<PAGE> 1
IDEX II SERIES FUND
(GLOBAL PORTFOLIO)
SUPPLEMENT DATED JUNE 9, 1995
TO PROSPECTUS DATED FEBRUARY 1, 1995
PLEASE READ THIS SUPPLEMENT CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
Under the section of the Prospectus entitled "Additional Investment
Practices -- Foreign Securities" (page 16) the following replaces the first
sentence of the first paragraph:
Each of the Growth, Balanced, Capital Appreciation and Aggressive Growth
Portfolios may invest up to 25% of its assets, directly or indirectly, in
foreign securities. The Global Portfolio may invest without limit in foreign
securities.
<PAGE> 2
IDEX II SERIES FUND
201 HIGHLAND AVENUE, LARGO, FL 34640
CUSTOMER SERVICE: (800) 851-9777
PROSPECTUS DATED FEBRUARY 1, 1995
IDEX II GROWTH PORTFOLIO (the "Growth Portfolio") seeks only growth of
capital. The Growth Portfolio pursues its objective primarily by investing in
common stocks listed on a national securities exchange or on NASDAQ and which
the Portfolio's sub-adviser believes have a good potential for capital growth.
IDEX II GLOBAL PORTFOLIO (the "Global Portfolio") seeks long-term growth of
capital in a manner consistent with preservation of capital, primarily through
investments in common stocks of foreign and domestic issuers. The Global
Portfolio's holdings in foreign securities involve special risks that should be
considered carefully before investing and which are described in this Prospectus
under "Risk Factors -- Foreign Securities."
IDEX II FLEXIBLE INCOME PORTFOLIO (the "Flexible Income Portfolio") seeks to
obtain maximum total return for its shareholders, consistent with preservation
of capital, by actively managing a portfolio of income-producing securities.
Securities are selected because they offer the potential for the highest total
return from a combination of current income and capital appreciation, with an
emphasis on the income component of total return.
IDEX II TAX-EXEMPT PORTFOLIO (the "Tax-Exempt Portfolio") seeks to provide
maximum current interest income exempt from federal income tax in a manner
consistent with preservation of capital. The Tax-Exempt Portfolio pursues its
objective primarily by investing in high quality municipal obligations the
income from which is exempt from federal income tax.
IDEX II INCOME PLUS PORTFOLIO (the "Income Plus Portfolio") seeks to provide
as high a level of current income as is consistent with the avoidance of
excessive risk. The Income Plus Portfolio pursues its objective primarily by
investing in a diversified portfolio of high-yield, fixed-income securities,
including convertible debt securities.
IDEX II BALANCED PORTFOLIO (the "Balanced Portfolio") seeks long-term
capital growth, consistent with preservation of capital and balanced by current
income. The Portfolio is designed for investors who want to participate in the
equity markets through a more moderate investment than a pure growth fund. The
Portfolio normally invests 40% - 60% of its assets in equity securities selected
primarily for their growth potential and 40% - 60% of its assets in fixed income
securities.
IDEX II CAPITAL APPRECIATION PORTFOLIO (the "Capital Appreciation
Portfolio") is a nondiversified portfolio that seeks long-term growth of capital
in a manner consistent with the preservation of capital by emphasizing
investments in common stocks of companies with a market capitalization between
$1 billion and $5 billion. Realization of income is not a significant investment
consideration, and any income realized on the Capital Appreciation Portfolio's
investments will be incidental to its primary objective.
IDEX II AGGRESSIVE GROWTH PORTFOLIO (the "Aggressive Growth Portfolio")
seeks long-term capital appreciation. Income is an incidental consideration in
the selection of investments but is not an investment objective of the
Aggressive Growth Portfolio. The Portfolio seeks to achieve its objective by
investing in a diversified, actively managed portfolio of equity securities.
IDEX II EQUITY-INCOME PORTFOLIO (the "Equity-Income Portfolio") seeks to
provide current income, long-term growth of income and capital appreciation. The
Equity-Income Portfolio seeks to achieve its objective by investing primarily in
common stocks offering above-average dividend yields, income producing
securities convertible into common stock, and fixed-income securities.
This Prospectus sets forth concise information which investors should
consider before investing in a Portfolio. Investors should read and retain this
Prospectus for future reference. Additional and more detailed information about
each Portfolio is contained in the Statement of Additional Information dated
February 1, 1995 which is filed with the Securities and Exchange Commission in
Washington, D.C. and incorporated by reference in this Prospectus. A copy of the
Statement of Additional Information may be obtained without charge by calling or
writing the Fund at the address or phone number indicated above.
PORTFOLIO SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY.
THE FLEXIBLE INCOME PORTFOLIO MAY INVEST WITHOUT LIMIT, AND THE INCOME PLUS
PORTFOLIO MAY INVEST UP TO 50%, OF ITS ASSETS IN LOWER RATED BONDS, COMMONLY
REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE CONSIDERED TO BE SPECULATIVE
WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTMENTS IN
THESE TYPES OF SECURITIES HAVE GREATER RISKS, INCLUDING THE RISK OF DEFAULT,
THAN HIGHER RATED BONDS. THESE RISKS ARE DESCRIBED IN THE "RISK FACTORS -- HIGH
YIELD/HIGH RISK BONDS" SECTION OF THIS PROSPECTUS AND THEREFORE MAY NOT BE
SUITABLE FOR ALL INVESTORS. INVESTORS SHOULD CAREFULLY ASSESS THE RISKS
ASSOCIATED WITH INVESTMENTS IN THOSE PORTFOLIOS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
IDEX II SERIES FUND
SUMMARY OF INFORMATION
Each Portfolio (a "Portfolio") is a separate series of IDEX II Series Fund
(the "Fund"), an open-end management investment company offering a selection of
separate investment portfolios. All Portfolios other than the Capital
Appreciation Portfolio are diversified, while the Capital Appreciation Portfolio
is nondiversified. Each Portfolio has a distinct investment objective and
policies which are summarized below.
INVESTMENT OBJECTIVES AND POLICIES
The only investment objective of IDEX II GROWTH PORTFOLIO is to provide
growth of capital. The Growth Portfolio seeks to achieve its objective primarily
through investment in common stocks listed on a national securities exchange or
on NASDAQ and which the Portfolio's sub-adviser believes have a good potential
for capital growth.
The investment objective of IDEX II GLOBAL PORTFOLIO is to provide
long-term growth of capital in a manner consistent with preservation of capital
primarily through investments in common stocks of foreign and domestic issuers.
The Global Portfolio offers investors the ability to diversify their own
investment portfolios by investing in companies and economies located throughout
the world. The Global Portfolio is designed for long-term investors who can
accept certain investment risks. Generally, the Global Portfolio's investments
in securities of foreign issuers involve greater risks than are present in U.S.
investments. Investments in foreign securities may be denominated in foreign
currencies. Thus, the Global Portfolio's share value will also be affected by
changes in exchange rates. A further discussion of the special considerations of
investments in foreign securities can be found under "Risk Factors -- Foreign
Securities."
The investment objective of IDEX II FLEXIBLE INCOME PORTFOLIO is to obtain
maximum total return for its shareholders, consistent with preservation of
capital, by actively managing a portfolio of income-producing securities. The
Flexible Income Portfolio seeks to maximize total return from a combination of
current income and capital appreciation, with an emphasis on the income
component of total return. The Flexible Income Portfolio may invest in all types
of income-producing securities and may have substantial holdings of debt
securities rated below investment grade. The risks of investing in such
securities are described under "Risk Factors -- High Yield/High Risk Bonds."
The investment objective of IDEX II TAX-EXEMPT PORTFOLIO is to provide
maximum current interest income exempt from federal income tax in a manner
consistent with preservation of capital. The Tax-Exempt Portfolio seeks to
achieve its objective through investment in a diversified portfolio of municipal
bonds and notes, including industrial development bonds.
The investment objective of IDEX II INCOME PLUS PORTFOLIO is to provide as
high a level of current income as is consistent with the avoidance of excessive
risk. This objective involves a significant level of risk associated with
investments in securities with a relatively high degree of investment risk. The
Income Plus Portfolio seeks to achieve its objective by investing in a
diversified portfolio consisting primarily of high-yield, fixed-income
securities, including convertible debt securities. In pursuing its investment
objective, the Income Plus Portfolio may invest up to 50% of its securities
(other than commercial paper) in non-investment grade securities. Investment in
these securities has special risks which are described under "Risk
Factors -- High Yield/High Risk Bonds."
The investment objective of IDEX II BALANCED PORTFOLIO is long-term capital
growth, consistent with preservation of capital and balanced by current income.
The Balanced Portfolio is designed for investors who want to participate in the
equity markets through a more moderate investment than a pure growth fund. The
Portfolio normally invests 40% - 60% of its assets in equity securities selected
primarily for their growth potential and 40% - 60% of its assets in fixed income
securities.
The IDEX II CAPITAL APPRECIATION PORTFOLIO seeks long-term growth of
capital in a manner consistent with the preservation of capital by emphasizing
investment in common stocks of companies with a market capitalization between $1
billion and $5 billion. Realization of income is not a significant investment
consideration, and any income realized on the Capital Appreciation Portfolio's
investments will be incidental to its primary objective.
The IDEX II AGGRESSIVE GROWTH PORTFOLIO seeks long-term capital
appreciation. Income is an incidental consideration in the selection of
investments but is not an investment objective of the Aggressive Growth
Portfolio. The Aggressive Growth Portfolio seeks to achieve its objective by
investing in a diversified, actively managed portfolio of equity securities.
The IDEX II EQUITY-INCOME PORTFOLIO seeks to provide current income,
long-term growth of income and capital appreciation. The Equity-Income Portfolio
seeks to achieve its objective by investing primarily in common stocks offering
above-average dividend yields, income producing securities convertible into
common stocks, and fixed-income securities.
There can be, of course, no assurance that a Portfolio will achieve its
investment objective. For a further description of each Portfolio's objective
and a discussion of investment policies, see "Investment Objectives and
Policies."
