original cost.
----------------------------------------
----------------------------------------
The tables below illustrate the risks of investing in the Portfolio by showing
changes in performance from year to year and by comparing the Portfolio's
average annual returns for 1, 5, and 10 years to those of a broad-based index.
As with all funds, past performance is not necessarily indicative of the future.
[chart]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.20%(1) 14.94% -4.24% 33.58% 22.88% 28.92% 12.63%
89 90 91 92 93 94 95 96 97 98
</TABLE>
Best Quarter-4th quarter, 1998 +16.14% Worst Quarter-3rd quarter, 1998 -14.34%
[end chart]
(1)Return calculated from inception date, 5/1/92.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Total Return Comparison 1 YR 5 YR Since Inc.(1)
- ----------------------- ------ ------ ---------------
<S> <C> <C> <C>
Growth & Income 12.63% 17.94% 16.93%
S&P 500 Index 28.58% 24.09% 20.56%
- -------------------------------------------------------------------
</TABLE>
23
<PAGE>
[arrow] 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.
Principal Investment Strategies:
The Balanced Portfolio pursues its objective by normally investing 40-60% of its
assets in securities selected primarily for their growth potential and 40-60% of
its assets in securities primarily selected for their income potential. The
Portfolio shifts assets between growth and income securities based on the
portfolio manager's analysis of relevant market, financial and economic
conditions. The Portfolio will place a greater emphasis on growth securities if
it is believed that they will provide better returns than the yields then
available or expected on income-producing securities. Although it is the policy
of the Portfolio to purchase and hold securities for capital growth, changes in
the Portfolio will generally be made without reference to the length of time a
security has been held.
Growth securities are expected to consist primarily of common stocks, but may
also include warrants, preferred stocks and convertible securities. Because
income is a part of the investment objective, the Sub-Adviser may consider
dividend-paying characteristics in selecting common stocks. The Sub-Adviser
generally takes a "bottom-up" approach to selecting companies, seeking to
identify individual companies with earnings growth potential that may not be
recognized by the market at large. This assessment is made by looking at
companies one at a time, regardless of size, country of organization, place of
principal business activity, or other similar selection criteria.
Income securities will consist of securities that the Sub-Adviser believes have
income potential. Such securities may include equity securities, convertible
securities and all types of debt securities. At least 25% of the Portfolio's
total assets will be invested in fixed income securities. The Sub-Adviser may
invest up to 35% of the Portfolio's total assets in fixed income securities
rated below investment-grade (i.e. high yield securities).
Notwithstanding the investment objective of current income and long-term capital
growth, the Portfolio may place up to 100% of its total assets in cash or
investment-grade short-term securities in order to respond to unfavorable
market, economic, political, or other conditions. Pursuant to an exemptive order
received by the Sub-Adviser from the SEC, the Portfolio may also invest in money
market funds managed by the Sub-Adviser as a means of receiving a return on idle
cash.
Main Risk Factors (See also "Additional Risk Factors" at page 30):
[diamond] Market Conditions: The Portfolio's share price and performance will
fluctuate in response to movements in the stock and bond markets;
[diamond] Interest Rates: The value of bonds in the Portfolio will vary with
changes in interest rates. As a result, the net asset value of the
shares of the Portfolio will also fluctuate with changes in interest
rates.
[diamond] Credit: The Portfolio may invest up to 35% of its total assets in
below investment grade debt securities. Such securities 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.
24
<PAGE>
Financial Highlights (Balanced Portfolio)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of year ........... $ 11.75 $ 12.07 $ 11.91
INCOME FROM INVESTMENT
OPERATIONS
Net investment income ...................... 0.24 0.30 0.26
Net gains and losses on securities
(both realized and unrealized) ........... 1.84 1.60 0.99
------- ------- -------
Total from investment operations ............. 2.08 1.90 1.25
LESS DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net investment
income ................................... (0.24) (0.30) (0.26)
Dividends in excess of net investment
income ...................................
Distributions from capital gains ........... (0.88) (1.64) (0.83)
Distributions in excess of capital gains (0.28)
Returns of capital .........................
Total distributions .......................... (1.12) (2.22) (1.09)
Net asset value, end of year ................. $ 12.71 $ 11.75 $ 12.07
======= ======= =======
Total Return (A) ............................. 17.74% 16.33% 10.56%
Ratios to Average Net Assets:
Expenses ................................... 0.94% 0.97% 0.97%
Net investment income ...................... 2.08% 2.60% 2.20%
Portfolio Turnover Rate ...................... 247.07% 254.04% 222.35%
Net Assets, At end of year ................... $35,113,754 $22,637,577 $18,256,430
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of year ........... $ 10.62 $ 11.22 $10.77
INCOME FROM INVESTMENT
OPERATIONS
Net investment income ...................... 0.37 0.32 0.25
Net gains and losses on securities
(both realized and unrealized) ........... 1.99 (0.47) 0.74
------- ------- ------
Total from investment operations ............. 2.36 (0.15) 0.99
LESS DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net investment
income ................................... (0.37) (0.32) (0.25)
Dividends in excess of net investment
income ...................................
Distributions from capital gains ........... (0.70) (0.13) (0.25)
Distributions in excess of capital gains (0.04)
Returns of capital .........................
Total distributions .......................... (1.07) (0.45) (0.54)
Net asset value, end of year ................. $ 11.91 $ 10.62 $11.22
======= ======= ======
Total Return (A) ............................. 22.35% (1.33%) 9.27%
Ratios to Average Net Assets:
Expenses ................................... 0.99% 1.01% 1.07%
Net investment income ...................... 3.20% 3.34% 2.79%
Portfolio Turnover Rate ...................... 164.70% 103.68% 65.49%
Net Assets, At end of year ................... $14,532,268 $14,764,853 $11,703,898
</TABLE>
(A) Total return assumes reinvestment of all dividends during the year and does
not reflect deduction of account fees and charges that apply to the separate
account or related insurance policies. Investment returns and principal
values will fluctuate and shares, when redeemed, may be worth more or less
than the original cost.
----------------------------------------
----------------------------------------
The tables below illustrate the risks of investing in the Portfolio by showing
changes in performance from year to year and by comparing the Portfolio's
average annual returns for 1, 5, and 10 years to those of a broad-based index.
As with all funds, past performance is not necessarily indicative of the future.
[chart]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.47%(1) 9.27% -1.33% 22.35% 10.56% 16.33% 17.74%
89 90 91 92 93 94 95 96 97 98
</TABLE>
Best Quarter-4th quarter, 1998 +14.56% Worst Quarter-3rd quarter, 1998 -6.19%
[end chart]
(1)Return calculated from inception date, 5/1/92.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Total Return
Comparison 1 YR 5 YR Since Inc.(1)
- ------------ ------ ------ ---------------
<S> <C> <C> <C>
Balanced 17.74% 12.82% 12.29%
S&P 500 Index 28.58% 24.09% 20.56%
Balanced Benchmark 20.54% 16.39% 14.72%
The Balanced Benchmark is a 55%/35%/10%
blended index of the S&P 500, Salomon Broad
Investment Grade Bond, and Merrill Lynch Treasury
Bill Indices.
- -----------------------------------------------------------------
</TABLE>
25
<PAGE>
[arrow] 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.
Principal Investment Strategies:
Under normal conditions, the Sub-Adviser, 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.
Fixed income securities offering the high current income sought by the Portfolio
generally are lower rated bonds (junk bonds) which involve greater volatility of
price and risk of principal and income than higher rated securities.
While the Portfolio focuses on bonds issued by corporations or similar entities,
it may invest in all types of debt 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 purchase securities on a
when-issued or forward commitment basis.
The Portfolio seeks to maximize return by taking advantage of market
developments, yield disparaties and variations in the creditworthiness of
issuers. In selecting investments, the Sub-Adviser (MFS) employs a three-month
"horizon" outlook as a tool in making or adjusting asset allocations to various
segments of the fixed income markets. MFS performs its own independent analysis
in assessing the credit quality of fixed income securities.
Notwithstanding the investment objective of a high level of income, the
Portfolio may place up to 100% of its total assets in cash (including foreign
currency) or investment-grade short-term securities in order to respond to
unfavorable market, economic, political, or other conditions.
Main Risk Factors (See also "Additional Risk Factors" at page 30):
[diamond] Interest Rates: The value of bonds in the Portfolio will vary with
changes in interest rates. As a result, the net asset value of the
shares of the Portfolio will also fluctuate with changes in interest
rates.
[diamond] Credit: The Portfolio may invest up to 100% of its net assets in below
investment grade debt securities. Such securities 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.
[diamond] Liquidity: The secondary market for high yield, high risk bond
securities may not be as liquid as the secondary market for more
highly rated securities, which may affect the Portfolio's ability to
sell a particular security at a satisfactory price or to meet its
liquidity needs.
[diamond] Foreign Investments: To the extent the Portfolio invests in foreign
securities, currency exchange rate movements could reduce gains or
create losses and the Portfolio could lose money because of foreign
government actions, political instability, or lack of adequate and
accurate information.
[diamond] Active Trading: The Portfolio's active trading approach will increase
the costs the Portfolio incurs. It may also increase the amount of
capital- gains tax you pay on the Portfolio's returns.
26
<PAGE>
Financial Highlights (High Yield Bond Portfolio)
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Net asset value, beginning of year ....................................... $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .................................................. 0.60
Net gains and losses on securities (both realized and unrealized) ...... (0.51)
------
Total from investment operations ......................................... 0.09
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ...................................
Dividends in excess of net investment income ........................... (0.60)
Distributions from capital gains .......................................
Distributions in excess of capital gains ...............................
Returns of capital .....................................................
Total distributions ...................................................... (0.60)
Net asset value, end of year ............................................. $9.49
======
Total Return (A) ......................................................... 0.89%
Ratios to Average Net Assets:
Expenses ............................................................... 1.24%
Net investment income .................................................. 7.85%
Portfolio Turnover Rate .................................................. 84.21%
Net Assets, At end of year ............................................... $7,968,843
</TABLE>
(A) Total return assumes reinvestment of all dividends during the year and does
not reflect deduction of account fees and charges that apply to the separate
account or related insurance policies. Investment returns and principal
values will fluctuate and shares, when redeemed, may be worth more or less
than the original cost.
----------------------------------------
----------------------------------------
The tables below illustrate the risks of investing in the Portfolio by showing
changes in performance from year to year and by comparing the Portfolio's
average annual returns for 1, 5, and 10 years to those of a broad-based index.
As with all funds, past performance is not necessarily indicative of the future.
[chart]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.89%
89 90 91 92 93 94 95 96 97 98
</TABLE>
Best Quarter-4th quarter, 1998 +4.66% Worst Quarter-3rd quarter, 1998 -7.19%
[end chart]
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Total Return Comparison 1 YR Since Inc.(1)
- ----------------------- ------ ---------------
<S> <C> <C>
High Yield Bond 0.89% .89%
Lehman Bros. High Yield
Bond Index 2.13% 2.13%
(1)Return calculated from inception date, 1/1/98.
- ----------------------------------------------------------
</TABLE>
27
<PAGE>
[arrow] 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.
Principal Investment Strategies:
The Money Market Portfolio tries to maintain a share price of $1.00 while paying
income to its shareholders. The money market instruments in which the Portfolio
invests include:
[diamond] U.S. Government Securities: bonds or other debt obligations issued by,
or whose principal and interest payments are guaranteed by the U.S.
government or one of its agencies or instrumentalities
[diamond] Repurchase Agreements: the purchase of securities subject to agreement
by another party to repurchase the obligations at a specified price
and date
[diamond] Certificates of deposit, bankers' acceptances and other obligations of
U.S. banks which are FDIC members
[diamond] U.S. dollar obligations of foreign branches of U.S. banks
[diamond] instruments fully secured or collateralized by such bank obligations
[diamond] Commercial paper or other notes which 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 have been rated within the
two highest rating categories by rating agencies. 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.
Main Risk Factors (See also "Additional Risk Factors" at page 30):
An investment in the Portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
Portfolio seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Portfolio. The following are the
main risk factors of the Portfolio:
[diamond] Interest Rates: The value of securities in the Portfolio will vary
with changes in interest rates. As a result, the net asset value of
the shares of the Portfolio will also fluctuate with changes in
interest rates.
[diamond] Money Market Instruments Risk: Money market instruments provide
opportunities for income with low credit risk, but may not keep pace
with inflation and may result in a lower yield than would be available
from debt obligations of a lower quality or longer term.
28
<PAGE>
Financial Highlights (Money Market Portfolio)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
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 ........................... 0.35 0.52 0.50 0.50 0.35
Net gains and losses on securities (both
realized and unrealized) ...................... 0.14 (0.02) (0.02) 0.02 (0.01)
------ ------ ------ ------ ------
Total from investment operations .................. 0.49 0.50 0.48 0.52 0.34
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ............ (0.35) (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 ............................... (0.35) (0.52) (0.50) (0.50) (0.35)
Net asset value, end of year ...................... $10.37 $10.23 $10.25 $10.27 $10.25
====== ====== ====== ====== ======
Total Return (A) .................................. 4.86% 4.86% 4.65% 5.06% 3.28%
Ratios to Average Net Assets:
Expenses ........................................ 0.64% 0.60% 0.62% 0.63% 0.65%
Net investment income ........................... 4.74% 4.74% 4.54% 4.89% 3.31%
Portfolio Turnover Rate (B) ....................... N/A N/A N/A N/A N/A
Net Assets, At end of year ........................ $24,416,645 $9,435,454 $7,896,257 $8,312,676 $7,680,485
</TABLE>
(A) Total return assumes reinvestment of all dividends during the year and does
not reflect deduction of account fees and charges that apply to the separate
account or related insurance policies. Investment returns and principal
values will fluctuate and shares, when redeemed, may be worth more or less
than the original cost.
(B) There were no purchases and/or sales of securities other than short-term
obligations during the year. Therefore, the portfolio turnover rate has not
been calculated.
----------------------------------------
----------------------------------------
The tables below illustrate the risks of investing in the Portfolio by showing
changes in performance from year to year and by comparing the Portfolio's
average annual returns for 1, 5, and 10 years to those of a broad-based index.
As with all funds, past performance is not necessarily indicative of the future.
[chart]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.60% 7.17% 5.15% 2.88% 2.32% 3.28 5.06% 4.65% 4.86% 4.86%
89 90 91 92 93 94 95 96 97 98
</TABLE>
Best Quarter-1st quarter, 1989 +1.91% Worst Quarter-4th quarter, 1992 +0.53%
[end chart]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Total Return Since(1)
Comparison 1 YR 5 YR 10 YR Inc.
- ------------ ------ ------ ------- ----------
<S> <C> <C> <C> <C>
Money Market 4.86% 4.54% 4.77% 4.99%
Merrill Lynch T-Bill
Index (0-3 months) 5.21% 5.10% N/A(2)
7-day simple annualized yield: 5.23%
7-day compounded effective yield: 5.37%
(1)Return calculated from inception date, 8/1/85.
(2)The Merrill Lynch T-Bill Index (0-3 months) has an
inception of 6/92.
- --------------------------------------------------------------------
</TABLE>
29
<PAGE>
other portfolio information
- --------------------------------------------------------------------
[arrow] ADDITIONAL RISK FACTORS
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 securi-
30
<PAGE>
ties. A Portfolio may also write covered call options and purchase put or call
options on futures contracts of the type which that Portfolio is permitted to
purchase or sell. The Portfolios will not enter into futures contracts for
speculation and will only enter into futures contracts that are traded on
national futures exchanges. No Portfolio will enter into futures contracts or
options thereon 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.
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.
31
<PAGE>
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. 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.
Because illiquid securities trade less frequently and in smaller volume than
liquid securities, the Portfolios may experience difficulty in closing out
positions at prevailing market prices.
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.
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.
Portfolio Turnover
The Growth Portfolio anticipates that active and frequent trading of portfolio
securities will be a likely result of implementing its principal investment
strategies. In 1998 the Portfolio's turnover rate was 283.36%. A portfolio
turnover rate of 200% is equivalent to buying and selling all of the securities
in a portfolio twice in the course of a year. Trading costs associated with high
portfolio turnover may affect performance. High portfolio turnover can on some
occasions result in significant tax consequences to investors.
The Small Company Portfolio and Balanced Portfolio may experience an increase in
portfolio turnover in 1999 due to a change in sub-advisers effective May 1,
1999. While the new sub-advisers may engage in active trading initially in order
to make the portfolio holdings consistent with their investment style, Lord
Abbett and Janus do not anticipate high portfolio turnover on an ongoing basis.
32
<PAGE>
shareholder information
- --------------------------------------------------------------------
[arrow] BUYING AND SELLING 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. No
selling commission or redemption charge is made with respect to the purchase or
sale of Fund shares.
Jefferson Pilot Variable Corporation, One Granite Place, Concord, New Hampshire
03301, is the principal underwriter and distributor of the Fund's shares.
Jefferson Pilot Variable Corporation is an affiliate of Jefferson Pilot
Investment Advisory and a wholly-owned subsidiary of Jefferson-Pilot
Corporation.
Determination of Net Asset Value
The net asset value of the shares of each Portfolio of the Fund is 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 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
Year's 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 of each Portfolio will not be calculated on the following
local holidays: the day after Thanksgiving, the day after Christmas, the day
before Christmas if Christmas falls on a Friday or Saturday, and the Friday
before Christmas if Christmas falls on a Sunday.
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
33
<PAGE>
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."
[arrow] 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.
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.
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.
34
<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 Emerging Growth Stocks
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Prospectus for the Fund.
It is incorporated by reference into the Prospectus. A copy of the Prospectus
may be obtained by writing or calling the Fund at the address or telephone
number above.
- --------------------------------------------------------------------------------
The date of the Prospectus to which this Statement of Additional Information
relates is May 1, 1999.
The date of this Statement of Additional Information is May 1, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business History................................................................................................
Investment Restrictions.........................................................................................
Secondary Investment Strategies.................................................................................
World Growth Stock Portfolio.................................................................................
International Equity Portfolio...............................................................................
Money Market Portfolio.......................................................................................
Global Hard Assets Portfolio.................................................................................
High Yield Portfolio.........................................................................................
Small Company Portfolio......................................................................................
Growth Portfolio.............................................................................................
Growth & Income Portfolio....................................................................................
Capital Growth Portfolio.....................................................................................
Balanced Portfolio...........................................................................................
Emerging Growth Portfolio....................................................................................
Description of Certain Investments..............................................................................
Bank Obligations.............................................................................................
Repurchase Agreements........................................................................................
Commercial Paper.............................................................................................
Loan Participation and other Direct Indebtedness.............................................................
Corporate Asset Backed Securities............................................................................
Lending of Securities........................................................................................
Forward Commitments..........................................................................................
Forward Foreign Currency Exchange Contracts..................................................................
Depository Receipts..........................................................................................
Restricted and Illiquid Securities...........................................................................
Securities and Index Options.................................................................................
Futures Contracts and Related Options........................................................................
Options on Foreign Currencies................................................................................
Limitations on Purchase and Sale of Futures Contracts and Options on Futures Contracts.......................
High Yield Bonds.............................................................................................
Description of Investment Ratings............................................................................
Governmental Securities......................................................................................
Convertible Securities.......................................................................................
Foreign Currencies...........................................................................................
Brady Bonds..................................................................................................
Emerging Market Securities...................................................................................
Zero Coupon Bonds............................................................................................
Stripped Mortgage-Backed Securities..........................................................................
Warrants.....................................................................................................
Dollar Roll Transactions.....................................................................................
Swap Transactions............................................................................................
Currency and Asset Swaps.....................................................................................
Moody's Commercial Paper Ratings.............................................................................
Standard & Poor's - Bond Ratings.............................................................................
Standard & Poor's Commercial Paper Ratings...................................................................
Risk Considerations.............................................................................................
U.S. Dollar Obligations of Foreign Branches of U.S. Banks....................................................
Repurchase Agreements........................................................................................
Foreign Securities...........................................................................................
Forward Foreign Currency Exchange Contracts..................................................................
Options......................................................................................................
Futures Contracts and Related Options........................................................................
Portfolio Turnover ..........................................................................................
Federal Tax Matters..........................................................................................
Investment Advisory and Other Services..........................................................................
Investment Management Agreements and Sub-Investment Management Agreements....................................
<PAGE>
Independent Auditors.........................................................................................
Custodians...................................................................................................
Payment of Expenses..........................................................................................
Portfolio Transactions and Brokerage Allocations................................................................
Management of the Fund..........................................................................................
Capital Stock...................................................................................................
Offering and Redemption of Shares...............................................................................
Determination of Net Asset Value................................................................................
Taxes...........................................................................................................
Performance and Yield Information...............................................................................
Money Market Portfolio.......................................................................................
Non-Money Market Portfolios..................................................................................
Additional Information..........................................................................................
Reports......................................................................................................
Name and Service Mark........................................................................................
Financial Statements............................................................................................
</TABLE>
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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
The investment objectives of each Portfolio as described in the prospectus
may be changed only with the approval of the stockholders of each Portfolio
affected by the change. 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. Investment policies deemed not fundamental may be changed by the
Fund's Board of Directors without the approval of the stockholders of the
Portfolio affected by the change. (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
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<PAGE>
50% of the Portfolio's net assets; (ii) the aggregate premiums paid on all
options purchased by the Portfolio and which are being held will not
exceed 20% of the Portfolio's net assets; (iii) the Portfolio will not
purchase put or call options, other than hedging positions, if, as a
result thereof, more than 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.
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<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.
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<PAGE>
SECONDARY INVESTMENT STRATEGIES
All Portfolios (except the International Equity Portfolio) will be
diversified as defined under the Investment Company Act of 1940. Please see the
prospectus to learn about the principal investment strategies for each
Portfolio.
World Growth Stock Portfolio
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. 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-Adviser, 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. The Portfolio may also
invest in warrants, which are rights to buy certain securities at set prices
during specified time periods.
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.
International Equity Portfolio
The equity and equity-related securities in which the International Equity
Portfolio will invest are common stock, preferred stock, convertible debt
obligations, convertible preferred stock and warrants or other rights to acquire
stock that the Sub-Adviser believes offer the potential for long-term capital
appreciation. The Portfolio may also invest in securities of foreign issuers in
the form of sponsored and unsponsored ADRs, EDRs, GDRs, or other similar
instruments representing securities of foreign issuers.
The 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
contracts 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 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
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 the Sub-Adviser,
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. See
"Description of Investment Ratings" for a description of the ratings assigned by
Standard & Poor's and Moody's.
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 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
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<PAGE>
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 may also invest cash held for such purposes in
short-term, high grade foreign debt securities. The Portfolio may also invest
cash temporarily in short-term debt instruments to maintain liquidity or pending
other investment.
Notwithstanding the Portfolio's investment objective of long-term capital
appreciation through investments 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 or 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 risk
in being substantially invested in such markets.
Money Market Portfolio
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.
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.
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.
Global Hard Assets Portfolio
The Sub-Adviser believes "Hard Asset Securities" as defined in the
Prospectus 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 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 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.
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<PAGE>
The Fund may invest in lower quality, high-yielding debt securities
(commonly referred to as "junk bonds") of Hard Asset Companies rated as low as
CCC by S&P or Caa by Moody's. These debt instruments have some "equity"
characteristics in that, while not directly linked, their value may increase or
decrease with the value of a Hard Asset, reflecting the ability of the Hard
Asset Company to make scheduled payments of interest and principal. Lower rated
debt securities are considered speculative and involve greater risk of loss than
higher rated debt securities and are more sensitive to changes in the issuer's
capacity to pay. Debt rated Caa or CCC presents a significantly greater risk of
default than do higher rated securities and, in times of poor business or
economic conditions, the Fund may lose interest and/or principal on such
securities. In addition to sensitivity to interest rates, debt securities of
Hard Asset Companies may fluctuate in price in connection with changes in the
price of the relevant Hard Asset. The Fund will not invest more than 25% of its
assets in debt securities rated below BBB by S&P or Baa by Moody's.
The Portfolio may invest in derivatives. Derivatives in which the
Portfolio may invest include future contracts, forward contracts, options, swaps
and structured notes and other similar securities as may become available in the
market. The Portfolio may invest in indexed securities whose value is linked to
one or more currencies, interest rates, commodities, or financial or commodity
indices. An indexed security enables the investor to purchase a note whose
coupons and/or principal redemption are linked to the performance of an
underlying asset. Indexed securities may be publicly traded or may be two-party
contracts (such two-party agreements are structured notes). When the Portfolio
purchases a structured note it will make a payment of principal to the
counterparty. The Portfolio will purchase structured notes only from
counterparties rated A or better by S&P, Moody's or another nationally
recognized statistical rating organization. The Sub-Investment Manager will
monitor the liquidity of structured notes under the supervision of the Board of
Directors and structured notes determined to be illiquid will be aggregated with
other 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-Adviser 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.
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High Yield Bond Portfolio
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. The Sub-Adviser believes that these investments will increase the
Fund's diversification and enhance return, but also involve certain risks,
described below.
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 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.
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-Adviser, 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.
While the Sub-Adviser 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.
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 High Yield securities in which the High Yield Bond Portfolio 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.,
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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.
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.
Small Company Portfolio (formerly, Domestic Growth Stock Portfolio)
The Small Company Portfolio may 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. 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-Adviser 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 and 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.
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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.
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
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
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.
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).
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.
Growth and Income Portfolio
The Growth and Income Portfolio invests at least 80% of its assets in
common stocks and other equity securities such as preferred stocks and
securities convertible into common stock that are either listed on the New York
Stock Exchange, traded over-the-counter or, to a lesser extent, listed on other
national securities exchanges. Securities are selected principally for potential
capital appreciation, based upon such criteria as relatively low price to
earnings ratio and relatively low price to book value ratio, as compared to such
ratios for the market in general and, secondarily, for current income and
increasing future dividends.
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
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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.
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.
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
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-Adviser 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-Adviser from the SEC, the Portfolio may also invest in money market funds
managed by the Sub-Adviser as a means of receiving a return on idle cash. The
Portfolio's cash position may increase when the Sub-Adviser is unable to locate
investment opportunities that it believes have desirable risk/reward
characteristics. Investments in debt securities will be limited to securities of
U.S. companies, the U.S. Government and foreign governments and foreign
governmental entities. Foreign governmental entities include supranational
organizations, such as the European Economic Community and the World Bank, that
are chartered to promote economic development and are supported by various
governments and governmental entities. All debt securities in which the
Portfolio invests, except as noted below, will have credit ratings in the four
highest rating categories of Standard & Poor's or Moody's or other NRSROs or, if
not rated, will be of comparable quality to obligations so rated in the judgment
of the Sub-Investment Manager. The Capital Growth Portfolio may invest up to 5%
of its assets in 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. 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).
The Portfolio may purchase and sell futures contracts and may write
covered call options and purchase call and put options as described in this
Statement of Additional Information.
The Portfolio may invest in "special situations" from time to time. A
special situation arises when, in the Sub-Adviser'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.
The foreign securities and ADRs, EDRs and GDRs in which the Portfolio may
invest involve special considerations and risks. 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-Adviser'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.
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Balanced Portfolio
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 securities. The Portfolio may purchase and sell futures
contracts and may write covered call options and purchase call and put options
as described in this Statement of Additional Information. 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.
In implementing the investment objectives of the Balanced Portfolio, Janus
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.
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 Janus to predict and react to
changing market conditions. Investment in foreign securities and ADRs involve
special considerations and risks.
Emerging Growth Portfolio
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.
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"), which may be traded on foreign exchanges. 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 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.
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.
The Portfolio may invest in corporate asset-backed securities. 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. In addition,
the Portfolio may purchase portfolio securities on a "when-issued" or on a
"forward delivery" basis. The Portfolio may also invest a portion of its assets
in "loan participations".
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.
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During periods of unusual market conditions when MFS, believes that
investing for temporary defensive purposes is appropriate, or in order to meet
anticipated redemption requests, a large portion or all of the assets of the
Portfolio may be invested in cash or cash equivalents including, but not limited
to, obligations of banks (including certificates of deposit, bankers'
acceptances and repurchases agreements) with assets of $1 billion or more,
commercial paper, short-term notes, obligations issued or guaranteed by the U.S.
Government or any of its agencies, authorities or instrumentalities and related
repurchase agreements. U.S. Government securities also include interests in
trust or other entities representing interests in obligations that are issued or
guaranteed by the U.S. Government, its agencies, authorities or
instrumentalities.
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.
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.
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. 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.
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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.
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, and the Growth 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, except that the Capital
Growth Portfolio may invest up to 5% of its assets in debt securities that are
below investment-grade.
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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
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-Adviser
will rely upon its own (and not the original lending institution's) credit
analysis of the borrower. As the Portfolio may be required to rely upon another
lending institution to collect and pass on to the Portfolio amounts payable with
respect to the loan and to enforce the Portfolio's rights under the loan and
other direct indebtedness, an insolvency, bankruptcy or reorganization of the
lending institution may delay or prevent the Portfolio from receiving such
amounts. In such cases, the Portfolio will evaluate as well the creditworthiness
of the lending institution and will treat both the borrower and the lending
institution as an "issuer" of the loan participation for the purposes of certain
investment restrictions pertaining to the diversification of the Portfolio's
investments. The highly leveraged nature of many such loans and other direct
indebtedness may make such loans and other direct indebtedness especially
vulnerable to adverse changes in economic or market conditions. Investments in
such loans and other direct indebtedness may involve additional risk to the
Portfolio. For example, if a loan or other direct indebtedness is foreclosed,
the Portfolio could become part owner of any collateral, and would bear the
costs and liabilities associated with owning and disposing of collateral. In
addition, it is conceivable that under emerging legal theories of lender
liability, the Portfolio could be held liable as co-lender. It is unclear
whether loans and other forms of direct
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indebtedness offer securities law protections against fraud and
misrepresentation. In the absence of definitive regulatory guidance, the
Portfolio relies on the Sub-Adviser'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.
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. 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.
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 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.
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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-Adviser to be of good standing, and when, in the judgment of The
Sub-Adviser, the consideration which could be earned currently from securities
loans of this type justifies the attendant risk. If The Sub-Adviser determines
to make securities loans, it is not intended that the value of the securities
loaned would exceed 30% of the value of the Emerging Growth Portfolio's total
assets.
Forward Commitments
The Portfolios except the Money Market Portfolio may, from time to time,
purchase securities on a forward commitment, when issued, or delayed delivery
basis. The price of such forward commitment securities, which may be expressed
in yield terms, is fixed at the time the commitment to purchase is made.
Delivery and payment will take place at a later date. Normally, the settlement
date may take up to three months. During the period between purchase and
settlement, no payments are made by the Portfolio to the issuer and no interest
accrues to the Portfolio. Forward commitments involve a risk of loss if the
value of the 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 its custodian
in a segregated account liquid assets equal in value to its total commitments
for forward commitment securities.
Forward Foreign Currency Exchange Contracts
The Portfolios (except the Money Market Portfolio) may utilize 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 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
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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 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. 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.
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. 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.
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. 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 ADRs are purchased
through brokers on the U.S. stock exchanges.
Depository Receipts also involve the risks of other investment in foreign
securities; for purposes of each Fund's investment policies, a Fund's investment
in Depository Receipts will be deemed to be investments in the underlying
securities.
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Restricted and Illiquid Securities
All of the Portfolios may to some extent purchase certain restricted
securities (those that are not registered under the Securities Act of 1933 ("33
Act") but can be offered and sold to "qualified institutional buyers" under Rule
144A of the 33 Act) and limited amounts of illiquid investments, including
illiquid restricted securities. Limitations on illiquid securities and other
illiquid investments for each Portfolio are described in the Portfolio's
investment restriction above.
Illiquid investments include many restricted securities, repurchase
agreements that mature in more than seven days, currency and interest rate
swaps, time deposits that mature in more than seven days or that have a notice
or demand period more than seven days, certain over-the-counter option
contracts, participation interests in loans, securities not readily marketable
and certain restricted securities.
Certain repurchase agreements which provide for settlement in more than
seven days, however, can be liquidated before the nominal fixed term on seven
days or less notice. The Portfolios will consider such repurchase agreements as
liquid. Likewise, restricted securities (including commercial paper issued
pursuant to 4(2) of the 33 Act) that the Board of Directors or the sub-advisers
have determined to be liquid will be treated as such.
Securities and Index Options
All of the Portfolios, except the Money Market 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
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the option, a cash payment equal to the multiple of any excess of the value of
the index on the exercise date over the strike price specified in the option.
Options on Indexes. A Portfolio may write covered call options and
purchase put and call options on appropriate securities indexes for the purpose
of hedging against the risk of unfavorable price movements adversely affecting
the value of a Portfolio's securities or to enhance income. Unlike a stock
option which gives the holder the right to purchase or sell a specified stock at
a specified price, an option on a securities index gives the holder the right to
receive a cash settlement amount based upon price movements in the stock market
generally (or in a particular industry or segment of the market represented by
the index) rather than the price movements in individual stocks.
A securities index fluctuates with changes in the market values of the
securities so included. For example, some securities index options are based on
a broad market index such as the S&P 500 or the NYSE Composite Index, or a
narrower market index such as the S&P 100. Indexes may also be based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. Options on stock indexes are currently traded on
the following exchanges, among others: The Chicago Board Options Exchange, New
York Stock Exchange and American Stock Exchange. Options on other types of
securities indexes, which do not currently exist, including indexes on certain
debt securities, may be introduced and traded on exchanges in the future.
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-Adviser 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
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Portfolio's portfolio securities. When hedging of this character is successful,
any depreciation in the value of portfolio securities will be substantially
offset by appreciation in the value of the futures position.
On other occasions, a Portfolio may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Portfolio
intends to purchase particular debt securities, but expects the rate of return
available in the bond market at that time to be less favorable than rates
currently available in the futures markets. If the anticipated rise in the price
of the debt securities should occur (with its concomitant reduction in yield),
the increased cost to the Portfolio of purchasing the debt securities will be
offset, at least to some extent, by the rise in the value of the futures
position in debt securities taken in anticipation of the subsequent purchase of
such debt securities.
The Portfolio could accomplish similar results by selling debt securities
with long maturities and investing in debt securities with short maturities when
interest rates are expected to increase or by buying debt securities with long
maturities and selling debt securities with short maturities when interest rates
are expected to decline. However, by using futures contracts as a risk
management technique (to reduce a Portfolio's exposure to interest rate
fluctuations), given the greater liquidity in the futures market than in the
bond market, it might be possible to accomplish the same result more effectively
and perhaps at a lower cost. See Limitations on Purchase and Sale of Futures
Contracts and Options on Futures Contracts below.
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.
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In contrast to a futures transaction, in which only transaction costs are
involved, benefits received by a Portfolio as a purchaser in an option
transaction will be reduced by the amount of the premium paid as well as by
transaction costs. In the event of an adverse market movement, however, a
Portfolio which purchased an option will not be subject to a risk of loss on the
option transaction beyond the price of the premium it paid plus its transaction
costs, and may consequently benefit from a favorable movement in the value of
its portfolio securities that would have been more completely offset if the
hedge had been effected through the use of futures.
If a Portfolio writes call options on futures contracts, the Portfolio
will receive a premium but will assume a risk of adverse movement in the price
of the underlying futures contract comparable to that involved in holding a
futures position. If the option is not exercised, the Portfolio will realize a
gain in the amount of the premium, which may partially offset unfavorable
changes in the value of securities held by, or to be acquired for, the
Portfolio. If the option is exercised, the Portfolio will incur a loss in the
option transaction, which will be reduced by the amount of the premium it has
received, but which may be partially offset by favorable changes in the value of
its portfolio securities.
While the purchaser or writer of an option on a futures contract may
normally terminate its position by selling or purchasing an offsetting option of
the same series, a Portfolio's ability to establish and close out options
positions at fairly established prices will be subject to the existence of a
liquid market. The Portfolios will not purchase or write options on futures
contracts unless, in the Sub-Adviser'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
The Capital Growth, Global Hard Assets, High Yield Bond, International
Equity 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, High
Yield Bond, International Equity 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 a
Portfolio anticipates 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.
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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" 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 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-Adviser 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.
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Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Governmental Securities
U.S. Governmental Obligations consist of marketable securities issued or
guaranteed as to the timely payment of both principal and interest by the U.S.
Government, its agencies or instrumentalities. Federal agency securities are
debt obligations issued by agencies of the U.S. Government established under
authority grated by Congress. Such obligations include, but are not limited to,
those issued by the Federal Housing Authority, Maritime Administration,
Governmental National Mortgage Association, the Tennessee Valley Authority, and
the General Services Administration. Instrumentalities include, for example,
each of the Federal Home Loan Banks, the National Bank for Cooperatives, the
Federal Home Loan Mortgage Corporation, the Farm Credit Banks, the National
Mortgage Association, and the U.S. Postal Service. These U.S. Government
Obligations are either (i) backed by the full faith and by conversion of fixed
income securities or by the exercise of related warrants.
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 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-Adviser believes that the applicable exchange
rate is unfavorable at the time the currencies are received or the Sub-Adviser
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-Adviser, 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.
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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.
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.
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-Adviser 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-Adviser
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.
Zero Coupon Bonds
The Portfolios may invest in zero coupon bonds which are debt obligations
that do not make any interest payments for a specified period of time prior to
maturity or until maturity. The value of these obligations fluctuates more in
response to interest rate changes than does the value of debt obligations that
make current interest payments.
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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.
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.
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
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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.
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-Adviser 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.
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.
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A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B, CCC, CC-Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree. While such bonds
will likely have some equality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
C-Bonds rated C are typically subordinated to senior debt which is
assigned an actual or implied CCC rating.
D-Bonds rated D are in payment default or may be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's Commercial Paper Rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. Ratings are applicable to
both taxable and tax-exempt commercial paper. The four categories are as
follows:
A-Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2 and 3 to indicate the relative degree of safety.
A-1-This designation indicates that the degree of safety regarding timely
payment is very strong.
A-2-Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1".