1
<PAGE> 4
PROFESSIONAL MANAGEMENT
Idex Management, Inc. ("IMI") is the investment adviser to the Growth,
Global, Flexible Income, Balanced and Capital Appreciation Portfolios. Janus
Capital Corporation ("Janus Capital") is the investment sub-adviser to the
Growth, Global, Flexible Income, Balanced and Capital Appreciation Portfolios
and provides IMI with investment advice and recommendations consistent with the
investment objective and policies of those Portfolios. InterSecurities, Inc.
("ISI") is the investment adviser to the Tax-Exempt, Income Plus, Aggressive
Growth and Equity-Income Portfolios. AEGON USA Investment Management, Inc.
("AEGON Management") is the investment sub-adviser to the Tax-Exempt and Income
Plus Portfolios and provides ISI with investment advice and recommendations
consistent with the investment objective and policies of those Portfolios. Fred
Alger Management, Inc. ("Alger Management") is the investment sub-adviser to the
Aggressive Growth Portfolio and Luther King Capital Management, Inc. ("Luther
King") is the investment sub-adviser to the Equity-Income Portfolio. Alger
Management and Luther King provide ISI with investment advice and
recommendations consistent with the investment objective and policies of those
Portfolios. ISI also serves as principal underwriter of each Portfolio's shares.
The fees for these management and distribution services are described under
"Investment Advisory and Other Services."
INVESTMENT IN THE PORTFOLIOS
The minimum initial investment in the Portfolios is ordinarily $500.
Purchases through plans for regular investment, such as the Automatic Investment
Plan, payroll deduction plans or comparable plans, ordinarily do not require a
minimum initial investment. Additional investments in each Portfolio must be at
least $50, with certain exceptions as described in the Shareholders' Manual
section of this Prospectus. Each Portfolio offers investors a choice of two
classes of shares, each with a public offering price that reflects different
sales charges, if any, and expense levels. Class A shares are offered at net
asset value plus any applicable sales charge (the maximum of which for the
Growth, Global, Balanced, Capital Appreciation, Aggressive Growth and
Equity-Income Portfolios is 5.5% of a Portfolio's public offering price, and for
the Flexible Income, Tax-Exempt and Income Plus Portfolios is 4.75% of a
Portfolio's public offering price). Class C shares are offered at net asset
value, without a sales charge. (See "Alternative Purchase Arrangements",
"Investment Advisory and Other Services" and "Shareholders' Manual -- How to
Purchase Shares.")
DIVIDENDS AND OTHER DISTRIBUTIONS
Each of the Growth, Global, Capital Appreciation and Aggressive Growth
Portfolios ordinarily pays semi-annual dividends from its net investment income
available for distribution. Each of the Flexible Income, Tax-Exempt and Income
Plus Portfolios ordinarily pays monthly dividends from its net investment income
available for distribution. The Balanced and Equity-Income Portfolios ordinarily
pay quarterly dividends from their net investment income available for
distribution. Distributions of net capital gain, to the extent available for
distribution, will be paid by each Portfolio annually. All income, dividends and
capital gain distributions will be distributed in additional shares at net asset
value unless the shareholder has elected to receive cash as described under
"Distributions and Taxes."
REDEMPTION OF SHARES
Shareholders may redeem shares of a Portfolio directly through the Fund's
transfer agent by mail or telephone, through dealers by wire or telephone or
through a Systematic Withdrawal Plan. (See "Shareholders' Manual -- How to
Redeem Shares.") Shares may be redeemed at any time at the net asset value next
determined after a proper redemption request is received by the Fund's transfer
agent.
MISCELLANEOUS INFORMATION
Each Portfolio is a series of IDEX II Series Fund, a Massachusetts business
trust that was formed by a Declaration of Trust dated January 7, 1986. The Fund
is a series company whose operations are governed by a Restatement of
Declaration of Trust dated as of August 30, 1991. (See "Miscellaneous
Information.")
2
<PAGE> 5
- --------------------------------------------------------------------------------
SUMMARY OF EXPENSES
- --------------------------------------------------------------------------------
IDEX II SERIES FUND
<TABLE>
<CAPTION>
IDEX II IDEX II IDEX II
Growth Global Flexible Income
Portfolio Portfolio Portfolio
Class A Class C Class A Class C Class A Class C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)(1)................ 5.50% None 5.50% None 4.75% None
Exchange Fees(2)........................................ None None None None None None
Redemption Fees(3)...................................... None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees......................................... 1.00% 1.00% 1.00% 1.00% .90% .90%
12b-1 Service and Distribution Fees(4).................. .35% .90% .35% .90% .35% .90%
Other Expenses (net of expense
reimbursements and/or fee waivers, if any)(5)......... .41% 1.58% .79% 2.14% .60% .60%
------- ------- ------- ------- ------- -------
Total Operating Expenses (net of expense
reimbursements and/or fee waivers, if any)(5)......... 1.76% 3.48% 2.14% 4.04% 1.85% 2.40%
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption at the end of each period (6):
1 year................................................ $ 72 $ 35 $ 76 $ 41 $ 65 $ 24
3 years............................................... 107 107 118 123 103 75
5 years............................................... 145 181 164 207 143 128
10 years.............................................. 251 376 289 424 254 274
</TABLE>
(1) On certain purchases of Class A shares, the sales load may be reduced. (See
"Shareholders' Manual -- How to Purchase Shares.")
(2) A $5 service fee is charged for each exchange transaction under $1,000. (See
"Shareholders' Manual -- How to Exchange Shares.")
(3) A $20 service fee is charged for each redemption transaction paid by Federal
funds bank wire or for overnight mail delivery of check redemptions. (See
"Shareholders' Manual -- How to Redeem Shares.")
(4) For the current fiscal year, 12b-1 service and distribution fees for the
Tax-Exempt Portfolio's Class C shares will not exceed 0.60%, rather then the
maximum 0.90% authorized pursuant to its 12b-1 plan.
(5) Other Expenses and Total Operating Expenses for the Growth, Global, Flexible
Income, Tax-Exempt and Income Plus Portfolios are based on actual expenses
during the fiscal year ended September 30, 1994, while Other Expenses and
Total Operating Expenses for the Balanced, Capital Appreciation, Aggressive
Growth and Equity-Income Portfolios are based on annualized estimates of
expenses for the fiscal year ending September 30, 1995. For the Flexible
Income and Tax-Exempt Portfolios only, Other Expenses and Total Operating
Expenses are stated net of expense reimbursements and/or fee waivers.
Without expense reimbursements and/or fee waivers, Total Operating Expenses
for the Class A shares of the Flexible Income and Tax-Exempt Portfolios
would have been 2.13% and 1.30%, respectively, and for the Class C shares of
those Portfolios would have been 8.59% and 20.88%, respectively. It is not
anticipated that expense reimbursements and/or fee waivers for the Balanced,
Capital Appreciation, Aggressive Growth and Equity-Income Portfolios will be
made for the fiscal year ending September 30, 1995. For the Growth and
Global Portfolios, Other Expenses are net of credits earned through use of
affiliated broker-dealers, which credits amounted to .14% and .02%,
respectively, of the Other Expenses of those Portfolios.
(6) The Example assumes all dividends and distributions are paid in additional
shares and no payment of exchange or redemption fees.
3
<PAGE> 6
- --------------------------------------------------------------------------------
SUMMARY OF EXPENSES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IDEX II IDEX II IDEX II IDEX II IDEX II IDEX II
Tax Exempt Income Plus Balanced Capital Appreciation Aggressive Growth Equity-Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
Class A Class C Class A Class C Class A Class C Class A Class C Class A Class C Class A Class C
- ------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.75% None 4.75% None 5.50% None 5.50% None 5.50% None 5.50% None
None None None None None None None None None None None None
None None None None None None None None None None None None
.60% .60% .60% .60% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
.35% .60% .35% .90% .35% .90% .35% .90% .35% .90% .35% .90%
.05% .05% .38% 2.02% 1.02% 1.07% 1.00% 1.05% 1.00% 1.05% 1.02% 1.07%
- ------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
1.00% 1.25% 1.33% 3.52% 2.37% 2.97% 2.35% 2.95% 2.35% 2.95% 2.37% 2.97%
$ 57 $ 13 $ 60 $ 35 $ 78 $ 30 $ 78 $ 30 $ 78 $ 30 $ 78 $ 30
78 40 88 108 125 92 124 91 124 91 125 92
100 69 117 183 175 156 174 155 174 155 175 156
164 151 200 379 311 329 309 327 309 327 311 329
</TABLE>
Long-term shareholders may pay more in 12b-1 service and distribution fees
than the economic equivalent of the maximum front-end sales charge permitted
under the Rules of Fair Practice adopted by the National Association of
Securities Dealers, Inc.
The purpose of the preceding table is to assist investors in understanding
the various costs and expenses an investor in a Portfolio may bear directly or
indirectly. These expenses are described in greater detail under "Investment
Advisory and Other Services" and in the Shareholders' Manual section of this
Prospectus.
THE EXPENSES SET FORTH IN THE PRECEDING TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY
BE GREATER OR LESS THAN THE ASSUMED AMOUNT.
4
<PAGE> 7
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The information contained in the table below for a share of beneficial interest
outstanding throughout each fiscal year and other periods shown has been audited
by Price Waterhouse LLP, independent accountants, whose report appears in the
Statement of Additional Information. Previous periods ended on or before
November 30, 1991 for the Tax-Exempt and Income Plus Portfolios were audited by
other independent accountants. The Statement of Additional Information is
incorporated by reference in this Prospectus and may be obtained without charge
by calling or writing the Fund. Further information about performance of the
Fund's Portfolios is contained in the Fund's Annual Report to shareholders,
which may also be obtained without charge by calling or writing the Fund.