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
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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 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-Advisers, under the supervision of Jefferson Pilot
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<PAGE>
Investment Advisory, consider possible political and financial instability
abroad, as well as the liquidity and volatility of foreign investments.
Additional risks of foreign investments 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. 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. 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.
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.
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.
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<PAGE>
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-Adviser believes that a liquid secondary market will exist for options
of the same series, there can be no assurance that a liquid secondary market
will exist for a particular option at a particular time and that a Portfolio, if
it so desires, can close out its position by effecting a closing transaction. If
the writer of a covered call option is unable to effect a closing purchase
transaction, it cannot sell the underlying security until the option expires or
the option is exercised. Accordingly, a covered call writer may not be able to
sell the underlying security at a time when it might otherwise be advantageous
to do so.
The effectiveness of hedging through the purchase of securities index
options will depend upon the extent to which price movements in the portion of
the securities portfolio being hedged correlate with price movements in the
selected securities index. Perfect correlation is not possible because the
securities held or to be acquired by a Portfolio will not exactly match the
composition of the securities indexes on which options are written. The
principal risk in purchasing securities index options is that the premium and
transaction costs paid by a Portfolio will be lost as a result of unanticipated
movements in the price of the securities comprising the securities index for
which the option has been purchased. In writing securities index options, the
principal risks are the inability to effect closing transactions at favorable
prices and the inability to participate in the appreciation of the underlying
securities.
Futures Contracts and Related Options
Positions in futures contracts and related options may be closed out only
on an exchange that provides a secondary market for such contracts or options. A
Portfolio will enter into an option or futures contract only if there appears to
be a liquid secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular option or futures contract at any
specific time. Thus, it may not be possible to close out a futures contract or
related option position. In the case of a futures contract, in the event of
adverse price movements a Portfolio would continue to be required to make daily
margin payments. In this situation, if a Portfolio has insufficient cash to meet
daily margin requirements it may have to sell portfolio securities at a time
when it may be disadvantageous to do so. In addition, a Portfolio may be
required to take or make delivery of the securities underlying the futures
contracts it holds. The inability to close out futures contracts also could have
an adverse impact on a Portfolio's ability to hedge its portfolio effectively.
There are several risks in connection with the use of futures contracts as
a hedging device. While hedging can provide protection against an adverse
movement in market prices, it can also preclude a hedger's opportunity to
benefit from a favorable market movement. In addition, investing in futures
contracts and options on futures contracts will cause a Portfolio to incur
additional brokerage commissions and may cause an increase in a Portfolio's
turnover rate.
The successful use of futures contracts and related options also depends
on the ability of the Sub-Adviser 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.
S-33
<PAGE>
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.
Portfolio Turnover
Portfolio turnover may vary from year to year or within a year depending
upon economic, market and business conditions. A portfolio turnover rate of 200%
is equivalent to buying and selling all of the securities in a portfolio twice
in the course of a year. Trading costs associated with high portfolio turnover
may affect performance. High portfolio turnover can on some occasions result in
significant tax consequences to investors.
The Global Hard Assets Portfolio experienced an increase in portfolio
turnover from 19.70% in 1997 to 193.80% in 1998. This increase was due to a
change in the Portfolio's investment objective effective May 1, 1998, from
investing primarily in common stocks of gold mining companies to investing
globally in hard asset securities. The Portfolios sub-adviser does not expect
this high portfolio turnover to continue on an ongoing basis.
The Small Company Portfolio and Balanced Portfolio may experience an
increase in portfolio turnover in 1999 due to a change in sub-advisers effective
May 1, 1999. While the new sub-advisers may engage in active trading initially
in order to make the portfolio holdings consistent with their investment style,
Lord Abbett and Janus do not anticipate high portfolio turnover on an ongoing
basis.
S-34
<PAGE>
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"), Janus Capital Corporation
("Janus"), Lord, Abbett & Company ("Lord Abbett"), 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-Advisers") with regard
to the World Growth Stock; Global Hard Assets; Balanced & Capital Growth
(Janus), Small Company; Growth and Income, Growth; International Equity; Money
Market High Yield Bond and Emerging Growth Portfolios (MFS), 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. The
Sub-Investment Management Agreements provide that the Sub-Advisers, 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-Adviser 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-Adviser,
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
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<PAGE>
selected for purchase or sale for a Portfolio. It is the practice of Jefferson
Pilot Investment Advisory, each Sub-Adviser 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-Adviser, 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-Adviser, with monthly
compensation, as an annual percentage of the average daily net asset value of
the Portfolio managed as set forth in the table below:
SUB-ADVISER
<TABLE>
<CAPTION>
AVERAGE
DAILY NET ASSETS Capital Growth World Growth Global Hard Assets Small Company
- ---------------- -------------- ------------ ------------------ -------------
<S> <C> <C> <C> <C>
First $200 Million .70% .50% .50% .50%
Next $1.1 Billion .65% .45% .45% .45%
Over $1.3 Billion .60% .40% .40% .40%
</TABLE>
S-36
<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% .55%
Next $100 Million .50% .40% .30% .50%
Next $300 Million .50% .40% .25% .50%
Over $500 Million .50% .40% .25% .45%
NET ASSETS Growth International Equity
First $25 Million .60% .50%
Next $75 Million .50% .50%
Next $50 Million .40% .50%
Over $150 Million .30% .50%
</TABLE>
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, Money Market, Gold Stock, Bond,
Small Company, Growth and Income, Capital Growth, Balanced and Emerging Growth
Portfolios. 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, Money Market, Global Hard Assets, Small Company, Growth
and Income, Capital Growth, Balanced and Emerging Growth Portfolios. For the
year ended December 31, 1998 the Fund paid $98,869, $915,681, $36,617, $583,657,
$1,634,803, $64,333, $661,165, $437,323, $236,155, $48,279, and $87,051 to
Jefferson Pilot Investment Advisory for the International Equity, World Growth
Stock, Global Hard Assets, Emerging Growth, Capital Growth, Growth, Small
Company, Growth and Income, Balanced, High Yield, and Money Market Portfolios.
For providing sub-investment advisory services to the Portfolios,
Jefferson Pilot Investment Advisory for the years 1998, 1997, and 1996
respectively paid: $610,454, $562,624, and $437,374 to Templeton for the World
Growth Portfolio; $52,231 and $10,214 to MFS for the years 1998 and 1997, and
$23,351, and $29,791 to Chubb Asset Managers, Inc. for the years 1997 and 1996
respectively for the Money Market Portfolio; $24,411, $33,822, and $41,803 to
Van Eck Associates for the Global Hard Assets Portfolio; $440,776, $402,898, and
$320,010 to Pioneering Management for the Small Company Portfolio; $97,789, and
$90,493 to Chubb Asset Managers, Inc. for 1997 and 1996 and for 1997 and 1998
$69,964 and $291,549 to Warburg for the Growth and Income Portfolio; $1,226,082,
$799,863, and $527,776 to Janus for the Capital Growth Portfolio; and $69,137,
and $89,806 to Phoenix for 1997 and 1996 and for 1998 and 1997 $141,693 and
$37,219 to JP Morgan for the Balanced Portfolio; and Jefferson Pilot Investment
Advisory paid $291,829, $176,797 and $108,477 to MFS for the Emerging Growth
Portfolio; $49,435 for 1998 to Lombard Odier for the International Equity
Portfolio; $51,466 for 1998 to Strong for the Growth Portfolio; and $25,749 for
1998 to MFS for the High Yield Bond 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-Advisers.
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
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<PAGE>
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-Advisers were approved at a Special Meeting of Shareholders. In
addition, on December 10, 1997 the Investment Management and Sub-Investment
Management Agreements relating to the Growth, High Yield Bond and International
Equity Portfolios were approved by the Fund's Board of Directors and on December
23, 1997 were approved by the Portfolio's sole shareholder. 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.
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.
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-Advisers 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-Advisers each
provide the trading desk for their respective Portfolio transactions. Jefferson
Pilot Investment Advisory will perform daily valuation of the assets of each
Portfolio.
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<PAGE>
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 years 1998, 1997 and 1996 were $875,520, $694,293, and $532,729
respectively.
Insofar as known to management, no director or officer of the Fund,
Jefferson Pilot Investment Advisory, any Sub-Adviser 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-Adviser are obligated to use their best efforts to obtain for each Portfolio
the most favorable overall price and execution available, considering all the
circumstances. Such circumstances include the price of the security, the size of
the broker-dealer's "spread" or commission, the willingness of the broker-dealer
to position the trade, the reliability, financial strength and stability and
operational capabilities of the broker-dealer, 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-Advisers 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-Advisers 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-Advisers has
investment discretion. In addition, Jefferson Pilot Investment Advisory and the
Sub-Advisers 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-Advisers 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-Advisers 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-Advisers in connection with any other advisory
accounts managed by it. Conversely, research services for any other advisory
accounts may be used by the Sub-Adviser or Jefferson Pilot Investment Advisory
in managing the investments of a Portfolio. Jefferson Pilot Investment Advisory
or a Sub-Adviser 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 1998, no commissions were paid to brokers because of research services
provided to either Jefferson Pilot Investment Advisory or the Sub-Investment
Managers.
The Sub-Advisers 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-Advisers 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-Advisers would otherwise apply.
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<PAGE>
MANAGEMENT OF THE FUND
The Board of Directors of the Fund is responsible for the administration
of the affairs of the Fund. The directors and officers of the Fund, their
addresses, their positions with the Fund, and their principal occupations for
the past five years are set forth below:
<TABLE>
<CAPTION>
Positions
with Principal Occupations for
Name and Address the Fund the Past Five Years
- ---------------- -------- -------------------
<S> <C> <C>
Ronald Angarella* President Senior Vice President, Jefferson Pilot Financial,
One Granite Place and Director President and Director, Jefferson Pilot Investment
Concord, N.H. 03301 Advisory, Jefferson Pilot Securities and Hampshire
Funding, Inc.; Senior Vice President and Director,
Chubb Investment Funds, Inc.
</TABLE>
S-40
<PAGE>
<TABLE>
<CAPTION>
Positions
with Principal Occupations for
Name and Address the Fund the Past Five Years
- ---------------- -------- -------------------
<S> <C> <C>
Charles C. Cornelio Vice President Executive Vice President, Jefferson Pilot Financial
One Granite Place and General Counsel and Jefferson Pilot Corporation, Vice President, and
Concord, N.H. 03301 Secretary, Jefferson Pilot Securities Corporation.
Shari J. Lease Secretary Vice President and Counsel, Jefferson Pilot
One Granite Place Financial; Secretary, Chubb Investment Advisory,
Concord, N.H. 03301 previously Secretary, Chubb Investment Funds, Inc.
Craig D. Moreshead Assistant Secretary Attorney of Jefferson Pilot Financial; formerly
One Granite Place Compliance Manager of BancBoston Securities, Inc.
Concord, N.H. 03301
John A. Weston Treasurer Assistant Vice President of Jefferson Pilot Financial,
One Granite Place Treasurer of Jefferson Pilot Securities Corporation,
Concord, N.H. 03301 Jefferson Pilot Investment Advisory and Hampshire
Funding, Inc.; formerly, Mutual Fund Accounting Officer
for the Fund, Chubb Investment Funds, Inc. and Jefferson
Pilot Investment Advisory Corporation and Assistant
Treasurer for Chubb Securities Corporation and
Hampshire Funding, Inc.
Mark D. Landry Assistant Treasurer Mutual Fund Accounting and Operations Officer for
One Granite Place Jefferson Pilot Financial, Concord, N.H. 03301 and
Concord, N.H. 03301 Jefferson Pilot Investment Advisory; formerly Mutual
Fund Accounting and Operations Manager for the Fund,
Chubb Investment Funds, Inc., Assistant Treasurer of
Chubb Investment Funds, Inc.; and Chubb Investment Advisory.
Michael D. Coughlin Director President of Concord Litho Company, Inc. (printing
215 Mountain Road company)
Concord, N.H. 03301
S-41
<PAGE>
Elizabeth S. Hager Director State Representative, New Hampshire, Executive Director,
5 Auburn Street United Way, Consultant, Fund Development, previously,
Concord, N.H. 03301 City Councilor, City of Concord, N.H. and Mayor, City of
Concord, N.H.
Thomas D. Rath Director Partner, Rath, Young, Pignatelli, P.A.; President, PlayBall
One Capital Plaza, P.O. Box 1500 N.H.; formerly Vice Chairman, Primary Bank; Chairman,
Concord, N.H. 03302 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 Fund issues a separate series of capital stock for each Portfolio. The
authorized capital stock of the Fund consists of 12,000,000,000 shares of common
stock which are divided into eleven series: World Growth Stock Portfolio common
stock, International Equity Portfolio common stock, Money Market Portfolio
common stock, Global Hard Assets 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 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.
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.
Jefferson Pilot Financial intends to withdraw such investment from time to time.
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. 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 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. The assets of each Portfolio are
charged with the liabilities of that Portfolio and a proportionate share of the
general liabilities of the Fund. 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.
S-42
<PAGE>
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.
The officers and directors of the Fund cannot directly own shares of the
Fund without purchasing a Policy. As a result, the amount of shares owned by the
directors and officers of the Fund as a group is less than 1% of each Portfolio.
OFFERING AND REDEMPTION OF SHARES
The Fund offers shares of each Portfolio only for purchase by the
corresponding division of separate accounts established by Jefferson Pilot
Financial or its affiliated insurance companies. It thus will serve as an
investment medium for the Policies offered by Jefferson Pilot Financial and its
affiliated insurance companies. The offering is without a sales charge and is
made at each Portfolio's net asset value per share, which is determined in the
manner set forth below under "DETERMINATION OF NET ASSET VALUE." In the future,
the shares of the Fund may be offered to additional separate accounts of
Jefferson Pilot Financial, its successor or assigns, or of its affiliated
insurance companies.
Jefferson Pilot Variable Corporation ("JP Variable Corporation") is the
principal underwriter and distributor of the Fund's shares. It is also the
principal underwriter and distributor of the Policies.
Under the terms of the Fund Distribution Agreement entered into by JP
Variable Corporation and the Fund, JP Variable Corporation is not obligated to
sell any specific number of shares of the Fund. JP Variable Corporation also
pays any distribution expenses and costs (that is, those arising from any
activity which is primarily intended to result in the sale of shares issued by
the Fund) including expenses and costs attributable to the Fund which are
related to the printing and distributing of prospectuses and periodic reports to
new or prospective owners of Policies. Such expenses are reimbursed by Jefferson
Pilot Financial or its affiliated insurance companies, their successors or
assigns, pursuant to the terms of separate agreements with Jefferson Pilot
Securities relating to the sale of Policies.
The Fund redeems all full and fractional shares of the Fund at the net
asset value per share applicable to each Portfolio. See "DETERMINATION OF NET
ASSET VALUE" below.
Redemptions are normally made in cash, but the Fund has authority, at its
discretion, to make full or partial payment by assignment to the separate
account of portfolio securities at their value used in determining the
redemption price. The Fund, nevertheless, pursuant to Rule 18f-1 under the 1940
Act, has filed a notification of election on Form N-18f-1, by which the Fund has
committed itself to pay to the separate account in cash, all such separate
account's requests for redemption made during any 90-
S-43
<PAGE>
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 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 of each Portfolio will not be calculated on the following
local holidays: the day after Thanksgiving, the day after Christmas, the day
before Christmas if Christmas falls on a Friday or Saturday, and the Friday
before Christmas if Christmas falls on a Sunday.
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.
Portfolio securities which are traded on national stock exchanges are
valued at the last sale price as of the close of business of the New York Stock
Exchange on the day the securities are being valued, or, lacking any sales, at
the mean between the closing bid and asked prices.
Securities traded in the over-the-counter market are valued at the closing
sales price as reported on a readily available market quotation system, or, if
no sale took place, the mean between the bid and asked prices. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by the Board of Directors of the Fund.
Quotations of foreign securities in foreign currencies are converted to
U.S. dollar equivalents using appropriately translated foreign market closing
prices.
Long-Term U.S. Treasury securities and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities are valued
at representative quoted prices from bond pricing services.
Long-term publicly traded corporate bonds are valued at prices obtained
from a bond pricing service when such prices are available or, when appropriate,
from broker-dealers who make a market in that security.
Debt instruments with a remaining maturity of 60 days or less are valued
on an amortized cost basis. Under this method of valuation, the security is
valued at cost on the date of purchase plus a constant rate of amortization of
any discount or premium until maturity, regardless of any intervening change in
general interest rates or the market value of the instrument. The amortized cost
value of the security may be either more or less than the market value at any
given time. If for any reason the fair value of any security is not fairly
reflected through the amortized cost method of valuation, such security will be
valued by market quotations, if available, otherwise as determined in good faith
by the Board of Directors.
TAXES
In order for each Portfolio of the Fund to qualify for Federal income tax
treatment as a regulated investment company, two of the tests they must meet are
(i) that at least 90% of its gross income for a taxable year must be derived
from qualifying income, i.e., dividends, interest, income derived from loans of
securities, and gains from the sale of securities. It is the Fund's policy to
comply
S-44
<PAGE>
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
From time to time the Fund may advertise the yield and/or the average
annual total return of some or all of its eleven 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.
Money Market Portfolio
For the seven days ended December 31, 1998, the yield of the Money Market
Portfolio expressed as a simple annualized yield was 5.23%; the yield of the
Money Market Portfolio expressed as a compounded effective yield was 5.37%.
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.
S-45
<PAGE>
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, the Emerging Growth Portfolio, the
International Equity Portfolio, the Growth Portfolio, and the High Yield Bond
Portfolio for the one year ended December 31, 1998 are 2.85%, 4.86%, (13.85%),
(11.78%), 12.63%, 38.47%, 17.74%, 32.93%, 21.66%, 31.14%, and .89% respectively.
The average annual total return quotations for the World Growth Stock, Money
Market, Global Hard Assets, Small Company, Growth and Income, Capital Growth and
Balnced Portfolios for the 5 years ended December 31, 1998 are 9.79%, 4.54%,
(15.39%), 12.14% 17.94%, 23.99% and 12.82%, 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, 1998 are 12.32%, 4.77%, (5.17%), and 12.91%
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 Balanced Portfolio, the International Equity Portfolio, the
Growth Portfolio, the High Yield Bond Portfolio, and the Emerging Growth
Portfolio since each Portfolio's inception through December 31, 1998 are 11.82%,
4.99%, (1.21%), 12.40%, 16.93%, 25.91%, 12.29%, 21.66%, 31.14%, .89% 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
S-46
<PAGE>
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.
From time to time, in reports and sales literature, the Global Hard
Assets and Growth and Income Portfolios may present non-standardized performance
due to a change in investment objective and a change in sub-adviser. Average
annual total return will be calculated utilizing the same method as for standard
performance and will reflect all elements of return. Returns will will be
calculated year to date and for the 1, 5 and 10 year periods beginning May 1,
1998 (Global Hard Assets) and beginning August 28, 1997 (Growth and Income) and
ending December 31, 1998.
S-47
<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, 1998 Annual
Report are incorporated herein by reference.
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<PAGE>
PART C
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
(a) Financial Statements
The financial statements contained in the Fund's December 31, 1998
Annual Report to Shareholders filed on February 25, 1999, are
incorporated by reference in the Fund's Statement of Additional
Information.
(b) Exhibits
1. a. Amended and Restated Articles of Incorporation, incorporated by
reference to earlier filing on September 5, 1997 SEC file
No. 2-94479 Exhibit l.a of Form N-lA Registration
Statement.
b. Articles of Amendment to the Articles of Incorporation 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.
c. Articles of Amendment to the Articles of Incorporation.
2. By-Laws of Jefferson Pilot Variable Fund, Inc.
3. Not applicable.
C-1
<PAGE>
4. 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. Form of Investment Subadvisory Agreement among Jefferson Pilot
Variable Fund, Inc., Jefferson Pilot Investment Advisory Corporation
and Lord Abbett & Company for the Small Company Portfolio.
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<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. Form of Investment Sub Advisory Agreement between Jefferson Pilot
Variable Fund, Inc., Jefferson Pilot Investment Advisory Corporation
and Janus Capital Corporation for the Balanced Portfolio.
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 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.
j. 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.
k. 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.
5. 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>
6. Not applicable.
7. 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.
8. Not applicable.
9. 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.
10. Consent of Ernst & Young L.L.P.
11. Not applicable.
C-5
<PAGE>
12. 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.
13. Not applicable.
27.1 FINANCIAL DATA SCHEDULES No. 2-94479
99.1 Price Make-up Sheet
99.2 Diagram of Subsidiaries of the Jefferson-Pilot Corporation
C-6
<PAGE>
Item 24. 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 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>
Other Business,
Name of Director Positions with Chubb Profession, Vocation or
or Officer of Chubb Investment Employment During
Investment Advisory Advisory Past Two Years
- ------------------- -------- --------------
<S> <C> <C>
Carol R. Hardiman 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
Rick Nummi 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;
Lord, Abbett & Company, 767 Fifth Avenue, New York, New York 10153; Templeton,
Global Advisors, Inc., Lyford Cay, Nassau, Bahamas; Janus Capital Corporation,
100 Fillmore Street, Suite 300, Denver, Colorado 80206; 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>
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
26th day of February, 1999.
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, February 26, 1999
- ---------------------------- Principal
Ronald Angarella Executive
Officer, and
Director
/s/John A. Weston Treasurer, Principal February 26, 1999
- ---------------------------- Financial Officer, and
John A. Weston, Principal Accounting
Officer
* Director February 26, 1999
- ----------------------------
Michael D. Coughlin
* Director February 26, 1999
- ----------------------------
Elizabeth S. Hager
* Director February 26, 1999
- ----------------------------
Thomas D. Rath
*/s/ Ronald Angarella
- ---------------------------
Ronald Angarella
Attorney In Fact
</TABLE>
C-15
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
.01>
1.c. Articles of Amendment to the Articles of Incorporation
2. By-Laws of Jefferson Pilot Variable Fund, Inc.
4.d. Form of Investment Subadvisory Agreement (Small Company Portfolio)
4.g. Form of Investment Subadvisory Agreement (Balanced Portfolio)
10. Consent of Ernst & Young L.L.P.
27. Financial Data Schedules
99.1 Price Make-up Sheet
99.2 Diagram of Subsidiaries of the Jefferson-Pilot Corporation
Incorporated
</TABLE>
ARTICLES OF AMENDMENT
(1)
(2) JEFFERSON PILOT VARIABLE FUND, INC., a Maryland Corporation, hereby
certifies to the Maryland Department of Assessments and Taxation as
follows:
(3) Section 2, Article V of the Articles of Incorporation of the Jefferson
Pilot Variable Fund, Inc. is amended to reflect the renaming of the
Domestic Growth Stock Portfolio to the Small Company Portfolio, as well as
the dissolution of the Bond Portfolio, as follows:
"Section 2. Classes of Stock. Twelve Billion (12,000,000,000) shares shall
be issued and divided into the following classes of capital stock (the
`Funds'), each class comprising the number of shares and having the
designation indicated, subject, however, to the authority to change the
designations of any class and to decrease the number of shares of any
class hereinafter granted to the Board of Directors.
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
World Growth Stock Portfolio 1,000,000,000
Money Market Portfolio 1,000,000,000
Global Hard Assets Portfolio 1,000,000,000
Small Company Portfolio 1,000,000,000
Growth and Income Portfolio 1,000,000,000
Capital Growth Portfolio 1,000,000,000
Balanced Portfolio 1,000,000,000
Emerging Growth Portfolio 1,000,000,000
High Yield Bond Portfolio 1,000,000,000
Growth Portfolio 1,000,000,000
International Equity Portfolio 1,000,000,000
</TABLE>
The foregoing amendment to the Charter of the Jefferson Pilot Variable
Fund, Inc., an open-end management investment company, was approved by a
majority of its Board of Directors on September 21, 1998, with an
effective date of November 2, 1998, pursuant to MD Ann.Code 2-605(a)(4).
We, the undersigned President and Assistant Secretary of Jefferson
Pilot Variable Fund, Inc., swear under the penalties of perjury that the
foregoing is a valid corporate act.
(5) /s/ Craig D. Moreshead (5) /s/ Ronald Angarella
------------------------------ --------------------------
Assistant Secretary President
Craig D. Moreshead, Esq., Assistant Secretary
Jefferson Pilot Variable Fund, Inc.
One Granite Place
Concord, New Hampshire 03301
BY-LAWS
OF
JEFFERSON PILOT VARIABLE FUND, INC.
Revised
Effective:
January 28, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I - MEETINGS OF STOCKHOLDERS
Section 1 - Annual Meeting
Section 2 - Special Meetings
Section 3 - Place of Meeting
Section 4 - Notice of Meetings
Section 5 - Waiver of Notice of Meetings
Section 6 - Quorum
Section 7 - Organization
Section 8 - Order of Business
Section 9 - Voting
Section 10 - Proxies
Section 11 - Required Vote
Section 12 - Ballots
Section 13 - Inspectors
Section 14 - Consent of Stockholders in Lieu of Meeting
ARTICLE II - BOARD OF DIRECTORS
Section 1 - General Powers
Section 2 - Number of Directors
Section 3 - Election and Term of Directors
Section 4 - Resignation
Section 5 - Removal of Directors
Section 6 - Vacancies
Section 7 - Place of Meetings
Section 8 - Annual and Regular Meetings
Section 9 - Special Meetings; Notice
<PAGE>
Section 10 - Waiver of Notice of Meetings
Section 11 - Quorum and Voting
Section 12 - Organization
Section 13 - Written Consent of Directors in Lieu of a Meeting
Section 14 - Compensation
Section 15 - Manner of Acting
ARTICLE III - COMMITTEES
Section 1 - Executive Committee -
Section 2 - Other Committees of the Board
Section 3 - General
ARTICLE IV - OFFICERS, AGENTS AND EMPLOYEES
Section 1 - Term and Titles
Section 2 - Chief Executive Officer
Section 3 - Resignations
Section 4 - Removal of Officer, Agent or Employee
Section 5 - Vacancies
Section 6 - Compensation
Section 7 - Bonds or Other Security
Section 8 - The President
Section 9 - The Vice Presidents
Section 10 - The Treasurer
Section 11 - The Secretary
Section 12 - Delegation of Duties
Section 13 - Authority and Duties of Officers
ARTICLE V - INDEMNIFICATION
Section 1 - General Provisions
<PAGE>
Section 2 - Continuing Right
Section 3 - Disabling Conduct
Section 4 - Advancement of Legal Fees
ARTICLE VI - CAPITAL STOCK
Section 1 - Stock Certificates
Section 2 - Open Accounts in Lieu of Certificates
Section 3 - Transfers of Shares
Section 4 - Regulations
Section 5 - Lost, Destroyed or Mutilated Certificates
Fixing of a Record Date for
Dividends and Distributions
ARTICLE VII - SEAL
ARTICLE VIII - FISCAL YEAR
Section 1 - Fiscal Year
Section 2 - Books and Records
ARTICLE IX - DEPOSITORIES AND CUSTODIANS
Section 1 - Depositories
Section 2 - Custodians
ARTICLE X - EXECUTION OF INSTRUMENTS AND BORROWING OF MONEY
Section 1 - Execution of Instruments
Section 2 - Checks, Notes, Drafts, etc.
Section 3 - Sale or Transfer of Securities
Section 4 - Loans
Section 5 - Voting as Securityholder
Section 6 - Facsimile Signatures
ARTICLE XI - AMENDMENTS
<PAGE>
BY-LAWS
OF
JEFFERSON PILOT VARIABLE FUND. INC.
ARTICLE I
MEETING OF STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly be brought before the meeting shall be held on such day
during April of each year as shall be designated annually by the Board of
Directors; provided that the Corporation shall not be required to hold an annual
meeting in any year in which the election of directors is not required to be
acted upon under the Investment Company Act of 1940. Any business of the
Corporation may be transacted at the annual meeting without being specifically
designated in the notice, except such business as is specifically required by
statute to be stated in the notice.
Section 2. Special Meetings. Special meetings of the stockholders, unless
otherwise provided by law or by the Articles of Incorporation, may be called for
any purpose or purposes by a majority of the Board of Directors, the Chairman of
the Board or the President.
Section 3. Place of Meeting. The annual meeting and any special meeting of
the stockholders shall be held at such place within the United States as the
Board of Directors may determine from time to time.
1
<PAGE>
Section 4. Notice of Meetings. Notice of the place, date and time of the
holding of each annual and special meeting of the stockholders and the purpose
or purposes of each special meeting shall be given personally or by mail, not
less than 10 nor more than 90 days before the date of such meeting, to each
stockholder entitled to vote at such meeting and to each other stockholder
entitled to notice of the meeting. The Board of Directors may fix, in advance, a
record date which shall not be less than 10 nor more than 90 days before the
date of such meeting. Notice by mail shall be deemed to be duly given when
deposited in the United States mail addressed to the stockholder at his address
as it appears on the records of the Corporation, with postage thereon prepaid.
Section 5. Waiver of Notice of Meetings. Notice of any meeting of
stockholders shall be deemed waived by any stockholder who shall attend such
meeting in person or by proxy, or who shall, either before or after the meeting,
submit a signed waiver of notice which is filed with the records of the meeting.
When a meeting is adjourned to another time and place, unless the Board of
Directors, after the adjournment, shall fix a new record date for an adjourned
meeting, or the adjournment is for more than 120 days after the original record
date, notice of such adjourned meeting need not be given if the time and place
to which the meeting shall be adjourned were announced at the meeting at which
the adjournment is taken.
2
<PAGE>
Section 6. Quorum. At all meetings of the stockholders, the holders of a
majority of the shares of stock of the Corporation entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as otherwise provided by statute or by the
Articles of Incorporation or these By-Laws. In the absence of a quorum no
business may be transacted, except that the holders of a majority of the shares
of stock present in person or by proxy and entitled to vote may adjourn the
meeting from time to time to a date not more than 120 days after the original
record date, without notice other than announcement thereat except as otherwise
required by these By-Laws, until the holders of the requisite amount of shares
of stock shall be so present. At any such adjourned meeting at which a quorum
may be present any business may be transacted which might have been transacted
at the meeting as originally called. When a quorum is once present to organize a
meeting, it is not broken by the subsequent withdrawal of any stockholder.
Section 7. Organization. At each meeting of the stockholders, the Chairman
of the Board, of in his absence or inability to act, the President, or in the
absence or inability to act of the Chairman of the Board and the President, a
Vice President, shall act as chairman of the meeting. The Secretary, or in his
absence or inability to act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes
3
<PAGE>
thereof.
Section 8. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 9. Voting. Each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every shares of such stock standing in his name on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 4 of this Article, except as otherwise provided by the
Articles of Incorporation, the General Corporation Law, the Investment Company
Act of 1940, as amended, or other applicable law.
Section 10. Proxies. Each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to act for him by a proxy
signed by such stockholder or his attorney-in--fact. No proxy shall be valid
after the expiration of eleven months from the date thereof, unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases where such proxy states that it
is irrevocable and where an irrevocable proxy is permitted by law.
Section 11. Required Vote. Except as otherwise provided by statute, the
Articles of Incorporation or these By-Laws, any corporate action to be taken by
vote of the stockholders shall be authorized by a majority of the total
4
<PAGE>
votes cast at a meeting of stockholders by the holders of shares present in
person or represented by proxy and entitled to vote on such action.
Section 12. Ballots. If a vote shall be taken on any question other than
the election of directors, which shall be by written ballot, then, unless
required by statute or these By-Laws or determined by the chairman of the
meeting to be advisable, any such vote need not be by ballot. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
Section 13. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall be so appointed or if any of them
fail to appear or act, the chairman of the meeting may, and on the request of
any stockholder entitled to vote thereat shall, appoint inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count
5
<PAGE>
and tabulate all votes, ballots or consents, determine the result, and do such
acts as are proper to conduct the election or vote in fairness to all
stockholders. On request of the chairman of the meeting or any stockholder
entitled to vote thereat, the inspectors shall make a report in writing of any
challenge, request or matter determined by them and shall execute a certificate
of any fact found by them. No director or candidate for the office of director
shall act as inspector of an election of directors. Inspectors need not be
stockholders.
Section 14. Consent of Stockholders in Lieu of Meeting. To the fullest
extent permitted by law, whenever any action is required or permitted to be
taken at a meeting of stockholders by law, by the Articles of Incorporation or
by the By--Laws, such action may be taken without a meeting, without prior
notice and without a vote of stockholders, if a consent in writing, setting
forth the action so taken, shall be signed by the holders of all outstanding
stock having voting power. The Board of Directors may fix, in advance, a record
date to express consent to any corporate action in writing, not more than 90
days prior to any other action. If no such record date is fixed, the record date
shall be the date on which the first written consent is received.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. Except as otherwise provided in the Articles of
Incorporation, the business and
6
<PAGE>
affairs of the Corporation shall be managed under the direction of its Board of
Directors. The Board may exercise all the powers of the Corporation and do all
such lawful acts and things as are not by statute or the Articles of
Incorporation directed or required to be exercised or done by the stockholders.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of Directors
shall in no event be less than the minimum number required by the Maryland
General Corporation Law nor more than nine. Any vacancy created by an increase
in directors may be filled in accordance with Section 6 of this Article II. No
reduction in the number of directors shall have the effect of removing any
director from office prior to the expiration of his term unless such director is
specifically removed pursuant to Section 5 of this Article II at the time of
such decrease. Directors need not be stockholders.
Section 3. Election and Term of Directors. Except as otherwise provided in
Section 4 and 5 of this Article, the Directors shall be elected at each annual
meeting of the stockholders held in accordance with Section 1 of Article 1 of
these By-Laws. Each Director shall hold office until the expiration of the term
for which such Director is elected and until a successor has been elected and
has qualified, or until such Director's earlier death, resignation or removal.
7
<PAGE>
At each meeting of the stockholders for the election of Directors, at which a
quorum is present, the Directors shall be elected by a plurality of the votes
cast by the holders of shares entitled to vote in such election. Members of the
initial Board of Directors shall hold office until the first annual meeting of
stockholders or until their successors have been elected and qualified. The
Board of Directors shall select one of its members to serve as Chairman of the
Board. The chairman shall preside at all meetings of the Board of Directors and
all annual meetings of stockholders.
Section 4. Resignation. A Director of the Corporation may resign at any
time be giving written notice of his resignation to the Board of Directors, the
Chairman of the Board of Directors, the President, a Vice President or the
Secretary. Any such resignation shall take effect at the time specified therein
or, if the time when it shall become effective shall not be specified therein,
immediately upon its receipt. Unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the Corporation may be
removed with or without cause by the stockholders by a vote of a majority of the
votes entitled to be cast for the election of Directors at any meeting of
stockholders, duly called and at which a quorum is present.
Section 6. Vacancies. Any vacancies in the Board, whether arising from
death, resignation, removal, an increase
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in the number of Directors or any other cause, shall be filled by a vote of the
majority of the Directors then in office even though such majority is less than
a quorum, provided that no vacancies shall be filled by action of the remaining
Directors if, after the filling of said vacancy or vacancies, less than
two--thirds of the Directors then holding office shall have been elected by the
stockholders of the Corporation. In the event that at any time there is a
vacancy in any office of a Director which vacancy may not be filled by the
remaining Directors, a special meeting of the stockholders shall be held as
promptly as possible and in any event within sixty days, for the purpose of
filling said vacancy or vacancies. Any directors elected or appointed to fill a
vacancy shall hold office only until the next annual meeting of stockholders of
the Corporation and until a successor shall have been chosen and qualifies or
until his earlier resignation and removal.
Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.
Section 8. Annual and Regular Meetings. An annual organizational meeting
of the Board of Directors shall be held immediately following adjournment of the
annual meeting of stockholders held in accordance with Section 1 of Article 1 of
these By--Laws at the place of such annual meeting. Notice of such meeting of
the Board need not be given. The
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Board from time to time may provide for the holding of other regular meetings
and fix the place (which may be within or without the State of Maryland) and
time of such meetings. Notice of regular meetings need not be given, except that
if the Board shall change the time or place of any regular meeting, notice of
such action shall be promptly communicated personally or by telephone or sent by
first class mail, telegraph, radio or cable, to each Director who shall have not
been present at the meeting at which such action was taken, addressed to such
Director at such Director's residence, usual place of business or other address
designated with the Secretary for such purpose.
Section 9. Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board or the
President, or in the absence or disability of both, by any Vice President, or by
the Secretary at the request of any two Directors, at such place (within or
without the State of Maryland) as may be specified in the respective notices or
waivers of notice of such meeting. Except as otherwise provided by law, a notice
of each special meeting, stating the time and place thereof, shall be mailed to
each Director addressed to such Director's residence, usual place of business or
other address designated with the Secretary for such purpose, at least two
business days before the special meeting is to be held, or shall be sent to such
Director at such place by telegraph, radio or cable, or delivered personally or
by telephone not
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later than the day before the day on which such meeting is to be held. Notice
may be waived in accordance with Section 10 of this Article.
Section 10. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice or who shall attend such meeting. Except as
otherwise specifically required by these By-Laws, a notice or waiver of notice
of any meeting need not state the purpose of such meeting.
Section 11. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board of Directors shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting. Except as otherwise required by statute, the Articles
of Incorporation, these By-Laws, or other applicable laws and regulations, the
act of a majority of the Directors present at any meeting at which a quorum is
present shall be the act of the Board. The following actions shall each require
the affirmative vote of a majority of the Directors who are not parties to any
such contract or interested persons of any such party so long as the Corporation
is subject to the provisions of the Investment Company Act of 1940, as amended:
(a) the approval of any contract with an investment adviser or principal
underwriter, as such terms are defined in the Investment Company Act of 1940, as
amended, which the Corporation enters into or any
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renewal or amendment thereof, (b) the approval of the fidelity bond required by
the Investment Company Act of 1940, as amended, (c) the selection of the
Corporation's independent public accountants and (d) any plan, together with the
agreements related thereto, by which the Corporation engages directly or
indirectly in the financing of the sale of shares issued by the Corporation. In
the absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and place until a
quorum shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the Directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other Directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 12. Organization. The Board shall, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President, or, in his absence
or inability to act, another Director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.