<TABLE>
<CAPTION>
NET ASSET NET REALIZED TOTAL INCOME DIVIDENDS DISTRIBUTIONS
YEAR OR VALUE NET AND UNREALIZED (LOSS) FROM FROM NET FROM
PERIOD BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENTS INVESTMENT REALIZED NET
ENDED OF PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
IDEX II GROWTH
PORTFOLIO
Class
A
(1) 9/30/94(2) $18.46 $0.01 ($1.22) ($1.21) $ - ($0.33)
9/30/93 16.46 0.04 2.42 2.46 (0.07) (0.39)
9/30/92 16.22 0.08 0.88 0.96 (0.07) (0.65)
9/30/91(2) 13.77 0.14 5.32 5.46 (0.17) (2.84)
9/30/90 17.52 0.12 (2.21) (2.09) (0.09) (1.57)
9/30/89 11.48 0.09 6.18 6.27 (0.23) -
9/30/88 14.08 0.25 (1.59) (1.34) (0.16) (1.10)
9/30/87 9.90 0.14 4.11 4.25 (0.07) -
9/30/86(3) 10.00 0.07 (0.17) (0.10) - -
Class
C 9/30/94(3) 18.46 (0.09) (1.22) (1.31) - (0.33)
- ---------------------------------------------------------------------------------------------------------------------------------
IDEX II GLOBAL
PORTFOLIO
Class
A 9/30/94 $13.35 ($0.04) $2.62 $2.58 $ - $ -
9/30/93(3) 10.00 (0.04) 3.39 3.35 - -
Class
C 9/30/94(3) 13.35 (0.23) 2.62 2.39 - -
- ---------------------------------------------------------------------------------------------------------------------------------
IDEX II FLEXIBLE INCOME PORTFOLIO
Class
A
(1)(4) 9/30/94(2) $ 9.59 $0.65 ($0.81) ($0.16) ($ 0.60) $ -
9/30/93 8.95 0.70 0.60 1.30 (0.66) -
10/31/92 8.73 0.80 0.22 1.02 (0.80) -
10/31/91 7.74 0.82 1.10 1.92 (0.80) (0.13)
10/31/90 9.55 0.90 (1.80) (0.90) (0.91) -
10/31/89 10.15 0.95 (0.46) 0.49 (0.93) (0.16)
10/31/88 9.60 0.91 0.55 1.46 (0.91) -
10/31/87(3) 10.00 0.25 (0.40) (0.15) (0.25) -
Class
C 9/30/94(3) 9.59 0.60 (0.81) (0.21) (0.55) -
- ---------------------------------------------------------------------------------------------------------------------------------
IDEX II
TAX-EXEMPT
PORTFOLIO
Class
A
(5) 9/30/94 $12.07 $0.56 ($0.60) ($0.04) ($ 0.54) ($0.39)
9/30/93 11.62 0.56 0.45 1.01 (0.54) (0.02)
9/30/92 11.46 0.54 0.28 0.82 (0.54) (0.12)
11/30/91 11.27 0.75 0.26 1.01 (0.75) (0.07)
11/30/90 11.39 0.78 (0.12) 0.66 (0.78) -
11/30/89 10.97 0.78 0.42 1.20 (0.78) -
11/30/88 10.44 0.79 0.53 1.32 (0.79) -
11/30/87 11.81 0.77 (1.37) (0.60) (0.77) -
11/30/86 10.56 0.79 1.42 2.21 (0.79) (0.17)
11/30/85(3) 10.00 0.60 0.56 1.16 (0.60) -
Class
C 9/30/94(3) 12.07 0.53 (0.60) (0.07) (0.51) (0.39)
- ---------------------------------------------------------------------------------------------------------------------------------
IDEX II INCOME
PLUS PORTFOLIO
Class
A
(6) 9/30/94 $10.98 $0.76 ($1.10) ($0.34) ($ 0.75) ($0.14)
9/30/93 10.55 0.83 0.46 1.29 (0.81) (0.05)
9/30/92 10.04 0.76 0.64 1.40 (0.76) (0.13)
11/30/91 9.20 0.98 0.87 1.85 (0.98) (0.03)
11/30/90 9.99 1.04 (0.79) 0.25 (1.04) -
11/30/89 9.89 1.04 0.10 1.14 (1.04) -
11/30/88 9.85 1.04 0.06 1.10 (1.04) (0.02)
11/30/87 10.94 1.08 (1.03) 0.05 (1.08) (0.06)
11/30/86 10.28 1.06 0.73 1.79 (1.06) (0.07)
11/30/85(3) 10.00 0.44 0.29 0.73 (0.44) (0.01)
Class
C 9/30/94(3) 10.98 0.66 (1.10) (0.44) (0.66) (0.14)
</TABLE>
5
<PAGE> 8
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTIONS NET ASSET NET ASSETS SHARES RATIO OF RATIO OF NET
IN EXCESS OF VALUE END OUTSTANDING AT EXPENSES TO INCOME (LOSS)
NET REALIZED TOTAL END TOTAL OF PERIOD END OF PERIOD AVERAGE TO AVERAGE
CAPITAL GAINS DISTRIBUTIONS OF PERIOD RETURN (7) (000'S) (000'S) NET ASSETS (8) NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
($ 0.14) ($ 0.47) $ 16.78 (6.72%) $431,207 25,691 1.76% 0.04%
- (0.46) 18.46 15.13 548,564 29,710 1.61 0.29
- (0.72) 16.46 6.10 403,361 24,507 1.61 0.69
- (3.01) 16.22 48.00 126,436 7,796 1.48 0.88
- (1.66) 13.77 (12.50) 74,594 5,415 1.35 0.75
- (0.23) 17.52 55.70 89,494 5,107 1.41 0.67
- (1.26) 11.48 (8.00) 65,463 5,704 1.47 2.45
- (0.07) 14.08 44.10 78,979 5,610 1.32 0.94
- - 9.90 (1.70) 19,745 1,995 2.02 2.35
(0.14) (0.47) 16.68 (7.72) 3,423 205 3.48 (1.68)
- -----------------------------------------------------------------------------------------------------------------------------------
$ - $ - $ 15.93 19.33% $ 81,241 5,102 2.14% (0.55%)
- - 13.35 33.52 17,430 1,306 2.84 (0.87)
- - 15.74 17.90 3,571 227 4.04 (2.46)
- -----------------------------------------------------------------------------------------------------------------------------------
$ - ($ 0.60) $ 8.83 (1.54%) $ 21,527 2,438 1.85% 6.57%
- (0.66) 9.59 13.66 29,232 3,048 1.50 7.76
- (0.80) 8.95 12.17 26,676 2,982 1.50 8.55
- (0.93) 8.73 26.38 18,696 2,142 1.50 9.84
- (0.91) 7.74 (10.22) 18,760 2,424 1.50 10.51
- (1.09) 9.55 5.20 27,645 2,895 1.29 9.63
- (0.91) 10.15 15.60 20,469 2,018 1.00 9.22
- (0.25) 9.60 (1.90) 4,676 487 1.14 7.88
- (0.55) 8.83 (2.15) 691 78 2.40 6.03
- -----------------------------------------------------------------------------------------------------------------------------------
$ - ($ 0.93) $ 11.10 (0.41%) $ 29,096 2,621 1.00% 4.83%
- (0.56) 12.07 8.97 30,717 2,545 1.00 4.83
- (0.66) 11.62 7.20 28,363 2,442 1.00 5.49
- (0.82) 11.46 9.20 28,242 2,464 0.95 6.67
- (0.78) 11.27 6.00 22,708 2,016 0.68 6.92
- (0.78) 11.39 11.20 15,916 1,398 0.70 6.98
- (0.79) 10.97 12.90 11,805 1,076 0.70 7.28
- (0.77) 10.44 (5.20) 8,833 846 0.64 7.16
- (0.96) 11.81 21.40 3,112 264 1.21 6.89
- (0.60) 10.56 7.80 1,294 123 0.93 8.18
- (0.90) 11.10 (0.73) 277 25 1.25 4.58
- -----------------------------------------------------------------------------------------------------------------------------------
$ - ($ 0.89) $ 9.75 (3.28%) $ 63,995 6,560 1.33% 7.35%
- (0.86) 10.98 12.80 72,401 6,596 1.33 7.73
- (0.89) 10.55 14.40 54,647 5,181 1.17 8.79
- (1.01) 10.04 21.00 47,334 4,716 1.15 10.20
- (1.04) 9.20 2.50 33,182 3,607 0.69 11.12
- (1.04) 9.99 12.10 23,416 2,343 0.70 10.59
- (1.06) 9.89 11.50 17,078 1,726 0.68 10.55
- (1.14) 9.85 0.30 11,349 1,152 0.64 10.82
- (1.13) 10.94 17.90 4,221 386 1.29 9.93
- (0.45) 10.28 8.80 2,282 222 0.60 10.80
- (0.80) 9.74 (4.55) 2,112 217 3.52 5.16
<CAPTION>
IN EXCESS OF PORTFOLIO
NET REALIZED TURNOVER
CAPITAL GAINS RATE(9)
<S> <C>
- ----------------------------------
($ 0.14) 63.73%
- 97.40
- 56.21
- 102.16
- 127.79
- 98.88
- 133.28
- 167.58
- 19.57
(0.14) 63.73
- --------------------------------------------
$ - 148.01
- 116.98
- 148.01
- ------------------------------------------------------
$ - 105.40%
- 138.86
- 140.23
- 130.73
- 72.40
- 71.44
- 54.42
- 68.21
- 105.40
- ----------------------------------------------------------------
$ - 59.84
- 91.03
- 106.89
- 117.92
- 81.17
- 67.45
- 35.44
- 87.03
- 38.00
- 20.15
- 59.84
- --------------------------------------------------------------------------
$ - 48.12
- 54.51
- 91.01
- 52.79
- 18.54
- 57.50
- 34.29
- 34.13
- 29.80
- 25.08
- 48.12
</TABLE>
6
<PAGE> 9
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(1) As of October 1, 1992, Growth Class A and Flexible Income Class A
discontinued the practice of equalization accounting.
(2) Prior to May 1, 1991, no 12b-1 fees were incurred by Growth Class A shares.
Effective May 1, 1991, Growth Portfolio Class A shares incurred 12b-1 fees
at the rate of 0.25% in accordance with the Plan of Distribution under Rule
12b-1 of the Investment Company Act of 1940 applicable to those shares.
Prior to October 1, 1993, no 12b-1 fees were incurred by Flexible Income
Class A shares. Effective October 1, 1993, Flexible Income Portfolio Class
A shares incurred 12b-1 fees at the rate of 0.35% in accordance with the
Plan of Distribution under Rule 12b-1 of the Investment Company Act of 1940
applicable to those shares.
(3) Commencement of operations for Growth Class A, Global Class A, IDEX Total
Income Trust (predecessor to Flexible Income Class A), AEGON USA Tax-Exempt
Portfolio (predecessor to Tax-Exempt Class A) and AEGON USA High Yield
Portfolio (predecessor to Income Plus Class A) was May 8, 1986, October 1,
1992, June 29, 1987, April 1, 1985 and June 14, 1985, respectively.
Commencement of operations for the Class C shares of all Portfolios was
October 1, 1993. (See Notes (4), (5) and (6) to Financial Highlights.)
(4) On October 1, 1993, IDEX Total Income Trust ("IDEX Total") was reorganized
into IDEX II Flexible Income Portfolio, which had no prior operating
history as of that date. Pursuant to the Agreement and Plan of
Reorganization and Liquidation, Flexible Income acquired all of the assets
and assumed all of the liabilities of IDEX Total in exchange for Class A
shares of Flexible Income. All historical financial information relates to
IDEX Total prior to the date it was reorganized into Flexible Income.
(5) On August 5, 1992, shareholders of AEGON USA Tax-Exempt Portfolio ("AEGON
Tax-Exempt") approved an Agreement and Plan of Reorganization and
Liquidation ("Reorganization Agreement") whereby, on August 7, 1992, AEGON
Tax-Exempt was reorganized into IDEX II Tax-Exempt Portfolio, which had no
prior operating history as of that date. Pursuant to the Reorganization
Agreement, Tax-Exempt acquired all of the assets and assumed all of the
liabilities of the AEGON Tax-Exempt in exchange for shares of Tax-Exempt.
All historical financial information prior to August 7, 1992 relates to
AEGON Tax-Exempt.
(6) On August 5 1992, shareholders of the AEGON USA High Yield Portfolio ("AEGON
High Yield") approved an Agreement and Plan of Reorganization and
Liquidation ("Reorganization Agreement") whereby, on August 7, 1992, AEGON
High Yield was reorganized into IDEX II Income Plus (formerly known as IDEX
II High Yield Portfolio), which had no prior operating history as of that
date. Pursuant to the Reorganization Agreement, Income Plus acquired all of
the assets and assumed all the liabilities of AEGON High Yield in exchange
for shares of Income Plus. All historical financial information prior to
August 7, 1992 relates to AEGON High Yield.
(7) Total return has been calculated without deduction of a sales load, if any,
on an initial purchase and assumes all dividends and distributions are paid
in additional shares. Short periods (where applicable) are not annualized.
(8) The following summarizes the expense ratios without expense reimbursement by
the investment adviser for those Portfolios whose ratios are net of expense
reimbursement. Short periods (where applicable) are annualized.
<TABLE>
<CAPTION>
Growth Global Flexible Income Tax-Exempt Income Plus
----------------- ----------------- ----------------- ----------------- -----------------
Class A Class C Class A Class C Class A Class C Class A Class C Class A Class C
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 - - - - 2.13% 8.59% 1.30% 20.88% - -
1993 - - 3.65% - 1.56% - 1.43% - - -
1992 - - - - 1.66% - 1.20% - - -
1991 - - - - 1.75% - 1.24% - 1.21% -
1990 - - - - 1.60% - 0.92% - 1.44% -
1989 - - - - 1.56% - 1.11% - 1.09% -
1988 - - - - 1.96% - 1.13% - 1.11% -
1987 1.39% - - - - - 1.37% - 1.20% -
1986 2.21% - - - - - 2.92% - 2.25% -
1985 - - - - - - 5.62% - 3.96% -
</TABLE>
(9) This rate is calculated by dividing the average value of the Portfolio's
long-term investments during the period into the lesser of its respective
long-term purchases or sales during the period. Short periods (where
applicable) are annualized.
7
<PAGE> 10
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Portfolio offers investors a choice of two classes of shares, each
with a public offering price that reflects different sales charges, if any, and
expense levels.
CLASS A SHARES
Class A shares are offered at net asset value plus any applicable sales
charge (the maximum of which for the Growth, Global, Balanced, Capital
Appreciation, Aggressive Growth and Equity-Income Portfolios is 5.50% of the
public offering price and for the Flexible Income, Tax-Exempt and Income Plus
Portfolios is 4.75% of the public offering price). Certain purchases of Class A
shares qualify for reduced sales charges. Class A shares of each Portfolio also
bear annual service and distribution fees of up to .35% of the average daily net
assets of that class. (See "Summary of Expenses," "Investment Advisory and Other
Services -- Distributor and Distribution and Service Plans" and "Shareholders'
Manual -- How to Purchase Shares -- Purchasing Class A Shares").
CLASS C SHARES
Class C shares are offered at net asset value, without a sales charge.
Class C shares of all Portfolios other than the Tax-Exempt Portfolio bear annual
service and distribution fees of up to .90% of the average daily net assets of
that class. Class C shares of the Tax-Exempt Portfolio may bear annual service
and distribution fees of up to .90% of the average daily net assets of that
class, although the Tax-Exempt Portfolio currently intends to limit the total of
these fees to .60% of the average daily net assets of that Portfolio's Class C
shares. The higher service and distribution fees paid by Class C shares are
expected to cause that class to have a higher expense ratio and pay lower
dividends than Class A shares of the same Portfolio. (See "Summary of Expenses,"
"Investment Advisory and Other Services -- Distributor and Distribution and
Service Plans" and "Shareholders' Manual -- How to Purchase Shares -- Purchasing
Class C Shares.")
CHOOSING A CLASS OF SHARES
The alternative purchase arrangements offered by each Portfolio enable the
investor to choose the method of purchasing Portfolio shares that is most
beneficial given the amount of the purchase, the length of time the investor
intends to hold the shares, and other circumstances. An investor should consider
whether, during the anticipated life of his or her investment in the Portfolio,
the cumulative service and distribution fees on Class C shares would be less
than the applicable initial sales charge and cumulative service and distribution
fees on Class A shares purchased at the same time, and to what extent such
differential may be offset by the anticipated higher return of Class A shares.
For example, investors who qualify for significantly reduced sales charges
might elect to purchase Class A shares which are subject to lower service and
distribution fees and accordingly, are expected to pay correspondingly higher
dividends, if any, per share. Investors not qualifying for reduced initial sales
charges may nonetheless wish to consider the Class A initial sales charge
alternative if they expect to hold their shares for an extended period of time
because the cumulative service and distribution fees on Class C shares may
exceed the initial sales charge plus the cumulative service and distribution
fees on Class A shares during the life of the investment. Class C investors,
however, enjoy the benefit of permitting all their dollars to work from the time
the investments are made. Any positive investment return on the additional
invested amount may offset the higher annual service and distribution fees borne
by Class C shares. There can be, however, no assurance that such a positive
return will be achieved. The example under "Summary of Expenses" shows the
cumulative expenses an investor would pay over time on a hypothetical $1,000
investment in each class of shares, assuming an annual return of 5%. Actual
annual returns, of course, may be higher or lower than 5%.
Distribution and service expenses incurred by ISI in connection with the
sale of Portfolio shares will be paid, in the case of Class A shares, from the
proceeds of the initial sales charge and the ongoing service and distribution
fees on Class A shares, and in the case of Class C shares, from the ongoing
service and distribution fees on Class C shares. Brokers and dealers
distributing Portfolio shares and other financial institutions entitled to
receive compensation for selling such shares may receive different levels of
compensation for selling a particular class of shares of the Portfolio rather
than the other.
Class A and Class C shares of a Portfolio represent interests in the same
portfolio of investments and generally have the same rights, except that each
class bears the separate expenses of its service and distribution plan and any
other expenses attributable only to that class, has exclusive voting rights with
respect to such plan (or any other matters pertaining solely to that class), and
has a separate exchange privilege. Dividends and other distributions paid by a
Portfolio with respect to its Class A and Class C shares are calculated in the
same manner and declared and paid at the same time. The per share dividends from
net investment income on Class C shares are anticipated to be lower than the per
share dividends from net investment income on Class A shares as a result of the
higher service and distribution fees applicable to the Class C shares.
See "Shareholders' Manual -- How to Purchase Shares" for a more complete
description of the initial sales charges applicable to Class A shares. In
addition, see "Investment Advisory and Other Services" and "Distributions and
Taxes" for information regarding other differences between the two classes.
8
<PAGE> 11
INVESTMENT OBJECTIVES AND POLICIES
Each Portfolio is a series of IDEX II Series Fund, an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). All Portfolios other than the Capital Appreciation Portfolio are
diversified, while the Capital Appreciation Portfolio is nondiversified. (See
"Additional Investment Practices -- Diversification Policies.") Each Portfolio
has its own investment objective and policies which are described below. As all
investments are subject to inherent market risks and fluctuations in value due
to earnings, economic conditions and other factors, there can be no assurance
that a Portfolio will, in fact, achieve its investment objective. Each
Portfolio's investment objective and unless otherwise noted, its investment
policies and practices, may be changed by the Board of Trustees without
shareholder approval. A change in the investment objective or policies of a
Portfolio may result in the Portfolio having an investment objective or policies
different from that which the shareholder deemed appropriate at the time of
investment. A Portfolio will not change its investment objective without 30 days
prior notice to its shareholders nor will it charge shareholders an exchange fee
or redemption fee after such notice and prior to the expiration of such 30 day
notice period. However, should a shareholder decide to redeem Portfolio shares
because of a change in its investment objective, the shareholder may realize a
taxable gain or loss.
IDEX II GROWTH PORTFOLIO
The only investment objective of IDEX II Growth Portfolio is growth of
capital. The Growth Portfolio seeks to achieve its objective primarily through
investment in common stocks listed on a national securities exchange or on
NASDAQ and which the Portfolio's sub-adviser believes have a good potential for
capital growth. The Growth Portfolio seeks to invest substantially all of its
assets in common stocks when its portfolio manager believes that the relevant
market environment favors profitable investing in those securities. Common stock
investments are selected from industries and companies that the portfolio
manager believes are experiencing favorable demand for their products and
services, and which operate in a favorable competitive environment and
regulatory climate. The portfolio manager's analysis and selection process
focuses on stocks with earnings growth potential that may not be recognized by
the market. These securities are selected solely for their capital growth
potential; investment income is not a consideration.