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Section 13. Written Consent of Directors in Lieu of a Meeting. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, if the consents
are filed with the minutes of the proceedings of the Board or committee, and if
the presence in person of members of the Board or committee is not required by
the Investment Company Act of 1940, as amended, or other applicable law.
Section 14. Compensation. Directors may receive compensation for services
to the Corporation in their capacities as directors or otherwise in such manner
and in such amounts as may be fixed from time to time by the Board.
Section 15. Manner of Acting. To the extent consistent with law, the
Articles of Incorporation and the By-Laws, the Board of Directors may adopt such
rules and regulations for the conduct of meetings of the Board and for the
management of the property, affairs and business of the Corporation as the Board
may deem appropriate. Members of the Board of Directors or of any Committee
thereof may participate in a meeting of the Board or of such Committee, as the
cause may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at
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such meeting, except as otherwise required by the Investment Company Act of
1940, as amended, or other applicable law.
ARTICLE III
COMMITTEES
Section 1. Executive Committee. The Board may designate an Executive
Committee consisting of two or more of the Directors of the Corporation, which
committee shall have and may exercise all the powers and authority of the Board
with respect of all matters other than:
(a) The recommendation to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;
(b) The filling of vacancies on the Board of Directors;
(c) The fixing of compensation of the Directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) The approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required to
be taken by the Board of Directors by the Investment Company Act of 1940, as
amended;
(e) The amendment or repeal of these By--Laws or the adoption of new
By-Laws;
(f) The amendment or repeal of any resolution of the Board which by
its terms may be amended or repealed only
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by the Board;
(g) The declaration of dividends;
(h) The approval of any merger or share exchange which does not
require shareholder approval; and
(i) The issuance of capital stock of the Corporation, except to the
extent permitted by the Maryland General Corporation Law.
The Executive Committee shall keep written minutes of its proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may from
time to time, designate one or more other committees of the Board, each such
committee to consist of such number of Directors and to have such powers and
duties as the Board of Directors may, by resolution, prescribe.
Section 3. General. Unless otherwise provided by the Board of Directors,
one--third, but not less than two, of the members of any committee shall be
present in person at any meeting of such committee in order to constitute a
quorum for the transaction of business at such meeting. The act of a majority
present shall be the act of such committee. The Board may designate a chairman
of any committee, and such chairman or any two members of any committee may fix
the time and place of its meetings unless the Board shall otherwise provide. In
the absence or disqualification of any member of
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any committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute quorum, may
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. The Board shall have the power
at any time to change the membership of any committee, to fill all vacancies, to
designate alternate members to replace any absent or disqualified member, or to
dissolve any such committee. Nothing herein shall be deemed to prevent the Board
from appointing one or more committees consisting in whole or in part of persons
who are not directors of the Corporation; provided, however, that no such
committee shall have or may exercise any authority or power of the Board in the
management of the business or affairs of the Corporation.
ARTICLE IV
OFFICERS. AGENTS AND EMPLOYEES
Section 1. Term and Titles. The officers of the Corporation shall be
elected or appointed by the Board of Directors and shall hold office at the
pleasure of the Board or until the election or appointment and the qualification
of a successor. There shall be a President, one or more Vice Presidents, a
Secretary and a Treasurer. The Board of Directors may also elect or appoint such
other officers and agents, having such titles and with such responsibilities
(including but not limited to assistants of the titles previously mentioned) as
it deems appropriate. The Board of Directors from time to time may delegate to
the chief
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executive officer the power to appoint each such officers or agents and to
prescribe their respective rights, terms of office, authorities and duties. Any
two or more offices may be held by the same person, except the offices of
President and Vice President, but no officer shall act in more than one capacity
to execute, acknowledge or verify any instrument required by law to be executed,
acknowledged or verified in more than one capacity.
Section 2. Chief Executive Officer. The Board of Directors may from time
to time determine who among the officers and in what order, shall act as chief
executive officer. In the absence of such determination the President shall be
the chief executive officer. Subject to the control of the Board and to the
extent not otherwise prescribed by these By-Laws, the chief executive officer
shall supervise the carrying out of the policies adopted or approved by the
Board, shall exercise a general supervision and superintendence over all the
business and affairs of the Corporation and shall possess such other powers and
perform such other duties as may be incident to the office of chief executive
officer.
Section 3. Resignations. Any officer may resign at any time by delivering
a signed notice of resignation to the Board of Directors, the Chairman of the
Board, the President, a Vice President or the Secretary. Such resignation shall
take effect upon the later of delivery or the date specified therein. Any
vacancy occurring in any office of the
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Corporation by death, resignation, removal or otherwise, may be filled by the
Board at any regular or special meeting.
Section 4. Removal of Officer. Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contact rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 5. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.
Section 6. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 7. Bonds or Other Security. If required by the Board, any officer,
agent or employee of the Corporation shall give a bond or other security for the
faithful performance of his duties, in such amount and with such surety or
sureties as the Board may require.
Section 8. The President. The President shall have the following powers
and duties:
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(a) He shall be the chief operating officer of the Corporation.
Subject to the direction of the Board of Directors and (if the President is not
also the chief executive officer) the chief executive officer, he shall have
general charge of the operations of the business, affairs and property of the
Corporation and general operation of its officers, employees and agents.
(b) Subject to these By-Laws, the President shall exercise all
powers and perform all duties incident to the office of president and chief
operating officer of a corporation, and shall exercise such other powers and
perform such other duties as from time to time may be assigned to the President
by the Board or by the chief executive officer (if the President is not also the
chief executive officer).
Section 9. The Vice Presidents. Each Vice President shall exercise such
powers and perform such duties as from time to time may be assigned to such Vice
President by the Board of Directors, the chief executive officer or the
President. In the absence or during the disability of the President, the Vice
President designated by the Board of Directors or by the President, or if no
such designation shall have been made, then the senior ranking Vice President
present shall perform all the duties of the President and, when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President.
Section 10. The Treasurer. Except as may otherwise be
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provided by the Board of Directors, the Treasurer shall have the following
powers and duties:
(a) To have charge and supervision over and be responsible for the
moneys, securities, receipts and disbursements of the Corporation;
(b) To cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the Corporation in
such banks or trust companies or with such other depositories as shall be
selected in accordance with Article IX of these By-Laws;
(c) To cause the moneys of the Corporation to be disbursed by checks
or drafts (signed as provided in these By-Laws) upon the authorized depositories
of the Corporation and cause to be taken and preserved proper vouchers for all
moneys disbursed;
(d) To render to the Board of Directors or the chief executive
officer, whenever requested, a statement of the financial condition of the
Corporation and of all the financial transactions of the Corporation;
(e) To be empowered from time to time to require from all officers
or agents of the Corporation reports or statements giving such information as
the Treasurer may desire with respect to any and all financial transactions of
the Corporation; and
(f) To perform all duties incident to the office of Treasurer, and
such other duties as from time to time may be assigned to the Treasurer by the
Board of Directors, the
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chief executive officer or the President.
Section 11. The Secretary. Except as may otherwise be provided by the
Board of Directors, the Secretary shall have the following powers and duties:
(a) To keep or cause to be kept a record of all the proceedings of
the meetings of the stockholders and of the Board of Directors;
(b) To cause all notices to the Board of Directors and stockholders
to be duly given in accordance with the provisions of these By-Laws and as
required by law;
(c) To be the custodian of the records and of the seal of the
Corporation. The Secretary may cause such seal (or a facsimile thereof) to be
affixed to all instruments the execution of which on behalf of the Corporation
under its seal shall have been duly authorized in accordance with these By-Laws,
and when so affixed may attest the same;
(d) To have charge of the stock books and ledgers of the Corporation
and to cause the stock and transfer books to be kept in such manner as to show
at any time the number of shares of stock of the Corporation of each class
issued and outstanding, the names (alphabetically arranged) and the addresses of
the holders of record of such shares, the number of shares held by each holder
and the date as of which each became such holder of record;
(e) To perform, in general, all duties incident to the office of
Secretary and such other duties as may be given to the Secretary by these
By-Laws or as may be assigned to
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the Secretary from time to time by the Board of Directors, the chief
executive officer or the President; and
(f) To the extent consistent with law, the Secretary may from
time to time delegate performance of any one or more of the foregoing powers and
duties, or powers and duties otherwise conferred upon the Secretary by these
by-laws, to one or more officers, agents or employees of the Corporation.
Section 12: Delegation of Duties. In case of the absence of any officer of
the Corporation, or for any other reason that the Board may deem sufficient, the
Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
Section 13. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, or to the extent not so
provided, by the chief executive officer and other officers acting pursuant to
the chief executive officer's authority, except that in any event each officer
shall exercise such powers and perform such duties as may be required by law.
The chief executive officer may at any time suspend any officer, other than an
officer who is a Director, from any duties and authority for a period not
exceeding 90 days.
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ARTICLE V
INDEMNIFICATION
Section 1. General Provisions. The Corporation shall indemnify or advance
any expenses to Directors and officers to the extent permitted or required by
the Maryland General Corporation Law, provided, however, that the Corporation
shall only be required to indemnify or advance expenses to any person, other
than a Director, to the extent specifically approved by resolution adopted by
the Board of Directors in accordance with applicable law.
Section 2. Continuing Right. The indemnification provided hereunder shall
continue as to a person who has ceased to be a Director or officer, and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 3. Disabling Conduct. Nothing contained in this Article shall be
construed to protect any Director or officer of the Corporation against any
liability to the Corporation or its security holders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of duties involved in the conduct of his office. Such conduct
is described herein as "Disabling Conduct". The means for determining whether
indemnification shall be made shall be (1) a final decision on the merits by a
court or other body before whom the proceeding was brought that the person to be
indemnified was not liable by reason of such Disabling
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Conduct or (2) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that such person was not liable by reason of
such Disabling Conduct, made (a) by the vote of a majority of a quorum of
Directors who are neither "interested" persons of the Corporation (as defined in
the Investment Company Act of 1940, as amended) nor parties to the proceeding or
(b) by an independent legal counsel in a written opinion.
Section 4. Advancement of Legal Fees. Nothing contained in this Article
shall be construed to permit the advancement of legal expenses for the defense
of a proceeding brought by the Corporation or its security holders against a
Director or officer of the Corporation unless an undertaking is furnished by or
on behalf of such person to repay the advance (unless it is ultimately
determined that he is entitled to indemnification) and such person complies with
at least one of the following conditions: (1) he shall provide a security for
his undertaking, (2) the Corporation shall be insured against losses arising by
reason of any lawful advances, or (3) a majority of a quorum of the Directors
who are neither interested persons (as defined in the Investment Company Act of
1940, as amended) nor parties to the proceeding, or an independent legal counsel
in a written opinion, shall determine, based on a review of readily available
facts, as opposed to a full trial-type inquiry, that there is reason to believe
that such person ultimately will be found entitled to indemnification.
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ARTICLE VI
CAPITAL STOCK
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the seal on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate shall be issued, it may be issued by the Corporation with the same
effect as if such officer, transfer agent or registrar were still in office at
the date of issue.
Section 2. Open Accounts in Lieu of Certificates. The Corporation shall,
for any holder of stock who has not requested issuance of a certificate,
maintain or cause to be maintained an open account in which shall be recorded
such stockholder's ownership of stock and all changes therein. Certificates need
not be issued for shares so recorded in an
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Open account unless and until requested by the stockholder.
Section 3. Transfer of Shares. Transfers of shares of the Corporation
shall be made on the stock records of the Corporation only by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary or with a transfer agent or transfer
clerk, and on surrender of the certificate or certificates, if issued, for such
shares properly endorsed or accompanied by a duly executed stock transfer power
and the payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
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Section 5. Lost. Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion
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or exchange of common stock or other securities, as the record date for the
determination of the stockholders entitled to receive any such dividend,
distribution, allotment, rights or interests. In such case, only the
stockholders of record at the time so fixed shall be entitled to receive such
dividend, distribution, allotment, rights or interests.
ARTICLE VII
SEAL
The seal of the Corporation shall be in the form adopted by the Board
of Directors. The seal may be used by causing it or a facsimile thereof to be
impressed, affixed or reproduced, or to place the word "(seal)" adjacent to the
signature to the authorized officer of the Corporation, or in any other lawful
manner.
ARTICLE VIII
FISCAL YEAR
Section 1. Fiscal Year. Unless otherwise determined by the Board, the
fiscal year of the Corporation shall end on the 31st day of December in each
year.
Section 2. Books and Records. Except to the extent otherwise required by
law, the books and records of the Corporation shall be kept at such place or
places (within or without the State of Maryland) as may be determined from time
to time by the Board of Directors.
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ARTICLE IX
DEPOSITORIES AND CUSTODIANS
Section 1. Depositories. The funds of the Corporation shall be deposited
with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with all applicable law, rules and regulations.
ARTICLE X
EXECUTION OF INSTRUMENTS AND BORROWING OF MONEY
Section 1. Execution of Instruments. Except as may otherwise be provided
in a resolution adopted by the Board of Directors, the Chairman of the Board,
the President, or any Vice President may enter into any contract or execute and
deliver any instrument and affix the corporate seal in the name and on behalf of
the Corporation. Any Vice President designated by a number or a word or words
added before or after the title Vice President to indicate rank or
responsibilities, but not an Assistant Vice President, shall be a Vice President
for the purposes of this Article. The Board may authorize any other officer,
employee or agent to
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enter into any contract or execute and deliver any instrument and affix the
corporate seal in the name and on behalf of the Corporation. Any such
authorization may be general or limited to specific contracts or instruments.
Section 2. Checks. Notes. Drafts. etc. Checks, notes, drafts, acceptances,
bills of exchange and other orders or obligations for the payment of money shall
be signed by such officer or officers or person or persons as the Board of
Directors by resolution shall from time to time designate.
Section 3. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of, subject to any
limits imposed by these By-laws, and pursuant to authorization by the Board.
When so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, they may be transferred from the name of the
Corporation by the signature of the President or a Vice President or the
Treasurer or the Assistant Treasurer or the Secretary or the Assistant
Secretary.
Section 4. Loans. No loan or advance shall be contracted on behalf of the
Corporation, and no note, bond or other evidence of indebtedness shall be
executed or delivered in its name, except as may be authorized by the Board of
Directors. Any such authorization may be general or limited to specific loans or
advances, or notes, bonds or other evidence of indebtedness. Any officer or
agent of the
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Corporation so authorized may effect loans and advances on behalf of the
Corporation, and in return for any such loans or advances may execute and
deliver notes, bonds or other evidence of indebtedness of the Corporation.
Section 5. Voting as a Securityholder. The Chairman of the Board, the
President and such other person or persons as the Board of Directors may from
time to time authorize, shall each have full power and authority on behalf of
the Corporation, to attend any meeting of securityholders of any corporation in
which the Corporation may hold securities, and to act, vote (or execute proxies
to vote) and exercise in person or by proxy all other rights, powers and
privileges incident to the ownership of such securities, and to execute any
instrument expressing consent to or dissent from any action of any such
corporation without a meeting, subject to such restrictions or limitations as
the Board of Directors may from time to time impose.
Section 6. Facsimile Signatures. The Board of Directors may authorize the
use of a facsimile signature or signatures on any instrument. If any officer
whose facsimile signature has been placed upon any form of instrument shall have
ceased to be such officer before such instrument is issued, such instrument may
be issued with the same effect as if such person had been such officer at the
time of its issue.
31
<PAGE>
ARTICLE XI
AMENDMENTS
All By-Laws of the Corporation, whether adopted by the Board of Directors
or the stockholders, shall be subject to amendment or repeal, and new By--laws
may be made, by the affirmative vote of the holders of a majority of the
outstanding shares of stock of the Corporation entitled to vote. All By-Laws of
the Corporation, other than this Section and any other Section that provides it
may be amended or repealed only by the stockholders, whether adopted by the
Board of Directors or the stockholders, shall be subject to amendment or repeal,
and new By--Laws may be made, by resolution adopted by a majority of the whole
Board of Directors. Notwithstanding anything herein to the contrary, no
amendment or repeal of Article V of these By--Laws shall affect adversely any
then existing right of any Director or officer.
/ cme
32
INVESTMENT SUBADVISORY AGREEMENT
SMALL COMPANY PORTFOLIO
THIS AGREEMENT, made this 1ST day of MAY, 1999, is between JEFFERSON PILOT
INVESTMENT ADVISORY CORPORATION, a Tennessee corporation with offices at One
Granite Place, Concord, New Hampshire, 03301 (the "Investment Manager") and
Lord, Abbett & Company, (the "Subadviser") a partnership with offices at 767
Fifth Avenue, New York, New York 10153.
WITNESSETH:
WHEREAS, Jefferson Pilot Variable Fund, Inc. (the "Fund") is engaged in
business as a diversified open-end management investment company and is
registered as such under the Investment Company Act of 1940 (the "Investment
Company Act");
WHEREAS, the Fund issues separate classes or series of stock, each of
which represents a separate portfolio of investments;
WHEREAS, the Fund's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies under
which income, gains, losses, whether or not realized, from assets allocated to
such accounts are, in accordance with the Policies, credited to or charged
against such accounts without regard to other income, gains, or losses of such
insurance companies;
WHEREAS, the Fund has employed the Investment Manager to act as investment
manager of the Portfolio, as set forth in an Investment Management Agreement
between the Fund and the Investment Manager dated August 28, 1997, (the
"Investment Management Agreement") pursuant to which it was agreed that the
Investment Manager may contract with the Subadviser, or other parties for
certain investment management services;
WHEREAS, the Subadviser is engaged in the business of rendering investment
advisory services and is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act");
WHEREAS, the Investment Manager desires to retain the Subadviser to render
investment management services to the Fund's Small Company Portfolio (the
"Portfolio") in the manner and on the terms hereinafter set forth;
Page 1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the convenants
hereinafter contained the Investment Manager and the Subadviser hereby agree as
follows:
1. Appointment of the Subadviser. The Manager hereby appoints the
Subadviser to act as an investment subadviser for the Portfolio and to manage
the investment and reinvestment of the assets of the Portfolio, subject to the
supervision of the Directors of the Fund and the terms and conditions of this
Agreement. The Subadviser will be an independent contractor and will have no
authority to act for or represent the Fund or Manager in any way or otherwise be
deemed an agent of the Fund or Manager except as expressly authorized in this
Agreement or another writing by the Fund, Manager and the Subadviser.
Notwithstanding the foregoing, the Subadviser may execute account documentation,
agreements, contracts and other documents as the Subadviser may be requested by
brokers, dealers, counterparts and other persons in connection with the
Subadviser's management of the assets of the Portfolio, provided that the
Subadviser receives the express agreement and consent of the Manager and/or the
Fund's Board of Directors to execute such documentation, agreements, contracts
and other documents. In such respect, and only for this limited purpose, the
Subadviser shall act at the Manager and/or the Fund's agent and
attorney-in-fact.