Although the Growth Portfolio's assets will be invested primarily in common
stocks at most times, the cash position of the Portfolio may increase when the
portfolio manager is unable to locate investment opportunities with desirable
risk/reward characteristics. The Portfolio may also invest in U.S. government
securities, high grade commercial paper, corporate bonds and debentures,
warrants, preferred stocks, certificates of deposit of commercial banks, other
debt securities or repurchase agreements when its portfolio manager perceives an
opportunity for capital growth from such securities, or so that the Growth
Portfolio may receive a return on its uninvested cash. When the Growth Portfolio
invests in such securities, investment income will likely increase and may
constitute a larger portion of the return on the Portfolio's investments than if
the Portfolio were fully invested in common stocks. (See "Distributions and
Taxes.")
The Growth Portfolio may invest in both domestic and foreign companies,
although the Growth Portfolio will not invest more than 25% of its net assets at
the time of purchase in the securities of foreign issuers and obligors. (See
"Additional Investment Practices -- Foreign Securities.") Investments in foreign
securities involve risks that are different in some respects from investments in
securities of U.S. issuers. (See "Risk Factors -- Foreign Securities.")
The Growth Portfolio may also invest in futures, options and other
derivative instruments. (See "Additional Investment Practices -- Futures,
Options and Other Derivative Instruments" and "Risk Factors -- Futures, Options
and Other Derivative Instruments.") For further information about the Growth
Portfolio's investment policies, see "Additional Investment Practices" and the
Statement of Additional Information.
IDEX II GLOBAL PORTFOLIO
The investment objective of IDEX II Global Portfolio is long-term growth of
capital in a manner consistent with preservation of capital primarily through
investments in common stocks of foreign and domestic issuers. The Global
Portfolio seeks to invest in companies and other organizations on a worldwide
basis regardless of country of organization or place of principal business
activity, as well as domestic and foreign governments, government agencies and
other governmental entities.
The Global Portfolio may be appropriate for investors who are seeking a
variety of investment goals, including:
* Long-term growth of capital without being limited to investments in U.S.
issuers.
* Returns from potential increases in the Portfolio's underlying securities
relative to the value of U.S. securities.
* Hedging to an extent against a decline in the value of U.S. securities
relative to other countries' securities.
* Diversifying domestic investments by including other countries' securities in
the investment portfolio.
The Global Portfolio seeks to invest substantially all of its assets in
common stocks when its portfolio manager believes that the relevant market
environment favors profitable investing in those securities. Common stock
investments are selected from industries and companies that the portfolio
manager
9
<PAGE> 12
believes are experiencing favorable demand for their products and services, and
which operate in a favorable competitive environment and regulatory climate.
These securities are selected solely for their capital growth potential;
investment income is not a consideration.
Although the assets of the Global Portfolio are ordinarily invested in
common stocks at most times, the cash position of the Portfolio may increase
when the portfolio manager is unable to locate investment opportunities with
desirable risk/reward characteristics. The Global Portfolio may also invest in
government securities, corporate bonds and debentures, high-grade commercial
paper, preferred stocks, certificates of deposit, other debt securities or
repurchase agreements when its portfolio manager perceives an opportunity for
capital growth from such securities, or so that the Portfolio may receive a
competitive return on its uninvested cash. The Global Portfolio's investment in
the foregoing types of debt securities will be limited to securities of U.S.
companies, the U.S. government and foreign governments, and U.S. and foreign
governmental agencies and instrumentalities and other governmental entities.
When the Global Portfolio invests in such securities, investment income may
increase and may constitute a larger portion of the return on the Portfolio's
investments, and the Portfolio may not participate in market advances or
declines to the extent that it would if it were fully invested in common stock.
The Global Portfolio's assets are normally invested in securities of
issuers from at least five different countries, including the United States,
although the Portfolio may at times invest all its assets in fewer than five
countries or even a single country. When recommending allocations of the
Portfolio's investments among geographic regions and individual countries, and
among assets denominated in U.S. and foreign currencies, the portfolio manager
considers various factors which may include: prospects for relative economic
growth among countries, regions or geographic areas; expected levels of
inflation; government policies influencing business conditions; and the outlook
for currency relationships. Investments in foreign securities involve risks that
are different in some respects from investments in securities of U.S. issuers.
(See "Additional Investment Practices -- Foreign Securities" and "Risk
Factors -- Foreign Securities.")
The Global Portfolio may also invest in futures, options and other
derivative instruments. (See "Additional Investment Practices -- Futures,
Options and Other Derivative Instruments" and "Risk Factors -- Futures, Options
and Other Derivative Instruments.") For further information about the Global
Portfolio's investment policies, see "Additional Investment Practices" and the
Statement of Additional Information.
IDEX II FLEXIBLE INCOME PORTFOLIO
The investment objective of IDEX II Flexible Income Portfolio is to obtain
maximum total return for its shareholders, consistent with preservation of
capital, by actively managing a portfolio of income-producing securities.
Securities are selected because they offer the potential for the highest total
return from a combination of current income and capital appreciation. The
Flexible Income Portfolio is designed for those investors who want participation
in a broad array of income-producing securities, and/or those investors who
desire a more consistent level of income from their securities investments.
Because of this emphasis, income rather than capital appreciation will normally
be the dominant component of total return. In evaluating investment
opportunities, the portfolio manager gives special emphasis to corporate debt
securities which offer higher yield but more risk than higher grade securities.
The Flexible Income Portfolio may invest in virtually all types of
income-producing securities. The Portfolio may purchase domestic or foreign
securities issued by companies or by governments or governmental agencies. As a
fundamental policy, the Flexible Income Portfolio will invest at least 80% of
its assets in income-producing securities. The Flexible Income Portfolio may
purchase debt securities of any maturity and the average maturity of its
portfolio may vary substantially, depending on its portfolio manager's analysis
of market, economic and financial conditions. The Portfolio has no pre-
established quality standards and may invest in debt securities of any quality,
including lower rated bonds that may offer higher yields because of the greater
risks involved in such investments. Debt securities rated below investment grade
by the primary rating agencies (Moody's Investor Service, Inc. ("Moody's") and
Standard and Poor's Ratings Group ("S&P")) generally constitute lower rated
securities.
The Flexible Income Portfolio may also invest in unrated debt securities of
foreign and domestic issuers. Unrated debt, while not necessarily of lower
quality than rated securities, may not have as broad a market. Sovereign debt of
foreign governments is generally rated by country. Because these ratings do not
take into account individual factors relevant to each issue and may not be
updated regularly, the portfolio manager may treat such securities as unrated
debt.
Appendix A of this Prospectus contains a description of bond rating
categories and includes a table showing the portfolio composition of the
Flexible Income Portfolio at September 30, 1994. The Portfolio may deliberately
vary the overall quality of its portfolio and at times, may have substantial
holdings of high-yield/high risk bonds or unrated bonds of foreign and domestic
issuers. These securities involve additional risks, which are described in
detail under "Risk Factors -- High Yield/High Risk Bonds."
The Flexible Income Portfolio may invest up to 50% of its assets in foreign
securities denominated in foreign currency and not publicly traded in the United
States, provided that no more than 25% of its assets may be invested in the
securities of the government or private issuers of any one foreign country. In
10
<PAGE> 13
addition, the Flexible Income Portfolio may invest in foreign issuers through
the purchase of American Depositary Receipts and similar securities. (See
"Additional Investment Practices -- Foreign Securities.") Investments in foreign
securities involve risks that are different in some respects from investments in
securities of U.S. issuers. (See "Risk Factors -- Foreign Securities.")
The Flexible Income Portfolio may also purchase mortgage and other
asset-backed securities, preferred stocks, income-producing common stocks or
securities convertible into common stocks if such securities appear to offer the
best opportunity for maximum total return.
The Flexible Portfolio may also invest in futures, options and other
derivative instruments. (See "Additional Investment Practices -- Futures,
Options and Other Derivative Instruments" and "Risk Factors -- Futures, Options
and Other Derivative Instruments.") For further information about the Flexible
Income Portfolio's investment policies, see "Additional Investment Practices"
and the Statement of Additional Information, including Appendix A.
IDEX II TAX-EXEMPT PORTFOLIO
The investment objective of IDEX II Tax-Exempt Portfolio is to provide
maximum current interest income exempt from federal income tax in a manner
consistent with preservation of capital. Securities in which the Tax-Exempt
Portfolio invests may not yield as high a level of current income as securities
of lower quality which generally have less liquidity, greater market risk and
more fluctuation. The Portfolio's goal of preserving capital may preclude
realization of the highest available income yields. The Portfolio's tax-exempt
income objective may make it an unsuitable investment for tax-exempt entities or
persons in low income tax brackets.
The tax-exempt securities in which the Tax-Exempt Portfolio invests include
obligations issued by states, territories or possessions of the United States,
the District of Columbia and their political subdivisions, agencies,
instrumentalities and authorities, the interest from which, in the opinion of
bond counsel, is exempt from federal income tax ("Municipal Obligations").
Income from Municipal Obligations which is exempt from federal income tax may be
subject to state and local tax and may constitute an item of preference for
determining the federal alternative minimum tax. Municipal Obligations with
maturities of at least one year when issued are generally referred to as
"Municipal Bonds," while those with shorter maturities of from 6 months to 3
years are generally referred to as "Municipal Notes." It is anticipated that the
weighted average maturity of securities in the Tax-Exempt Portfolio will be
between 20 and 35 years in non-defensive periods.