2. Duties of the Subadviser. The Subadviser hereby agrees, subject to the
supervision of the Investment Manager and the Board of Directors of the Fund,
(1) to act as the Subadviser of the Portfolio, (2) to manage the investment and
reinvestment of the assets of the Portfolio for the period and on the terms and
conditions set forth in this Agreement, and (3) during the term hereof, to
render the services and to assume the obligations herein set forth in return for
the compensation provided for herein and to bear all expenses of its performance
of such services and obligations.
3. Services to be Rendered by the Subadviser to the Fund
A. The Subadviser will manage the investment and reinvestment of the
assets of the Portfolio and determine the composition of the assets of the
Portfolio, subject always to the direction and control of the Directors of the
Fund and the Manager and in accordance with the provisions of the Fund's
registration statement, as amended from time to time. In fulfilling its
obligations to manage the investment and reinvestment of the assets of the
Portfolio, the Subadviser will:
(i) obtain and evaluate pertinent, statistical, financial, and other
information relating to individual companies or industries, the securities of
which are included in the Portfolio or are under consideration for inclusion in
the Portfolio;
Page 2
<PAGE>
(ii) formulate and implement a continuous investment program for the
Portfolio (a) consistent with the investment objectives, policies, and
restrictions of the Portfolio as stated in the Fund's Agreement and Articles of
Incorporation, Bylaws, and such Portfolio's currently effective Prospectus and
Statement of Additional Information ("SAI") as amended from time to time, and
(b) in compliance with the requirements applicable to both regulated investment
companies and segregated asset accounts under Subchapters M and L of the
Internal Revenue Code of 1986, as amended ("IRC"), and requirements applicable
to registered investment companies under applicable laws;
(iii) take whatever steps are necessary to implement the investment
program for the Portfolio by the purchase and sale of securities and other
investments authorized under the Fund's Agreement and Articles of Incorporation,
Bylaws, and such Portfolio's currently effective Prospectus and SAI, including
the placing of orders for such purchases and sales;
(iv) regularly report to the Directors of the Fund and the Manager
with respect to the implementation of the investment program and, in addition,
provide such statistical information and special reports concerning the
Portfolio and/or important developments materially affecting the investments
held, or contemplated to be purchased, by the Portfolio, as may reasonably be
requested by the Manager or the Directors of the Fund, including attendance at
Board of Directors Meetings, as reasonably requested, to present such
information and reports to the Board, provided that Subadviser shall not be
responsible for fund accounting.
(v) will assist in suggesting methods for determining fair value of
certain portfolio securities when market quotations are not readily available
for the purpose of calculating the Portfolio's net asset value in accordance
with procedures and methods established by the Directors of the Fund;
(vi) establish appropriate interfaces with the Fund's Manager in
order to provide such Manager with all necessary information requested by the
Manager and required to be provided by Subadviser hereunder.
Page 3
<PAGE>
B. To facilitate the Subadviser's fulfillment of its obligations under
this Agreement, the Manager Fund will undertake the following:
(i) the Manager agrees to provide the Subadviser with all amendments
or supplements to the Registration Statement, the Fund's Agreement and Articles
of Incorporation, and Bylaws prior to filing with SEC.
(ii) the Manager agrees, on an ongoing basis, to notify the
Subadviser expressly in writing of each change in the fundamental and
nonfundamental investment policies of the Portfolio, prior to the effective date
of such changes.
(iii) The Manager agrees to provide or cause to be provided to the
Subadviser such assistance as may be reasonably requested by the Subadviser in
connection with its activities pertaining to the Portfolio under this Agreement,
including, without limitation, information concerning the Portfolio, its
available funds, or funds that may reasonably become available for investment,
and information as to the general condition of the Portfolio's affairs and
information to enable Subadviser to monitor the 90% source tax of Subchapter M
of the IRC;
(iv) the Manager agrees to provide or cause to be provided to the
Subadviser on an ongoing basis, such information as is reasonably requested by
the Subadviser for performance by the Subadviser of its obligations under this
Agreement, and the Subadviser shall not be in breach of any term of this
Agreement or be deemed to have acted negligently if the Manager fails to provide
or cause to be provided such requested information and the Subadviser relies on
the information most recently furnished to the Subadviser; and
(v) the Manager will promptly provide the Subadviser with any
guidelines and procedures applicable to the Subadviser or the Portfolio adopted
from time to time by the Board of Directors of the Fund and agrees to promptly
provide the Subadviser copies of all amendments thereto.
C. The Fund and the Investment Manager shall not, without the prior
written consent of Subadviser, make representations in any disclosure document,
advertisement, sales literature or other promotional material regarding the
Subadviser or its affiliates. The Investment Manager shall hold harmless and
indemnify the Subadviser against any loss, liability, cost, damage or expense
(including reasonable attorneys fees and costs) arising out of any use of any
disclosure documents, advertisement, sales literature or other promotional
material without prior written consent by the Subadviser.
Page 4
<PAGE>
D. The Subadviser, at its expense, will furnish all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement. The Fund or Investment Manager assumes
and shall pay all expenses incidental to their respective organization,
operation and business not specifically assumed or agreed to be paid by the
Subadviser pursuant hereto, including, but not limited to, investment adviser
fees; any compensation, fees, or reimbursements which the Fund pays to its
Directors; compensation of the Fund's custodian, transfer agent, registrar and
dividend disbursing agent; legal, accounting, audit and printing expenses;
administrative, clerical, record-keeping and bookkeeping expenses; brokerage
commissions and all other expenses in connection with execution of portfolio
transactions (including any appropriate commissions paid to the Subadviser or
its affiliates for effecting exchange listed, over-the-counter or other
securities transactions); interest, all federal, state and local taxes
(including stamp, excise, income and franchise taxes) costs of stock
certificates and expenses of delivering such certificates to the purchaser
thereof; expenses of shareholders' meetings and of preparing, printing and
distributing proxy statements, notices, and reports to shareholders; regulatory
authorities; all expenses incurred in complying with all federal and state laws
and the laws of any foreign country applicable to the issue, offer, or sale of
shares for the Fund, including, but not limited to all costs involved in the
registration or qualification of shares of the Fund for sale in any
jurisdiction, the costs of portfolio pricing services and systems for compliance
with blue sky laws, and all costs involved in preparing, printing and mailing
prospectuses and statements of additional information of the Fund; and all fees,
dues and other expenses incurred by the Fund in connection with the membership
in any trade association or other investment company organization.
E. The Subadviser will select brokers and dealers to effect all
portfolio transactions subject to the conditions set forth herein. The
Subadviser will place all necessary orders with brokers, dealers, or issuers,
and will negotiate brokerage commissions if applicable. The Subadviser is
directed at all times to seek to execute brokerage transactions for the
Portfolio in accordance with such policies or practices as may be established by
the Board of Directors and described in the Fund's currently effective
Prospectus and SAI, as amended from time to time. In placing orders for the
purchase or sale of investments for the Portfolio, in the name of the Portfolio
or its nominees, the Subadviser shall use its best efforts to obtain for the
Portfolio the most favorable price and best execution available, considering all
of the circumstances, and shall maintain records adequate to demonstrate
compliance with this requirement.
Page 5
<PAGE>
Subject to the appropriate policies and procedures approved by the
Board of Directors, the Subadviser may, to the extent authorized by Section
28(e) of the Securities and Exchange Act of 1934, cause the Portfolio to pay a
broker or dealer that provides brokerage or research services to the Manager,
the Subadviser, or the Portfolio an amount of commissions for effecting a
portfolio transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Subadviser
determines, in good faith, that such amount of commission is reasonable in
relationship to the value of such brokerage or research services provided viewed
in terms of that particular transaction or the Subadviser's overall
responsibilities to the Portfolio or its other advisory clients. To the extent
authorized by said Section 28(e) and the Fund's Board of Directors, the
Subadviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of such action. In
addition, subject to seeking the most favorable price and best execution
available, the Subadviser may also consider sales of shares of the Fund as a
factor in the selection of brokers and dealers.
F. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Subadviser, the Subadviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Subadviser in the manner the Subadviser
considers to be the most equitable and consistent with its fiduciary obligations
to the Portfolio and to its other clients.
The Subadviser may perform its Services through any employee, officer
or agent of Subadviser and the Investment Manager and the Fund shall not be
entitled to the advice, recommendation or judgment of any specific person.
Sub-Investment Manager makes no representation or warranty, express or implied,
that any level of performance or investment results will be achieved by the
Balanced Portfolio or that such Portfolio will perform comparably with any
standard or index, including other clients of Subadviser, whether public or
private.
G. The Subadviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder.
4. Compensation of the Subadviser. The Investment Manager will pay the
Subadviser, with respect to the Portfolio, the compensation specified in
Page 6
<PAGE>
Appendix A to this Agreement. Payments shall be made to the Subadviser on the
first day of each month; however, this advisory fee will be calculated on the
daily average value of the Portfolio's assets and accrued on a daily basis.
5. Non-Exclusivity. The Investment Manager agrees that the services of
the Subadviser are not to be deemed exclusive and the Subadviser is free to act
as investment manager to various investment companies and as fiduciary for other
managed accounts. The Subadviser shall, for all purposes herein, be deemed to be
an independent contractor and shall, unless otherwise provided or authorized,
have no authority to act for or represent the Fund or the Investment Manager in
any way or otherwise be deemed an agent of the Fund or Investment Manager other
than in furtherance of its duties and responsibilities as set forth in this
Subadvisory Agreement.
6. Books and Records. The Subadviser agrees that all books and records
which it maintains for the fund are the Fund's property, and, in the event of
termination of this Agreement for any reason, the Subadviser agrees promptly to
return to the Fund, free from any claim or retention of rights by the
Subadviser, all records relating to the Portfolio. The Subadviser also agrees
upon request of the Investment Manager or the Fund, promptly to surrender the
books and records to either party or make the book and records available for
inspection by representatives of regulatory authorities. In connection with its
duties hereunder, the Subadviser further agrees to maintain, prepare and
preserve books and records in accordance with the Investment Company Act and
rules thereunder, including but not limited to, Rule 31a-1 and 31a-2.
The Subadviser will use records or information obtained under this
Agreement only for the purposes contemplated hereby, and will not disclose such
records or information in any manner other than expressly authorized by the
Fund, or if disclosure is expressly required by applicable federal or state
regulatory authorities or by this Agreement. The Subadviser will furnish any
informational reports requested by any state insurance commissioner.
7. Liability. Except as may otherwise be provided by the Investment
Company Act, neither the Subadviser nor its officers, directors, employees or
agents shall be subject to any liability to the Investment Manager, the Fund or
any shareholder of the Fund for any error of judgment, mistake of law or any
loss arising out of any investment or other act or omission in the course of,
connected with or arising out of any service to be rendered hereunder, except by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of reckless disregard of its obligations and duties
under this Agreement. The Investment Manager shall hold harmless and indemnify
the Subadviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by the
Fund or any
Page 7
<PAGE>
past or present shareholder of the fund that is not arising from Subadvisers
willful misfeasance, bad faith or gross negligence.
8. Reliance on Documents. The Board of Directors of the Fund or its
officers or agent will provide timely information to the Subadviser regarding
such matters as purchases and redemptions of shares in the Portfolio, the cash
requirements, and cash available for investment in the Portfolio, and all other
information as may be reasonably necessary or appropriate in order for the
Subadviser to perform its responsibilities hereunder. The Subadviser has
provided the Investment Manager with a copy of its current form ADV.
Neither the Fund or the Investment Manager, nor their respective
designees or agents, shall use any material describing or identifying the
Subadviser or its affiliates without the prior consent of the Subadviser. Any
material utilized by the Fund, the Investment Manager or their respective
designees or agents which contain information as to the Subadviser and/or its
affiliates shall be submitted to the Subadviser for approval prior to use, not
less than five (5) business days before such approval is requested.
The Investment Manager has herewith furnished the Subadviser copies of
the Fund's Prospectus, Statement of Additional Information, Articles of
Incorporation and By-Laws as currently in effect and agrees during the
continuance of the Agreement to furnish the Subadviser copies of any amendments
or supplements thereto before or at the time the amendments or supplements
become effective. The Subadviser will be entitled to rely on all such documents
furnished to it by the Investment Manager of the Fund.
9. Duration and Termination of the Agreement. This Subadvisory
Agreement shall become effective as of the date first written above and remain
in force until May 1, 2001. Thereafter, it shall continue in effect from year to
year, but only so long as such continuance is specifically approved at least
annually by (a) the Board of Directors of the Fund, or by the vote of a majority
of the outstanding voting securities of the Portfolio, and (b) a majority of
those directors who are not parties to this Subadvisory Agreement, not
interested persons of any party to this Subadvisory Agreement, cast in person at
a meeting called for the purpose of voting on such approval. This Agreement may
be terminated, without the payment of any penalty, by the Board of Directors of
the Fund, by a vote of a majority of the outstanding shares of the Portfolio, or
by the Investment Manager on sixty days' written notice to the Subadviser, or by
the Subadviser on sixty days' written notice to the Fund or the Investment
Manager. Termination by the Board of Directors or by the Investment Manager
shall be subject to shareholder approval to the extent legally required. This
Agreement shall automatically terminate in the event of its assignment or in the
event of termination of the Investment Management Agreement.
Page 8
<PAGE>
10. Amendments of the Agreement. Except to the extent permitted by the
Investment Company Act or the rules or regulations thereunder or pursuant to any
exemptive relief granted by the Securities and Exchange Commission ("SEC"), this
Agreement may be amended by the parties only if such amendment, if material, is
specifically approved by the vote of a majority of the outstanding voting
securities of the Portfolio (unless such approval is not required by Section 15
of the Investment Company Act as interpreted by the SEC or its staff) and by the
vote of a majority of the Independent Directors cast in person at a meeting
called for the purpose of voting on such approval. The required shareholder
approval shall be effective with respect to the Portfolio if a majority of the
outstanding voting securities of the Portfolio vote to approve the amendment,
notwithstanding that amendment may not have been approved by a majority of the
outstanding voting securities of any other portfolio affected by the amendment
or all the portfolios of the Fund.
11. Definitions. The terms "assignment", "interested person", and
"majority of the outstanding voting securities", when used in this Agreement,
shall have the respective meaning specified under the Investment Company Act and
the rules thereunder.
12. Notices. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be given in writing,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
Lord Abbett & Company
767 Fifth Avenue
New York, NY 10153
Attn: Curt Lemkau
(b) If to the Investment Manager:
Jefferson Pilot Investment Advisory Corporation
One Granite Place
Concord, NH 03301
Attn: Ronald Angarella
Facsimile (603) 224-1691
13. Governing Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New Hampshire as at
the time in effect and the applicable provisions of the Investment Company Act
or other federal laws and regulations which may be
Page 9
<PAGE>
applicable. To the extent that the applicable law of the State of New Hampshire
or any of the provisions herein, conflict with the applicable provisions of the
Investment Company Act or other federal laws and regulations which may be
applicable, the latter shall control.
14. Use of Subadviser's Name. Neither the Fund nor the Manager or any
affiliate or agent thereof shall make reference to or use the name, and any
derivative thereof or logo associated with that name, of the Subadviser or any
of its affiliates in any advertising or promotional materials without the prior
approval of the Subadviser, which approval shall not be unreasonably withheld or
delayed. Upon termination of this Agreement, the Manager and the Fund shall
forthwith cease to use such name (or derivative or logo) as soon as reasonably
practicable.
15. Entire Agreement. This Agreement contains the entire understanding
and agreement of the parties with respect to the Portfolio.
16. Headings. The headings in the sections of this Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.
17. Severability. Should any portion of this Agreement for any reason
be held to be void in law or in equity, the Agreement shall be construed,
insofar as is possible, as if such portion had never been contained herein.
JEFFERSON PILOT INVESTMENT ADVISORY
CORPORATION
ATTEST:_____________________ BY: _______________________
TITLE:______________________ TITLE:_____________________
LORD, ABBETT & COMPANY
ATTEST:_____________________ BY: _______________________
TITLE:______________________ TITLE:_____________________
Page 10
<PAGE>
SCHEDULE A
INVESTMENT SUBADVISORY FEES
<TABLE>
<CAPTION>
- ----------------------------------------------------------- -------------------------------------------------------
NAME OF PORTFOLIO ANNUAL FEE AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------- -------------------------------------------------------
<S> <C> <C>
Money Market Portfolio .30% of first $200 Million
Massachusetts Financial Services .25% over $200 Million
- ----------------------------------------------------------- -------------------------------------------------------
Emerging Growth Portfolio .40%
Massachusetts Financial Services
- ----------------------------------------------------------- -------------------------------------------------------
High Yield Bond Portfolio .40%
Massachusetts Financial Services
- ----------------------------------------------------------- -------------------------------------------------------
Growth Portfolio .60% of first $ 25 Million
Strong .50% of next $ 75 Million
.40% of the next $ 50 Million
.30% over $150 Million
- ----------------------------------------------------------- -------------------------------------------------------
Growth and Income Portfolio .50%
Warburg Pincus
- ----------------------------------------------------------- -------------------------------------------------------
World Growth Stock Portfolio .50% of first $200 Million
Templeton Global Advisors Limited .45% of next $1.1 Billion
.40% over $1.3 Billion
- ----------------------------------------------------------- -------------------------------------------------------
International Equity Portfolio .50%
Lombard Odier
- ----------------------------------------------------------- -------------------------------------------------------
Capital Growth Portfolio .70% of first $200 Million
Janus Capital Corporation .65% of next $1.1 Billion
.60% over $1.3 Billion
- ----------------------------------------------------------- -------------------------------------------------------
Balanced Portfolio .55% of first $100 Million
Janus Capital Corporation .50% of next $400 Million
.45% over $500 Million
- ----------------------------------------------------------- -------------------------------------------------------
Hard Assets Portfolio .50% of first $200 Million
Van Eck Associates Corporation .45% of next $1.1 Billion
.40% over $1.3 Billion
- ----------------------------------------------------------- -------------------------------------------------------
Small Company Portfolio .50% of first $200 Million
Lord Abbett & Company .45% of next $1.1 Billion
.40% over $1.3 Billion
- ----------------------------------------------------------- -------------------------------------------------------
</TABLE>
EFFECTIVE:__________________________________
INVESTMENT SUBADVISORY AGREEMENT
BALANCED PORTFOLIO
THIS AGREEMENT, made this 1ST day of MAY, 1999, is between JEFFERSON PILOT
INVESTMENT ADVISORY CORPORATION, a Tennessee corporation with offices at One
Granite Place, Concord, New Hampshire, 03301 (the "Investment Manager") and
Janus Capital Corporation, (the "Subadviser") a Colorado corporation with
offices at 100 Fillmore Street, Denver, Colorado 80206.