Ordinarily, at least 80% of the Tax-Exempt Portfolio's total net assets
will be invested in Municipal Obligations, except to the extent the Portfolio
invests in Temporary Investments, as discussed below. In addition, the
Tax-Exempt Portfolio normally invests at least 75% of its total net assets in
one or a combination of (a) Municipal Obligations which at the time of purchase
are rated within the four highest ratings assigned by Moody's or S&P; (b)
municipal commercial paper rated at the time of purchase within the highest
grade assigned by Moody's or S&P; and (c) unrated Municipal Notes of issuers
which at the time of purchase have outstanding at least one issue of Municipal
Bonds rated within the four highest ratings of Moody's or S&P. The Tax-Exempt
Portfolio may invest up to 25% of its total net assets in unrated Municipal
Obligations when in the opinion of its portfolio manager such unrated securities
are comparable in quality to securities rated within the four highest ratings of
Moody's or S&P.
The Tax-Exempt Portfolio may also invest in floating and variable rate
Municipal Obligations or participation interests therein, provided the interest
thereon is exempt from federal income tax and when, in the opinion of its
portfolio manager, the quality of the underlying creditor or bank is equivalent
to the four highest ratings of Moody's or S&P for long-term bonds and/or the two
highest ratings of Moody's for short-term Municipal Notes.
At times, the Tax-Exempt Portfolio may temporarily invest up to 20% of its
total net assets in taxable securities ("Temporary Investments") due to market
conditions, pending the investment of proceeds from purchases of its shares or
proceeds from sales of portfolio securities, or to provide highly liquid
securities to meet anticipated redemptions. The Tax-Exempt Portfolio may also
temporarily invest more than 20% of its total net assets in Temporary
Investments when, in the judgment of the portfolio manager, a defensive position
is required in anticipation of a decline in the market value of portfolio
securities. Temporary Investments may consist of the following fixed-income,
short-term securities: (a) obligations of, or guaranteed as to principal and
interest by, the United States Government or its agencies or instrumentalities
("Government securities"); (b) certificates of deposit issued by domestic banks
with assets of at least $1 billion and having deposits insured by the Federal
Deposit Insurance Corporation; (c) repurchase agreements with respect to
Government securities; and (d) commercial paper rated P-1 by Moody's or A-1 by
S&P.
The ratings of Moody's and S&P represent their respective opinions of the
quality of the Municipal Obligations they undertake to rate and such ratings are
general and are not absolute standards or warranties of quality. Consequently,
Municipal Obligations with the same maturity, coupon and rating may have
different yields, while Municipal Obligations of the same maturity and coupon
with different ratings may have the same yield. An investor interested in the
characteristics of securities carrying the various investment ratings of Moody's
and S&P is referred to Appendix A of this Prospectus.
11
<PAGE> 14
Municipal Bonds and Notes rated in Moody's or S&P's fourth rating category
are considered medium-grade obligations, have an "adequate" capacity to pay
interest and repay principal and are neither highly protected nor poorly
secured. Such bonds lack outstanding investment characteristics and have certain
speculative characteristics. Bonds in this category may be more adversely
affected by changes in circumstances and economic conditions than higher rated
bonds. The Tax-Exempt Portfolio's operating policies place no specific
limitations on the proportion of its portfolio which may be made up of such
bonds, so long as the portfolio manager believes that the Portfolio's objective
of preserving invested capital is being met.
While ratings at the time of purchase will determine which securities are
eligible to be acquired by the Tax-Exempt Portfolio, a subsequent reduction in
rating will not require the Tax-Exempt Portfolio to dispose of the securities.
Unrated municipal securities may be less liquid and therefore, their purchase by
the Tax-Exempt Portfolio may entail somewhat greater risk than comparable but
rated Municipal Obligations. Investment in Municipal Obligations with lower
Moody's or S&P ratings may produce a higher yield than securities rated within
the four highest ratings of Moody's or S&P (or judged of comparable quality).
However, the added risk of lower quality securities might not be consistent with
the Tax-Exempt Portfolio's objective of preservation of capital.
A period of rising commercial interest rates may adversely affect the value
of the Tax-Exempt Portfolio and the net asset value per share and may require
rapid portfolio turnover. Temporary Investments which may have lower yields and
produce income taxable to shareholders may also be made in periods of rising
commercial interest rates, as the risk of issuer default on principal and
interest payments increases in the tax-exempt securities market. Portfolio
values will tend to increase in periods of falling commercial interest rates.
Because yields from Municipal Obligations are typically lower than yields
on securities of comparable quality producing taxable income, the Tax-Exempt
Portfolio is not well suited as an investment vehicle for tax-exempt retirement
programs (e.g., individual retirement accounts and qualified pension trusts)
which cannot benefit from tax-exempt income and whose distributions are taxable
to recipients as ordinary income, despite the underlying source of the
distribution (that is, tax-exempt or capital gain dividends and redemption
proceeds) when received by the retirement plan. Similarly, the benefits of
tax-exempt income from investment in the Tax-Exempt Portfolio will be greater
for persons with higher taxable incomes than for persons in lower income tax
brackets.
Congress has periodically considered proposals to restrict or eliminate the
federal income tax exemption for interest on certain types of or on all
Municipal Obligations. Enactment of legislation affecting the tax-exempt status
of Municipal Obligations would affect their availability for investment and the
value of the Tax-Exempt Portfolio's assets.
For more information about the Tax-Exempt Portfolio's investment policies,
see "Additional Investment Practices" and the Statement of Additional
Information. For a further discussion of various types of Municipal Obligations
and Temporary Investments and certain risks relating to each, see Appendix A of
the Statement of Additional Information.
IDEX II INCOME PLUS PORTFOLIO
The investment objective of IDEX II Income Plus Portfolio is to provide as
high a level of current income as is consistent with the avoidance of excessive
risk. The Portfolio's efforts to avoid excessive risk may preclude the
realization of the highest available income yields. In seeking a high level of
income, the Income Plus Portfolio may nevertheless invest in securities whose
degree of investment risk may make investment in the Portfolio unsuitable for
investors without alternate sources of income unless such investment is made as
part of a diversified personal investment portfolio.
The Income Plus Portfolio attempts to invest in securities that offer the
highest yield without excessive risk at the time of investment. The Income Plus
Portfolio seeks to achieve its objective by investing in a diversified portfolio
of fixed-income and convertible debt securities and dividend paying common,
preferred and convertible preferred stocks. Although yields on convertible
securities are often lower than yields on nonconvertible bonds and preferred
stocks of comparable investment quality, the Income Plus Portfolio may invest in
convertible securities, if the total return is expected to provide higher
current income than nonconvertible securities. The Income Plus Portfolio may
also hold or invest in common stocks which are acquired in conversion or
exchange of, or in a unit offering with, fixed-income securities. Appendix A of
the Statement of Additional Information contains a brief description of the
principal types of short-term securities in which the Income Plus Portfolio may
invest.
When consistent with the Portfolio's investment objective and policies and
in the judgment of the portfolio manager warranted by market conditions, or when
deemed appropriate by the portfolio manager for defensive purposes under certain
market and economic conditions, the Income Plus Portfolio may temporarily invest
some or all of its assets in short-term obligations such as (a) commercial paper
and bankers' acceptances of U.S. banks; (b) U.S. dollar-denominated obligations
of U.S. bank branches located outside the United States and of U.S. branches of
foreign banks; (c) U.S. dollar-denominated time deposits (subject to certain
limitations -- see "Investment Restrictions of the IDEX II Income Plus
Portfolio" in the Statement of Additional Information) and certificates of
deposit; and (d) obligations of, or guaranteed as to principal and interest by,
the U.S. government or its agencies or instrumentalities. (See the Statement of
Additional Information,
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"Appendix A -- Short-Term Obligations.") Before acquiring any of the foreign
short-term bank obligations noted above, the portfolio manager will consider a
variety of factors which may include the political and economic condition in a
country, the prospect for changes in the value of its currency or currency
controls, expropriation or nationalization, and interest payment limitations,
based on existing or prior actions of the foreign government. Such risks,
however, cannot be entirely eliminated for any foreign obligation. (See "Risk
Factors -- Foreign Securities.")
In addition to the investment policy described below which prohibits
investments by the Income Plus Portfolio in securities rated below "B" or "b"
(or unrated issues determined to be of comparable quality to securities rated
below such ratings), the Portfolio is subject to an operating policy intended to
reduce certain investment risks. Under this operating policy, (a) the Income
Plus Portfolio may not invest in commercial paper of corporate issuers which is
rated below Prime-2 by Moody's or A-2 by S&P (or if unrated, determined by the
portfolio manager to be of comparable quality to securities rated below Prime-2
or A-2); and (b) the Income Plus Portfolio may not invest in other rated
corporate securities if, after such investment, more than 50% of the Portfolio's
total holdings of securities (other than commercial paper) would then be rated
below the four highest rating categories of either Moody's or S&P, or if
unrated, are determined by the portfolio manager to be of comparable quality.
Appendix A of this Prospectus contains a description of bond rating
categories and includes a table showing the portfolio composition of the Income
Plus Portfolio at September 30, 1994. These securities involve certain risks,
which are described in detail under "Risk Factors -- High Yield/Risk Bonds."
Securities rated in the fourth rating category for bonds (Moody's "Baa";
S&P's "BBB") and preferred stocks (Moody's "baa"; S&P's "BBB") are considered
medium grade investments with certain speculative characteristics; and although
they have adequate earnings and asset protection at the time the rating is
accorded, such protection may be questionable over any great length of time.
Adverse economic conditions or changing circumstances are more likely to weaken
the payment or repayment capacity of such securities than that of higher rated
securities. There is no specific limitation on the proportion of the Income Plus
Portfolio's securities which may be made up of securities rated in Moody's or
S&P's fourth highest rating category.
The Income Plus Portfolio will not invest in rated securities that, at the
time of investment, are rated below "B" by Moody's or "B" by S&P ("b" in the
case of Moody's preferred stock ratings) or, if unrated, are judged by the
portfolio manager not to possess investment qualities at least equivalent to a
"B" or "b" rating. In the event that ratings decline after the Income Plus
Portfolio's investment in securities, the portfolio manager will consider such
factors as it deems relevant to the advisability of retaining such securities.
The portfolio manager uses but does not place sole reliance on credit ratings in
evaluating bonds and determining the credit quality of the issuer.
The Income Plus Portfolio may also invest in futures, options and other
derivative instruments. (See "Additional Investment Practices -- Futures,
Options and Other Derivative Instruments" and "Risk Factors -- Futures, Options
and Other Derivative Instruments.") For further information about the Income
Plus Portfolio's investment policies, see "Additional Investment Practices" and
the Statement of Additional Information.
IDEX II BALANCED PORTFOLIO
The investment objective of the Balanced Portfolio is long-term capital
growth, consistent with preservation of capital and balanced by current income.
The Balanced Portfolio is designed for investors who want to participate in the
equity markets through a more moderate investment than a pure growth fund.
Investments in income-producing securities are intended to result in a portfolio
that provides a more consistent total return than may be attainable through
investing solely in growth stocks. The Balanced Portfolio is not designed for
investors who desire a consistent level of income.
The Balanced Portfolio normally invests 40 - 60% of its assets in equity
securities selected primarily for growth potential and 40 - 60% of its assets in
fixed income securities. At least 25% of its assets will be invested in fixed
income senior securities, which include corporate debt and preferred stocks. The
Balanced Portfolio may shift assets between the growth and income portions of
its portfolio based on its portfolio manager's analysis of the relevant market,
financial and economic conditions. If the portfolio manager believes that growth
securities will provide better returns than the yields then available or
expected on income-producing securities, then the Balanced Portfolio will place
a greater emphasis on that component.
The growth component of the Balanced Portfolio is expected to consist
primarily of common stocks. Common stock investments are selected in industries
and companies that the portfolio manager believes are experiencing favorable
demand for their products and services, and which operate in a favorable
competitive environment and regulatory climate. The portfolio manager's analysis
and selection process focuses on stocks with earnings growth potential that may
not be recognized by the market. The Balanced Portfolio may invest for capital
growth in any type of equity security that its portfolio manager believes will
benefit from economic trends, promising technologies, products or other
opportunities.
Although the growth component of the Balanced Portfolio's assets will be
invested primarily in common stocks at most
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times, the cash position of the Portfolio may increase when the portfolio
manager is unable to locate investment opportunities with desirable risk/reward
characteristics. The Portfolio may also invest in U.S. government, high grade
commercial paper, corporate bonds and debentures, warrants, preferred stocks,
certificates of deposit of commercial banks, other debt securities or repurchase
agreements when its portfolio manager perceives an opportunity for capital
growth from such securities, or so that the Balanced Portfolio may receive a
return on its uninvested cash. When the Balanced Portfolio invests in such
securities, investment income will likely increase and may constitute a larger
portion of the return on the Portfolio's investments than if the growth
component of the portfolio were fully invested in common stocks. (See
"Distributions and Taxes.")
The income component of the Balanced Portfolio may consist of all types of
income-producing securities, including common stocks selected primarily for
their dividend payments, preferred stocks, convertible securities and debt
securities of corporate and government issuers. Because income is a
consideration in selecting securities, the Balanced Portfolio may select equity
securities on the basis of growth potential, dividend-paying properties, or some
combination of both. To the extent that the Balanced Portfolio invests in debt
securities, such securities will primarily be of "investment grade." Investment
grade debt securities are considered to be securities rated Baa or higher by
Moody's or BBB or higher by S&P, and unrated debt securities that are of
comparable quality based on the credit analysis of the Portfolio's sub-adviser.
Unrated debt securities are not necessarily of lower grade than rated
securities, but they may not be as attractive to many buyers. The Portfolio
relies more on the credit analysis of its sub-adviser when investing in debt
securities that are unrated. The considerations discussed in the Statement of
Additional Information for lower rated debt securities also applies to lower
quality unrated debt securities of all types.
The Balanced Portfolio may invest in both domestic and foreign companies,
although the Balanced Portfolio will not invest more than 25% of its net assets
at the time of purchase in the securities of foreign issuers and obligors. The
selection criteria for domestic issuers apply equally to securities of foreign
issuers. In addition, factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and prospects for relative economic growth among countries,
regions or geographic areas may warrant greater consideration in selecting
foreign stocks. (See "Additional Investment Practices -- Foreign Securities" and
"Risk Factors -- Foreign Securities.")
The Balanced Portfolio may also invest in futures, options and other
derivative instruments. (See "Additional Investment Practices -- Futures,
Options and Other Derivative Instruments" and "Risk Factors -- Futures, Options
and Other Derivative Instruments.") For further information about the Balanced
Portfolio's investment policies, see "Additional Investment Practices" and the
Statement of Additional Information.
IDEX II CAPITAL APPRECIATION PORTFOLIO
The investment objective of the IDEX II Capital Appreciation Portfolio is
long-term growth of capital in a manner consistent with the preservation of
capital. Realization of income is not a significant investment consideration and
any income realized on the Capital Appreciation Portfolio's investments will be
incidental to its primary objective.
The Capital Appreciation Portfolio will pursue its objective by emphasizing
investment in common stocks of companies with a market capitalization between $1
billion and $5 billion. Although the Capital Appreciation Portfolio expects to
emphasize such securities, it may also invest in smaller or larger companies.
Common stock investments are selected in industries and companies that the
portfolio manager believes are experiencing favorable demand for their products
and services, and which operate in a favorable competitive environment and
regulatory climate. The portfolio manager's analysis and selection process
focuses on stocks with earnings growth potential that may not be recognized by
the market. Such securities are selected solely for their capital growth
potential; investment income is not a consideration. Medium-sized companies may
suffer more significant losses as well as realize more substantial growth than
larger issuers. Thus, investments in such companies tend to be more volatile
than investments in companies with larger market capitalization, and somewhat
speculative.
The Capital Appreciation Portfolio is a nondiversified investment company
within the meaning of the 1940 Act, and therefore may be subject to additional
risks. (See "Additional Investment Practices -- Diversification Policies.")
The Capital Appreciation Portfolio may invest in both domestic and foreign
companies, although the Capital Appreciation Portfolio will not invest more than
25% of its net assets at the time of purchase in the securities of foreign
issuers and obligors. The selection criteria for domestic issuers apply equally
to stocks of foreign issuers. In addition, factors such as expected levels of
inflation, government policies influencing business conditions, the outlook for
currency relationships, and prospects for relative economic growth among
countries, regions or geographic areas may warrant greater consideration in
selecting foreign stocks. (See "Additional Investment Practices -- Foreign
Securities" and "Risk Factors -- Foreign Securities.")
Although the Capital Appreciation Portfolio normally invests in common
stocks, its cash position may increase when its portfolio manager is unable to
locate investment opportuni-
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ties with desirable risk/reward characteristics. The Capital Appreciation
Portfolio may also invest in preferred stocks, warrants, U.S. and foreign
government securities, corporate bonds and debentures, high-grade commercial
paper, certificates of deposit, other debt securities or repurchase agreements
when its portfolio manager perceives an opportunity for capital growth from such
securities or so that the Capital Appreciation Portfolio may receive a return on
its idle cash. To the extent that the Portfolio invests in such securities,
investment income may increase and may constitute a large portion of the return
realized by the Portfolio and the Portfolio probably will not participate in
market advances or declines to the extent that it would if it remained fully
invested in common stocks. To the extent that the Capital Appreciation Portfolio
invests in debt securities, such securities will primarily be of "investment
grade." Investment grade debt securities are considered to be securities rated
Baa or higher by Moody's or BBB or higher by S&P, and unrated debt securities
that are of comparable quality based on the credit analysis of the Portfolio's
sub-adviser. Unrated debt securities are not necessarily of lower grade than
rated securities, but they may not be as attractive to many buyers. The
Portfolio relies more on the credit analysis of its sub-adviser when investing
in debt securities that are unrated. The considerations discussed in the
Statement of Additional Information for lower rated debt securities also applies
to lower quality unrated debt securities of all types.
The Capital Appreciation Portfolio may also invest in futures, options and
other derivative instruments. (See "Additional Investment Practices -- Futures,
Options and Other Derivative Instruments" and "Risk Factors -- Futures, Options
and Other Derivative Instruments.") For further information about the Capital
Appreciation Portfolio's investment policies, see "Additional Investment
Practices" and the Statement of Additional Information.
IDEX II AGGRESSIVE GROWTH PORTFOLIO
The investment objective of the Aggressive Growth Portfolio is to seek
long-term capital appreciation. Income is an incidental consideration in the
selection of investments but is not an investment objective of the Aggressive
Growth Portfolio. The Aggressive Growth Portfolio seeks to achieve its objective
by investing in a diversified, actively managed portfolio of equity securities,
such as common or preferred stocks, or securities convertible into or
exchangeable for equity securities, including warrants and rights. The
Aggressive Growth Portfolio may engage in leveraging and options and futures
transactions, which are deemed to be speculative and which may cause the
Aggressive Growth Portfolio's net asset value to be more volatile than the net
asset value of a fund which does not engage in these activities. (See
"Additional Investment Practices -- Futures, Options and Other Derivative
Instruments" and "Borrowing and Lending." See also "Risk Factors -- Futures,
Options and Other Derivative Instruments.")
Except during temporary defensive periods, the Portfolio invests at least
85% of its net assets in equity securities. It is anticipated that the
Aggressive Growth Portfolio will invest primarily in companies whose securities
are traded on domestic stock exchanges or in the over-the-counter market. These
companies may still be in the developmental stage, may be older companies that
appear to be entering a new stage of growth owing to factors such as management
changes or development of new technology, products or markets, or may be
companies providing products or services with a high unit volume growth rate. In
order to afford the Aggressive Growth Portfolio the flexibility to take
advantage of new opportunities for investments in accordance with its investment
objective, the Aggressive Growth Portfolio may hold up to 15% of its net assets
in money market instruments and repurchase agreements and in excess of that
amount (up to 100% of its assets) during temporary defensive periods. This
amount may be higher than that maintained by other funds with similar investment
objectives. To the extent that the Portfolio invests in such securities,
investment income may increase and may constitute a large portion of the return
realized by the Portfolio and the Portfolio probably will not participate in
market advances or declines to the extent that it would if it remained fully
invested in common stocks. The Aggressive Growth Portfolio will only invest in
convertible debt securities rated in one of the three highest rating categories
as determined by Moody's (Aaa, Aa, or A) or S&P (AAA, AA or A).