WITNESSETH:
WHEREAS, Jefferson Pilot Variable Fund, Inc. (the "Fund") is engaged in
business as a diversified open-end management investment company and is
registered as such under the Investment Company Act of 1940 (the "Investment
Company Act");
WHEREAS, the Fund issues separate classes or series of stock, each of
which represents a separate portfolio of investments;
WHEREAS, the Fund's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies under
which income, gains, losses, whether or not realized, from assets allocated to
such accounts are, in accordance with the Policies, credited to or charged
against such accounts without regard to other income, gains, or losses of such
insurance companies;
WHEREAS, the Fund has employed the Investment Manager to act as investment
manager of the Portfolio, as set forth in an Investment Management Agreement
between the Fund and the Investment Manager dated August 28, 1997, (the
"Investment Management Agreement") pursuant to which it was agreed that the
Investment Manager may contract with the Subadviser, or other parties for
certain investment management services;
WHEREAS, the Subadviser is engaged in the business of rendering investment
advisory services and is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act");
WHEREAS, the Investment Manager desires to retain the Subadviser to render
investment management services to the Fund's Balanced Portfolio (the
"Portfolio") in the manner and on the terms hereinafter set forth;
Page 1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the convenants
hereinafter contained the Investment Manager and the Subadviser hereby agree as
follows:
1. Appointment of the Subadviser. The Manager hereby appoints the
Subadviser to act as an investment subadviser for the Portfolio and to manage
the investment and reinvestment of the assets of the Portfolio, subject to the
supervision of the Directors of the Fund and the terms and conditions of this
Agreement. The Subadviser will be an independent contractor and will have no
authority to act for or represent the Fund or Manager in any way or otherwise be
deemed an agent of the Fund or Manager except as expressly authorized in this
Agreement or another writing by the Fund, Manager and the Subadviser.
Notwithstanding the foregoing, the Subadviser may execute account documentation,
agreements, contracts and other documents as the Subadviser may be requested by
brokers, dealers, counterparts and other persons in connection with the
Subadviser's management of the assets of the Portfolio, provided that the
Subadviser receives the express agreement and consent of the Manager and/or the
Fund's Board of Directors to execute such documentation, agreements, contracts
and other documents. In such respect, and only for this limited purpose, the
Subadviser shall act at the Manager and/or the Fund's agent and
attorney-in-fact.
2. Duties of the Subadviser. The Subadviser hereby agrees, subject to the
supervision of the Investment Manager and the Board of Directors of the Fund,
(1) to act as the Subadviser of the Portfolio, (2) to manage the investment and
reinvestment of the assets of the Portfolio for the period and on the terms and
conditions set forth in this Agreement, and (3) during the term hereof, to
render the services and to assume the obligations herein set forth in return for
the compensation provided for herein and to bear all expenses of its performance
of such services and obligations.
3. Services to be Rendered by the Subadviser to the Fund
A. The Subadviser will manage the investment and reinvestment of the
assets of the Portfolio and determine the composition of the assets of the
Portfolio, subject always to the direction and control of the Directors of the
Fund and the Manager and in accordance with the provisions of the Fund's
registration statement, as amended from time to time. In fulfilling its
obligations to manage the investment and reinvestment of the assets of the
Portfolio, the Subadviser will:
(i) obtain and evaluate pertinent, statistical, financial, and other
information relating to individual companies or industries, the securities of
which are included in the Portfolio or are under consideration for inclusion in
the Portfolio;
Page 2
<PAGE>
(ii) formulate and implement a continuous investment program for the
Portfolio (a) consistent with the investment objectives, policies, and
restrictions of the Portfolio as stated in the Fund's Agreement and Articles of
Incorporation, Bylaws, and such Portfolio's currently effective Prospectus and
Statement of Additional Information ("SAI") as amended from time to time, and
(b) in compliance with the requirements applicable to both regulated investment
companies and segregated asset accounts under Subchapters M and L of the
Internal Revenue Code of 1986, as amended ("IRC"), and requirements applicable
to registered investment companies under applicable laws;
(iii) take whatever steps are necessary to implement the investment
program for the Portfolio by the purchase and sale of securities and other
investments authorized under the Fund's Agreement and Articles of Incorporation,
Bylaws, and such Portfolio's currently effective Prospectus and SAI, including
the placing of orders for such purchases and sales;
(iv) regularly report to the Directors of the Fund and the Manager
with respect to the implementation of the investment program and, in addition,
provide such statistical information and special reports concerning the
Portfolio and/or important developments materially affecting the investments
held, or contemplated to be purchased, by the Portfolio, as may reasonably be
requested by the Manager or the Directors of the Fund, including attendance at
Board of Directors Meetings, as reasonably requested, to present such
information and reports to the Board, provided that Subadviser shall not be
responsible for fund accounting.
(v) will assist in suggesting methods for determining fair value of
certain portfolio securities when market quotations are not readily available
for the purpose of calculating the Portfolio's net asset value in accordance
with procedures and methods established by the Directors of the Fund;
(vi) establish appropriate interfaces with the Fund's Manager in
order to provide such Manager with all necessary information requested by the
Manager and required to be provided by Subadviser hereunder.
Page 3
<PAGE>
B. To facilitate the Subadviser's fulfillment of its obligations under
this Agreement, the Manager Fund will undertake the following:
(i) the Manager agrees to provide the Subadviser with all amendments
or supplements to the Registration Statement, the Fund's Agreement and Articles
of Incorporation, and Bylaws prior to filing with SEC.
(ii) the Manager agrees, on an ongoing basis, to notify the
Subadviser expressly in writing of each change in the fundamental and
nonfundamental investment policies of the Portfolio, prior to the effective date
of such changes.
(iii) The Manager agrees to provide or cause to be provided to the
Subadviser such assistance as may be reasonably requested by the Subadviser in
connection with its activities pertaining to the Portfolio under this Agreement,
including, without limitation, information concerning the Portfolio, its
available funds, or funds that may reasonably become available for investment,
and information as to the general condition of the Portfolio's affairs and
information to enable Subadviser to monitor the 90% source tax of Subchapter M
of the IRC;
(iv) the Manager agrees to provide or cause to be provided to the
Subadviser on an ongoing basis, such information as is reasonably requested by
the Subadviser for performance by the Subadviser of its obligations under this
Agreement, and the Subadviser shall not be in breach of any term of this
Agreement or be deemed to have acted negligently if the Manager fails to provide
or cause to be provided such requested information and the Subadviser relies on
the information most recently furnished to the Subadviser; and
(v) the Manager will promptly provide the Subadviser with any
guidelines and procedures applicable to the Subadviser or the Portfolio adopted
from time to time by the Board of Directors of the Fund and agrees to promptly
provide the Subadviser copies of all amendments thereto.
C. The Fund and the Investment Manager shall not, without the prior
written consent of Subadviser, make representations in any disclosure document,
advertisement, sales literature or other promotional material regarding the
Subadviser or its affiliates. The Investment Manager shall hold harmless and
indemnify the Subadviser against any loss, liability, cost, damage or expense
(including reasonable attorneys fees and costs) arising out of any use of any
zdisclosure documents, advertisement, sales literature or other promotional
material without prior written consent by the Subadviser.
Page 4
<PAGE>
D. The Subadviser, at its expense, will furnish all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement. The Fund or Investment Manager assumes
and shall pay all expenses incidental to their respective organization,
operation and business not specifically assumed or agreed to be paid by the
Subadviser pursuant hereto, including, but not limited to, investment adviser
fees; any compensation, fees, or reimbursements which the Fund pays to its
Directors; compensation of the Fund's custodian, transfer agent, registrar and
dividend disbursing agent; legal, accounting, audit and printing expenses;
administrative, clerical, record-keeping and bookkeeping expenses; brokerage
commissions and all other expenses in connection with execution of portfolio
transactions (including any appropriate commissions paid to the Subadviser or
its affiliates for effecting exchange listed, over-the-counter or other
securities transactions); interest, all federal, state and local taxes
(including stamp, excise, income and franchise taxes) costs of stock
certificates and expenses of delivering such certificates to the purchaser
thereof; expenses of shareholders' meetings and of preparing, printing and
distributing proxy statements, notices, and reports to shareholders; regulatory
authorities; all expenses incurred in complying with all federal and state laws
and the laws of any foreign country applicable to the issue, offer, or sale of
shares for the Fund, including, but not limited to all costs involved in the
registration or qualification of shares of the Fund for sale in any
jurisdiction, the costs of portfolio pricing services and systems for compliance
with blue sky laws, and all costs involved in preparing, printing and mailing
prospectuses and statements of additional information of the Fund; and all fees,
dues and other expenses incurred by the Fund in connection with the membership
in any trade association or other investment company organization.
E. The Subadviser will select brokers and dealers to effect all
portfolio transactions subject to the conditions set forth herein. The
Subadviser will place all necessary orders with brokers, dealers, or issuers,
and will negotiate brokerage commissions if applicable. The Subadviser is
directed at all times to seek to execute brokerage transactions for the
Portfolio in accordance with such policies or practices as may be established by
the Board of Directors and described in the Fund's currently effective
Prospectus and SAI, as amended from time to time. In placing orders for the
purchase or sale of investments for the Portfolio, in the name of the Portfolio
or its nominees, the Subadviser shall use its best efforts to obtain for the
Portfolio the most favorable price and best execution available, considering all
of the circumstances, and shall maintain records adequate to demonstrate
compliance with this requirement.
Page 5
<PAGE>
Subject to the appropriate policies and procedures approved by the
Board of Directors, the Subadviser may, to the extent authorized by Section
28(e) of the Securities and Exchange Act of 1934, cause the Portfolio to pay a
broker or dealer that provides brokerage or research services to the Manager,
the Subadviser, or the Portfolio an amount of commissions for effecting a
portfolio transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Subadviser
determines, in good faith, that such amount of commission is reasonable in
relationship to the value of such brokerage or research services provided viewed
in terms of that particular transaction or the Subadviser's overall
responsibilities to the Portfolio or its other advisory clients. To the extent
authorized by said Section 28(e) and the Fund's Board of Directors, the
Subadviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of such action. In
addition, subject to seeking the most favorable price and best execution
available, the Subadviser may also consider sales of shares of the Fund as a
factor in the selection of brokers and dealers.
F. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Subadviser, the Subadviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Subadviser in the manner the Subadviser
considers to be the most equitable and consistent with its fiduciary obligations
to the Portfolio and to its other clients.
The Subadviser may perform its Services through any employee, officer
or agent of Subadviser and the Investment Manager and the Fund shall not be
entitled to the advice, recommendation or judgment of any specific person.
Sub-Investment Manager makes no representation or warranty, express or implied,
that any level of performance or investment results will be achieved by the
Balanced Portfolio or that such Portfolio will perform comparably with any
standard or index, including other clients of Subadviser, whether public or
private.
G. The Subadviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder.
4. Compensation of the Subadviser. The Investment Manager will pay the
Subadviser, with respect to the Portfolio, the compensation specified in
Page 6
<PAGE>
Appendix A to this Agreement. Payments shall be made to the Subadviser on the
first day of each month; however, this advisory fee will be calculated on the
daily average value of the Portfolio's assets and accrued on a daily basis.
5. Non-Exclusivity. The Investment Manager agrees that the services of
the Subadviser are not to be deemed exclusive and the Subadviser is free to act
as investment manager to various investment companies and as fiduciary for other
managed accounts. The Subadviser shall, for all purposes herein, be deemed to be
an independent contractor and shall, unless otherwise provided or authorized,
have no authority to act for or represent the Fund or the Investment Manager in
any way or otherwise be deemed an agent of the Fund or Investment Manager other
than in furtherance of its duties and responsibilities as set forth in this
Subadvisory Agreement.
6. Books and Records. The Subadviser agrees that all books and records
which it maintains for the fund are the Fund's property, and, in the event of
termination of this Agreement for any reason, the Subadviser agrees promptly to
return to the Fund, free from any claim or retention of rights by the
Subadviser, all records relating to the Portfolio. The Subadviser also agrees
upon request of the Investment Manager or the Fund, promptly to surrender the
books and records to either party or make the book and records available for
inspection by representatives of regulatory authorities. In connection with its
duties hereunder, the Subadviser further agrees to maintain, prepare and
preserve books and records in accordance with the Investment Company Act and
rules thereunder, including but not limited to, Rule 31a-1 and 31a-2.
The Subadviser will use records or information obtained under this
Agreement only for the purposes contemplated hereby, and will not disclose such
records or information in any manner other than expressly authorized by the
Fund, or if disclosure is expressly required by applicable federal or state
regulatory authorities or by this Agreement. The Subadviser will furnish any
informational reports requested by any state insurance commissioner.
7. Liability. Except as may otherwise be provided by the Investment
Company Act, neither the Subadviser nor its officers, directors, employees or
agents shall be subject to any liability to the Investment Manager, the Fund or
any shareholder of the Fund for any error of judgment, mistake of law or any
loss arising out of any investment or other act or omission in the course of,
connected with or arising out of any service to be rendered hereunder, except by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of reckless disregard of its obligations and duties
under this Agreement. The Investment Manager shall hold harmless and indemnify
the Subadviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by the
Fund or any
Page 7
<PAGE>
past or present shareholder of the fund that is not arising from Subadvisers
willful misfeasance, bad faith or gross negligence.
8. Reliance on Documents. The Board of Directors of the Fund or its
officers or agent will provide timely information to the Subadviser regarding
such matters as purchases and redemptions of shares in the Portfolio, the cash
requirements, and cash available for investment in the Portfolio, and all other
information as may be reasonably necessary or appropriate in order for the
Subadviser to perform its responsibilities hereunder. The Subadviser has
provided the Investment Manager with a copy of its current form ADV.
Neither the Fund or the Investment Manager, nor their respective
designees or agents, shall use any material describing or identifying the
Subadviser or its affiliates without the prior consent of the Subadviser. Any
material utilized by the Fund, the Investment Manager or their respective
designees or agents which contain information as to the Subadviser and/or its
affiliates shall be submitted to the Subadviser for approval prior to use, not
less than five (5) business days before such approval is requested.
The Investment Manager has herewith furnished the Subadviser copies of
the Fund's Prospectus, Statement of Additional Information, Articles of
Incorporation and By-Laws as currently in effect and agrees during the
continuance of the Agreement to furnish the Subadviser copies of any amendments
or supplements thereto before or at the time the amendments or supplements
become effective. The Subadviser will be entitled to rely on all such documents
furnished to it by the Investment Manager of the Fund.
9. Duration and Termination of the Agreement. This Subadvisory
Agreement shall become effective as of the date first written above and remain
in force until May 1, 2001. Thereafter, it shall continue in effect from year to
year, but only so long as such continuance is specifically approved at least
annually by (a) the Board of Directors of the Fund, or by the vote of a majority
of the outstanding voting securities of the Portfolio, and (b) a majority of
those directors who are not parties to this Subadvisory Agreement, not
interested persons of any party to this Subadvisory Agreement, cast in person at
a meeting called for the purpose of voting on such approval. This Agreement may
be terminated, without the payment of any penalty, by the Board of Directors of
the Fund, by a vote of a majority of the outstanding shares of the Portfolio, or
by the Investment Manager on sixty days' written notice to the Subadviser, or by
the Subadviser on sixty days' written notice to the Fund or the Investment
Manager. Termination by the Board of Directors or by the Investment Manager
shall be subject to shareholder approval to the extent legally required. This
Agreement shall automatically terminate in the event of its assignment or in the
event of termination of the Investment Management Agreement.
Page 8
<PAGE>
10. Amendments of the Agreement. Except to the extent permitted by the
Investment Company Act or the rules or regulations thereunder or pursuant to any
exemptive relief granted by the Securities and Exchange Commission ("SEC"), this
Agreement may be amended by the parties only if such amendment, if material, is
specifically approved by the vote of a majority of the outstanding voting
securities of the Portfolio (unless such approval is not required by Section 15
of the Investment Company Act as interpreted by the SEC or its staff) and by the
vote of a majority of the Independent Directors cast in person at a meeting
called for the purpose of voting on such approval. The required shareholder
approval shall be effective with respect to the Portfolio if a majority of the
outstanding voting securities of the Portfolio vote to approve the amendment,
notwithstanding that amendment may not have been approved by a majority of the
outstanding voting securities of any other portfolio affected by the amendment
or all the portfolios of the Fund.
11. Definitions. The terms "assignment", "interested person", and
"majority of the outstanding voting securities", when used in this Agreement,
shall have the respective meaning specified under the Investment Company Act and
the rules thereunder.
12. Notices. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be given in writing,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
Janus Capital Corporation
100 Fillmore Street
Denver, CO 80206
Attn: General Counsel
(b) If to the Investment Manager:
Jefferson Pilot Investment Advisory Corporation
One Granite Place
Concord, NH 03301
Attn: Ronald Angarella
Facsimile (603) 224-1691
13. Governing Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New Hampshire as at
the time in effect and the applicable provisions of the Investment Company Act
or other federal laws and regulations which may be
Page 9
<PAGE>
applicable. To the extent that the applicable law of the State of New Hampshire
or any of the provisions herein, conflict with the applicable provisions of the
Investment Company Act or other federal laws and regulations which may be
applicable, the latter shall control.
14. Use of Subadviser's Name. Neither the Fund nor the Manager or any
affiliate or agent thereof shall make reference to or use the name, and any
derivative thereof or logo associated with that name, of the Subadviser or any
of its affiliates in any advertising or promotional materials without the prior
approval of the Subadviser, which approval shall not be unreasonably withheld or
delayed. Upon termination of this Agreement, the Manager and the Fund shall
forthwith cease to use such name (or derivative or logo) as soon as reasonably
practicable.
15. Entire Agreement. This Agreement contains the entire understanding
and agreement of the parties with respect to the Portfolio.
16. Headings. The headings in the sections of this Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.
17. Severability. Should any portion of this Agreement for any reason
be held to be void in law or in equity, the Agreement shall be construed,
insofar as is possible, as if such portion had never been contained herein.
JEFFERSON PILOT INVESTMENT ADVISORY
CORPORATION
ATTEST:_____________________ BY: _______________________
TITLE:______________________ TITLE:_____________________
JANUS CAPITAL CORPORATION
ATTEST:_____________________ BY: _______________________
TITLE:______________________ TITLE:_____________________
Page 10
<PAGE>
SCHEDULE A
INVESTMENT SUBADVISORY FEES
<TABLE>
<CAPTION>
- ----------------------------------------------------------- -------------------------------------------------------
NAME OF PORTFOLIO ANNUAL FEE AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------- -------------------------------------------------------
<S> <C> <C>
Money Market Portfolio .30% of first $200 Million
Massachusetts Financial Services .25% over $200 Million
- ----------------------------------------------------------- -------------------------------------------------------
Emerging Growth Portfolio .40%
Massachusetts Financial Services
- ----------------------------------------------------------- -------------------------------------------------------
High Yield Bond Portfolio .40%
Massachusetts Financial Services
- ----------------------------------------------------------- -------------------------------------------------------
Growth Portfolio .60% of first $ 25 Million
Strong .50% of next $ 75 Million
.40% of the next $ 50 Million
.30% over $150 Million
- ----------------------------------------------------------- -------------------------------------------------------
Growth and Income Portfolio .50%
Warburg Pincus
- ----------------------------------------------------------- -------------------------------------------------------
World Growth Stock Portfolio .50% of first $200 Million
Templeton Global Advisors Limited .45% of next $1.1 Billion
.40% over $1.3 Billion
- ----------------------------------------------------------- -------------------------------------------------------
International Equity Portfolio .50%
Lombard Odier
- ----------------------------------------------------------- -------------------------------------------------------
Capital Growth Portfolio .70% of first $200 Million
Janus Capital Corporation .65% of next $1.1 Billion
.60% over $1.3 Billion
- ----------------------------------------------------------- -------------------------------------------------------
Balanced Portfolio .55% of first $100 Million
Janus Capital Corporation .50% of next $400 Million
.45% over $500 Million
- ----------------------------------------------------------- -------------------------------------------------------
Hard Assets Portfolio .50% of first $200 Million
Van Eck Associates Corporation .45% of next $1.1 Billion
.40% over $1.3 Billion
- ----------------------------------------------------------- -------------------------------------------------------
Small Company Portfolio .50% of first $200 Million
Lord Abbett & Company .45% of next $1.1 Billion
.40% over $1.3 Billion
- ----------------------------------------------------------- -------------------------------------------------------
</TABLE>
EFFECTIVE:__________________________________
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 12, 1999 in Post-Effective Amendment No. 25 to the Registration
Statement (form N-1A No. 2-94479) of Jefferson Pilot Variable Fund, Inc.
/s/ Ernst & Young LLP
-------------------------
Ernst & Young LLP
Boston, Massachusetts
February 23, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> WORLD GROWTH STOCK PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 102,449,609
<INVESTMENTS-AT-VALUE> 114,156,956
<RECEIVABLES> 341,750
<ASSETS-OTHER> 7,111,148
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 121,609,854
<PAYABLE-FOR-SECURITIES> 1,215,211
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,497,340
<TOTAL-LIABILITIES> 10,712,551
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,914,896
<SHARES-COMMON-STOCK> 5,063,426
<SHARES-COMMON-PRIOR> 4,534,236
<ACCUMULATED-NII-CURRENT> (92,406)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,361,644
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,713,169
<NET-ASSETS> 110,897,303
<DIVIDEND-INCOME> 3,720,457
<INTEREST-INCOME> 380,295
<OTHER-INCOME> 0
<EXPENSES-NET> 1,125,017
<NET-INVESTMENT-INCOME> 2,975,735
<REALIZED-GAINS-CURRENT> 8,469,883
<APPREC-INCREASE-CURRENT> (8,014,260)
<NET-CHANGE-FROM-OPS> 3,431,358
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,384,505)
<DISTRIBUTIONS-OF-GAINS> (8,089,550)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 394,394
<NUMBER-OF-SHARES-REDEEMED> 503,891
<SHARES-REINVESTED> 638,687
<NET-CHANGE-IN-ASSETS> 5,329,800
<ACCUMULATED-NII-PRIOR> (458,232)
<ACCUMULATED-GAINS-PRIOR> 931,406
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 915,681
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,125,017
<AVERAGE-NET-ASSETS> 122,074,979
<PER-SHARE-NAV-BEGIN> 23.28
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .12
<PER-SHARE-DIVIDEND> (.47)
<PER-SHARE-DISTRIBUTIONS> (1.59)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.9
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 25,251,963
<INVESTMENTS-AT-VALUE> 25,249,401
<RECEIVABLES> 0
<ASSETS-OTHER> 385,798
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,635,199
<PAYABLE-FOR-SECURITIES> 379,802
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 838,752
<TOTAL-LIABILITIES> 1,218,554
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,420,098
<SHARES-COMMON-STOCK> 2,353,896
<SHARES-COMMON-PRIOR> 922,650
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (891)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,562)
<NET-ASSETS> 24,416,645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 937,093
<OTHER-INCOME> 0
<EXPENSES-NET> 111,890
<NET-INVESTMENT-INCOME> 825,203
<REALIZED-GAINS-CURRENT> 17
<APPREC-INCREASE-CURRENT> (2,562)
<NET-CHANGE-FROM-OPS> 822,658
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (825,203)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,602,276
<NUMBER-OF-SHARES-REDEEMED> 3,217,716
<SHARES-REINVESTED> 46,686
<NET-CHANGE-IN-ASSETS> 14,981,191
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (908)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 87,051
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 111,890
<AVERAGE-NET-ASSETS> 17,414,897
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> (.35)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.37
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> GLOBAL HARD ASSETS PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,247,826
<INVESTMENTS-AT-VALUE> 4,601,204
<RECEIVABLES> 482,107
<ASSETS-OTHER> 47,048
<OTHER-ITEMS-ASSETS> 4,233
<TOTAL-ASSETS> 5,134,592
<PAYABLE-FOR-SECURITIES> 717,811
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 83,118
<TOTAL-LIABILITIES> 800,929
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,706,143
<SHARES-COMMON-STOCK> 573,626
<SHARES-COMMON-PRIOR> 583,765
<ACCUMULATED-NII-CURRENT> 4,400
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,729,911)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (646,969)
<NET-ASSETS> 4,333,663
<DIVIDEND-INCOME> 123,996
<INTEREST-INCOME> 50,263
<OTHER-INCOME> 0
<EXPENSES-NET> 70,095
<NET-INVESTMENT-INCOME> 104,164
<REALIZED-GAINS-CURRENT> (3,440,007)
<APPREC-INCREASE-CURRENT> 2,701,977
<NET-CHANGE-FROM-OPS> (633,866)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (72,099)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 193,513
<NUMBER-OF-SHARES-REDEEMED> 209,525
<SHARES-REINVESTED> 5,873
<NET-CHANGE-IN-ASSETS> (870,991)
<ACCUMULATED-NII-PRIOR> (17,094)
<ACCUMULATED-GAINS-PRIOR> (3,359,207)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36,616
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 70,095
<AVERAGE-NET-ASSETS> 4,880,517
<PER-SHARE-NAV-BEGIN> 8.92
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> (1.41)
<PER-SHARE-DIVIDEND> (.13)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.55
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> SMALL COMPANY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 85,251,051
<INVESTMENTS-AT-VALUE> 81,786,528
<RECEIVABLES> 0
<ASSETS-OTHER> 4,419,639
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 86,206,167
<PAYABLE-FOR-SECURITIES> 78,865
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,783,654
<TOTAL-LIABILITIES> 7,862,519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79,661,898
<SHARES-COMMON-STOCK> 4,822,820
<SHARES-COMMON-PRIOR> 3,989,371
<ACCUMULATED-NII-CURRENT> 205,245
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,941,028
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,464,523)
<NET-ASSETS> 78,343,648
<DIVIDEND-INCOME> 1,550,544
<INTEREST-INCOME> 296,647
<OTHER-INCOME> 0
<EXPENSES-NET> 764,654
<NET-INVESTMENT-INCOME> 1,082,537
<REALIZED-GAINS-CURRENT> 8,755,432
<APPREC-INCREASE-CURRENT> (20,518,258)
<NET-CHANGE-FROM-OPS> (10,680,289)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (902,706)
<DISTRIBUTIONS-OF-GAINS> (7,789,869)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 834,248
<NUMBER-OF-SHARES-REDEEMED> 423,026
<SHARES-REINVESTED> 422,227
<NET-CHANGE-IN-ASSETS> (3,161,459)
<ACCUMULATED-NII-PRIOR> 382,928
<ACCUMULATED-GAINS-PRIOR> 3,747,893
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 661,164
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 764,654
<AVERAGE-NET-ASSETS> 88,135,678
<PER-SHARE-NAV-BEGIN> 20.43
<PER-SHARE-NII> .22
<PER-SHARE-GAIN-APPREC> (2.59)
<PER-SHARE-DIVIDEND> (.19)
<PER-SHARE-DISTRIBUTIONS> (1.63)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.24
<EXPENSE-RATIO> .87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> GROWTH AND INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 51,816,841
<INVESTMENTS-AT-VALUE> 59,409,122
<RECEIVABLES> 920,102
<ASSETS-OTHER> 6,005,136
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66,334,360
<PAYABLE-FOR-SECURITIES> 466,602
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 558,228
<TOTAL-LIABILITIES> 1,024,830
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,221,904
<SHARES-COMMON-STOCK> 3,416,068
<SHARES-COMMON-PRIOR> 2,319,530
<ACCUMULATED-NII-CURRENT> 1,606
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 493,739
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,592,281
<NET-ASSETS> 65,309,530
<DIVIDEND-INCOME> 814,775
<INTEREST-INCOME> 197,252
<OTHER-INCOME> 0
<EXPENSES-NET> 504,083
<NET-INVESTMENT-INCOME> 507,944
<REALIZED-GAINS-CURRENT> 669,425
<APPREC-INCREASE-CURRENT> 5,278,331
<NET-CHANGE-FROM-OPS> 6,455,700
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (507,944)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,172,029
<NUMBER-OF-SHARES-REDEEMED> 664,326
<SHARES-REINVESTED> 588,835
<NET-CHANGE-IN-ASSETS> 25,631,454
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (174,080)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 437,323
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 504,083
<AVERAGE-NET-ASSETS> 58,312,632
<PER-SHARE-NAV-BEGIN> 17.11
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> 2.01
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.12
<EXPENSE-RATIO> .86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> CAPITAL GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 122,017,539
<INVESTMENTS-AT-VALUE> 187,875,391
<RECEIVABLES> 0
<ASSETS-OTHER> 20,615,687
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 208,491,078
<PAYABLE-FOR-SECURITIES> 105,172
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,383,455
<TOTAL-LIABILITIES> 10,488,627
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 125,742,903
<SHARES-COMMON-STOCK> 7,098,112
<SHARES-COMMON-PRIOR> 5,846,944
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,401,622
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 65,857,926
<NET-ASSETS> 198,002,451
<DIVIDEND-INCOME> 992,327
<INTEREST-INCOME> 164,440
<OTHER-INCOME> 0
<EXPENSES-NET> 1,786,081
<NET-INVESTMENT-INCOME> (629,314)
<REALIZED-GAINS-CURRENT> 16,589,924
<APPREC-INCREASE-CURRENT> 37,765,024
<NET-CHANGE-FROM-OPS> 53,725,634
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (10,537,442)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,446,669
<NUMBER-OF-SHARES-REDEEMED> 407,453
<SHARES-REINVESTED> 211,952
<NET-CHANGE-IN-ASSETS> 73,878,456
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 349,140
<OVERDISTRIB-NII-PRIOR> (147)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,634,803
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,786,081
<AVERAGE-NET-ASSETS> 163,532,566
<PER-SHARE-NAV-BEGIN> 21.23
<PER-SHARE-NII> (.09)
<PER-SHARE-GAIN-APPREC> 8.25
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.49)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.90
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 34,652,452
<INVESTMENTS-AT-VALUE> 37,048,987
<RECEIVABLES> 2,022,432
<ASSETS-OTHER> 984,880
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,056,299
<PAYABLE-FOR-SECURITIES> 1,819,836
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,122,709
<TOTAL-LIABILITIES> 4,942,545
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,291,823
<SHARES-COMMON-STOCK> 2,761,712
<SHARES-COMMON-PRIOR> 1,926,775
<ACCUMULATED-NII-CURRENT> 705
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 417,821
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,403,405
<NET-ASSETS> 35,113,754
<DIVIDEND-INCOME> 285,958
<INTEREST-INCOME> 664,060
<OTHER-INCOME> 0
<EXPENSES-NET> 296,304
<NET-INVESTMENT-INCOME> 653,714
<REALIZED-GAINS-CURRENT> 2,873,035
<APPREC-INCREASE-CURRENT> 1,782,010
<NET-CHANGE-FROM-OPS> 5,308,759
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (651,185)
<DISTRIBUTIONS-OF-GAINS> (2,438,951)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 697,627
<NUMBER-OF-SHARES-REDEEMED> 163,928
<SHARES-REINVESTED> 301,238
<NET-CHANGE-IN-ASSETS> 12,476,177
<ACCUMULATED-NII-PRIOR> 778
<ACCUMULATED-GAINS-PRIOR> (44,382)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 236,155
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 296,304
<AVERAGE-NET-ASSETS> 31,490,071
<PER-SHARE-NAV-BEGIN> 11.75
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> 1.84
<PER-SHARE-DIVIDEND> (.24)
<PER-SHARE-DISTRIBUTIONS> (.88)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.71
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> EMERGING GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 66,530,145
<INVESTMENTS-AT-VALUE> 96,145,313
<RECEIVABLES> 1,716,707
<ASSETS-OTHER> 172,465
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 98,034,485
<PAYABLE-FOR-SECURITIES> 1,694,067
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 545,041
<TOTAL-LIABILITIES> 2,239,108
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,800,004
<SHARES-COMMON-STOCK> 4,157,003
<SHARES-COMMON-PRIOR> 3,218,595
<ACCUMULATED-NII-CURRENT> (21)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (619,755)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,615,149
<NET-ASSETS> 95,795,377
<DIVIDEND-INCOME> 97,308
<INTEREST-INCOME> 144,378
<OTHER-INCOME> 0
<EXPENSES-NET> 686,721
<NET-INVESTMENT-INCOME> (445,035)
<REALIZED-GAINS-CURRENT> 258,669
<APPREC-INCREASE-CURRENT> 22,323,591
<NET-CHANGE-FROM-OPS> 22,137,225
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (681,292)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,257,911
<NUMBER-OF-SHARES-REDEEMED> 490,481
<SHARES-REINVESTED> 170,978
<NET-CHANGE-IN-ASSETS> 39,566,202
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (197,132)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 583,658
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 686,721
<AVERAGE-NET-ASSETS> 72,996,754
<PER-SHARE-NAV-BEGIN> 17.47
<PER-SHARE-NII> (.11)
<PER-SHARE-GAIN-APPREC> 5.85
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.04
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 14,021,781
<INVESTMENTS-AT-VALUE> 15,987,995
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 834,646
<TOTAL-ASSETS> 16,822,641
<PAYABLE-FOR-SECURITIES> 125,024
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 121,336
<TOTAL-LIABILITIES> 246,360
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,712,849
<SHARES-COMMON-STOCK> 1,367,158
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (61,402)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,924,834
<NET-ASSETS> 16,576,281
<DIVIDEND-INCOME> 137,473
<INTEREST-INCOME> 18,955
<OTHER-INCOME> 0
<EXPENSES-NET> 152,881
<NET-INVESTMENT-INCOME> 3,547
<REALIZED-GAINS-CURRENT> 89,758
<APPREC-INCREASE-CURRENT> 1,768,176
<NET-CHANGE-FROM-OPS> 1,861,481
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (56,828)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,388,935
<NUMBER-OF-SHARES-REDEEMED> 21,778
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 16,576,271
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 98,869
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 152,881
<AVERAGE-NET-ASSETS> 9,889,014
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 2.16
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.12
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 8,600,320
<INVESTMENTS-AT-VALUE> 11,000,356
<RECEIVABLES> 680,950
<ASSETS-OTHER> 628,124
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,309,430
<PAYABLE-FOR-SECURITIES> 754,141
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,547
<TOTAL-LIABILITIES> 765,688
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,074,412
<SHARES-COMMON-STOCK> 880,274
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 69,294
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,400,036
<NET-ASSETS> 11,543,742
<DIVIDEND-INCOME> 33,115
<INTEREST-INCOME> 19,717
<OTHER-INCOME> 0
<EXPENSES-NET> 92,769
<NET-INVESTMENT-INCOME> (39,937)
<REALIZED-GAINS-CURRENT> 109,231
<APPREC-INCREASE-CURRENT> 2,400,036
<NET-CHANGE-FROM-OPS> 2,469,330
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,007,173
<NUMBER-OF-SHARES-REDEEMED> 126,900
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 11,543,732
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 64,332
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 92,769
<AVERAGE-NET-ASSETS> 8,580,327
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> 3.16
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.11
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> HIGH YIELD BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 8,803,320
<INVESTMENTS-AT-VALUE> 8,383,175
<RECEIVABLES> 292,038
<ASSETS-OTHER> 163,016
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,838,229
<PAYABLE-FOR-SECURITIES> 25,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 844,386
<TOTAL-LIABILITIES> 869,386
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,575,072
<SHARES-COMMON-STOCK> 839,897
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (186,084)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (420,145)
<NET-ASSETS> 7,968,843
<DIVIDEND-INCOME> 10,770
<INTEREST-INCOME> 574,526
<OTHER-INCOME> 0
<EXPENSES-NET> 80,100
<NET-INVESTMENT-INCOME> 505,196
<REALIZED-GAINS-CURRENT> (186,084)
<APPREC-INCREASE-CURRENT> (420,145)
<NET-CHANGE-FROM-OPS> (101,033)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (505,196)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,294,477
<NUMBER-OF-SHARES-REDEEMED> 454,581
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,968,833
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 48,279
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 80,100
<AVERAGE-NET-ASSETS> 6,438,707
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> (.51)
<PER-SHARE-DIVIDEND> (.60)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.49
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Exhibit 99.1
DATE ??/16/1999 09:52:14 AM. PAGE:1
JPVF
PRICE CALCULATIONS
FOR DATE: 12/31/98
ACTIVE RECORDS ONLY
<TABLE>
<CAPTION>
NAV AND
OUTSTANDING OFFERING PRICE
FUND ID NET ASSETS SHARES PER SHARE
------- --------------- ----------- --------------
<S> <C> <C> <C>
BALANCED 35,113,754.07 2,761,712.036 12.71
CAP-GROW 198,002,451.03 7,098,111.684 27.90
SMALL COMPANY 78,182,772.92 4,822,819.788 16.21
EMERGING 95,795,377.42 4,157,003.037 23.04
GLOBAL HARD ASSETS 4,333,662.60 573,626.264 7.55
GROW-INC 65,309,529.95 3,416,067.922 19.12
GROWTH 11,543,741.73 880,273.742 13.11
HIYIELD 7,968,842.93 839,897.138 9.49
INTLEQTY 16,576,280.86 1,367,158.010 12.12
MONEYMKT 24,416,645.40 2,353,896.048 10.37
WORLDGRO 110,897,303.33 5,063,426.116 21.90
</TABLE>
Exhibit 99.2
JEFFERSON-PILOT CORPORATION
CORPORATE ORGANIZATION CHART
<TABLE>
<S> <C>
A. Affiliates actually controlled
Jefferson-Pilot Corporation (North Carolina corp.)
Alexander Hamilton Life Insurance Company of America (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
Jefferson Pilot LifeAmerica Insurance Company (New Jersey corp.)
(name changed effective May 1, 1998, from Chubb Colonial Life Insurance Company)
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.)
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.)
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.)
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)
Jefferson Pilot Insurance Agency of Alabama, Inc. (Alabama corp.)
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 about 99% of Omega and has the right to acquire the other
shares
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., 29.172% owned
GARCO Capital Corp. owns:
International Home Furnishing Center, Inc., Common, North Carolina corp., 25.06% owned
</TABLE>
Recent changes other than noted above:
July 1, 1998 - Chubb Sovereign merged into JPFIC
December 31, 1998 - AH Capital Management liquidated
December 31, 1998 - GARCO merged into HARCO in Delaware
December 31, 1998 - San Diego Broadcasting merged into JPCC of California
January 1, 1999 - JP Service Corp. liquidated
January 1, 1999 - Community Choice liquidated
January 6, 1999 - AH Michigan merged into AH Life effective 1/1