The Aggressive Growth Portfolio may invest in both domestic and foreign
companies, and may invest up to 25% of its net assets at the time of purchase in
the securities of foreign issuers and obligors. (See "Additional Investment
Practices -- Foreign Securities.") Investments in foreign securities involve
risks that are different in some respects from investments in securities of U.S.
issuers. (See "Risk Factors -- Foreign Securities.")
For further information about the Aggressive Growth Portfolio's investment
policies, see "Additional Investment Practices" and the Statement of Additional
Information.
IDEX II EQUITY-INCOME PORTFOLIO
The investment objective of the Equity-Income Portfolio is to provide
current income, long-term growth of income and capital appreciation. The
Equity-Income Portfolio seeks to achieve its objective by investing primarily in
common stocks, income producing securities convertible into common stock, and
fixed-income securities. In seeking current income and growth opportunities, the
Equity-Income Portfolio will primarily select companies with established
operating histories and potential for dividend growth. The Equity-Income
Portfolio seeks to achieve an income yield in excess of the dividend income
yield of the Standard & Poor's 500 Index.
In selecting equity securities and securities convertible into equity
securities for the Equity-Income Portfolio, the
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portfolio manager typically seeks companies which exhibit strong fundamental
characteristics and considers factors such as balance sheet quality, cash flow
generation, earnings and dividend growth record and outlook, and profitability
levels. The portfolio manager presently intends to consider these and other
fundamental characteristics in determining attractive investment opportunities.
However, the portfolio manager may select securities based on factors other than
those described above. Shares of companies with undervalued assets may also be
owned by the Equity-Income Portfolio; the portfolio manager's objective in
investing in such undervalued companies is to purchase shares of these companies
at a discount to net asset value and have the investment accrue to that value
over time.
The Equity-Income Portfolio seeks to invest its assets primarily in income
producing common or preferred stock when the portfolio manager believes that the
relevant market environment favors profitable investing in those securities. The
remaining assets of the Equity-Income Portfolio will ordinarily be invested in
debt obligations, typically many of which will be convertible into common stock,
and other fixed-income securities. However, the Equity-Income Portfolio may
increase its cash position when the portfolio manager determines that investment
opportunities with desirable risk/reward characteristics are unavailable. The
Equity-Income Portfolio does not presently intend to invest more than 20% of its
total assets in equity securities which do not pay a dividend. It is anticipated
that a majority of the equity securities in which the Equity-Income Portfolio
invests will be listed on a national securities exchange or traded on NASDAQ or
in the U.S. over-the-counter market.
The Equity-Income Portfolio may invest in U.S. government securities,
corporate bonds and debentures, high-grade commercial paper, preferred stocks or
certificates of deposit when the portfolio manager perceives attractive
opportunities from such securities, or so that the Equity-Income Portfolio may
receive a competitive return on its uninvested cash. The Portfolio may invest in
debt securities of U.S. and foreign issuers.
To the extent that the Equity-Income Portfolio invests in debt securities,
such securities will primarily be of "investment grade." Investment grade debt
securities are considered to be securities rated Baa or higher by Moody's
Investors Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's
Corporation ("S&P"), and unrated debt securities that are of comparable quality
based on the credit analysis of the Portfolio's sub-adviser. Unrated debt
securities are not necessarily of lower grade than rated securities, but they
may not be as attractive to many buyers. The Portfolio relies more on the credit
analysis of its sub-adviser when investing in debt securities that are unrated.
The considerations discussed in the Statement of Additional Information for
lower rated debt securities also applies to lower quality unrated debt
securities of all types. When the Portfolio invests in fixed-income debt
securities, regardless of investment grade, investment income may increase and
may constitute a larger portion of the return on the Equity-Income Portfolio's
investments, and the Equity-Income Portfolio may not participate in stock market
advances or declines to the extent that it would if it were fully invested in
equity securities.
Investments in commercial paper are limited to obligations rated Prime-1 by
Moody's or A-1 by S&P.
The Equity-Income Portfolio may invest in both domestic and foreign
companies, although the Equity-Income Portfolio may not invest more than 10% of
its net assets at the time of purchase in the securities of foreign issuers and
obligors. (See "Additional Investment Practices -- Foreign Securities.")
Investments in foreign securities involve risks that are different in some
respects from investments in securities of U.S. issuers. (See "Risk
Factors -- Foreign Securities.")
For more information about the Equity-Income Portfolio's investment
policies, see "Additional Investment Practices" and the Statement of Additional
Information.
ADDITIONAL INVESTMENT PRACTICES
FOREIGN SECURITIES
Each of the Growth, Global, Balanced, Capital Appreciation and Aggressive
Growth Portfolios may invest up to 25% of its assets, directly or indirectly, in
foreign securities. The Equity Income Portfolio may invest up to 25% of its
assets, directly or indirectly, in foreign securities, provided that no more
than 10% of its assets may be invested directly in foreign securities which are
denominated in foreign currency and not publicly traded in the United States.
The Flexible Income Portfolio may invest up to 50% of its assets, directly or
indirectly, in foreign securities, provided that no more than 25% of its assets
may be invested in the securities of the government or private issuers of any
one foreign country.
Subject to the foregoing limitations, these Portfolios may invest directly
in foreign securities denominated in a foreign currency and not publicly traded
in the United States. If appropriate and available, in addition to investing
directly in foreign securities, and subject to each Portfolio's particular
investment objectives, policies and practices, these Portfolios may also
purchase foreign securities through American Depositary Receipts ("ADRs") or
American Depositary Shares ("ADSs"), which are dollar-denominated receipts that
are issued by domestic banks or securities firms, are publicly traded in the
United States, and may not involve the same direct currency and liquidity risks
as securities denominated in foreign currency. These Portfolios may also
indirectly invest in foreign securities through European Depositary Receipts
("EDRs"), which are typically issued by European banks, Global Depositary
Receipts ("GDRs"), which may be issued by either domestic or foreign banks, and
other types of receipts evidencing ownership of the underlying foreign
securities.
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Investments in foreign securities involve risks that are different in some
respects from investments in securities of U.S. issuers. (See "Risk
Factors -- Foreign Securities.")
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
Subject to certain limitations described in the Statement of Additional
Information, the Growth, Global, Flexible Income, Balanced, Capital
Appreciation, Aggressive Growth and Equity-Income Portfolios may write and
purchase options on securities as well as engage in transactions involving
options on securities or foreign currencies, futures contracts, options on
futures contracts, forward currency contracts, and interest rate swaps, caps and
floors for hedging and other appropriate purposes. Each of these Portfolios may
engage in such strategies to attempt to reduce the overall level of investment
risk that normally would be expected to be associated with a Portfolio's
securities and, in particular, to attempt to manage the Portfolio's foreign
currency exposure and to attempt to protect the Portfolio against market
movements that might adversely affect the value of the Portfolio's securities or
the price of securities that the Portfolio is considering purchasing. The
Growth, Global, Balanced and Capital Appreciation Portfolios will limit their
use of futures contracts and related options for purposes other than bona fide
hedging such that the aggregate initial margin and premiums required to
establish any non-hedging positions will not exceed 5% of the fair market value
of a Portfolio's net assets.
The Flexible Income Portfolio may also write and purchase options on
securities to enhance income. The Flexible Income Portfolio may write call
options on futures contracts when it owns equivalent securities that it is
willing to sell at the level of the exercise price of the call. The writing of
such options creates an obligation, but offers the Flexible Income Portfolio the
opportunity to enhance income or to purchase or sell securities at prices more
favorable than might otherwise be obtained. The Flexible Income Portfolio will
limit its use of futures contracts and related options for purposes other than
bona fide hedging such that the aggregate initial margin and premiums required
to establish any non-hedging positions will not exceed 5% of the fair market
value of a Portfolio's net assets.
The Income Plus Portfolio may purchase and sell contracts for the future
delivery of fixed-income securities at an established price, commonly referred
to as "interest rate futures contracts," to attempt to hedge against declines in
the value of its holdings of long-term debt securities. The Income Plus
Portfolio may invest in interest rate futures contracts only as a hedge against
anticipated interest rate changes that would adversely affect the value of
portfolio securities. The Income Plus Portfolio will not use futures contracts
for speculation or to leverage the Portfolio. The Income Plus Portfolio will
maintain cash or cash equivalents equal in value to the market value of futures
contracts purchased (less related margin deposits) to assure that the
Portfolio's position is fully collateralized and that its use of futures
contracts is unleveraged.
Subject to the following limitations, the Aggressive Growth Portfolio
intends to use derivative instruments for hedging purposes as well as to enhance
income. The Aggressive Growth Portfolio may write covered call options on common
stocks that it owns or has an immediate right to acquire through conversion or
exchange of other securities in an amount not to exceed 25% of total assets. The
Aggressive Growth Portfolio does not intend to write any put options. The
Aggressive Growth Portfolio may only buy options that are listed on a national
securities exchange. The Aggressive Growth Portfolio will not purchase options
if, as a result, the aggregate cost of all outstanding options exceeds 10% of
the Portfolio's total assets, although no more than 5% will be committed to
transactions entered into for non-hedging purposes.
The Aggressive Growth Portfolio will purchase and sell stock index futures
contracts and options on stock index futures contracts solely for hedging or
other permissible risk-management purposes, such as protecting the price of a
security the Aggressive Growth Portfolio intends to buy, but not for purposes of
speculation. Aggregate initial margins and premiums on such investments may not
constitute more than 5% of the Aggressive Growth Portfolio's assets.
The Equity-Income Portfolio currently does not intend to purchase or sell
any of these types of instruments, although it may do so in the future.
There can be no assurance that the use of these instruments by a Portfolio
will assist it in achieving its investment objective. The use of futures
contracts, options and other derivative instruments also involves certain risks.
(See "Risk Factors -- Futures, Options and Other Derivative Instruments.")
Further information on these instruments, hedging strategies and risk
considerations relating to them is set forth in the Statement of Additional
Information.
MORTGAGE-AND OTHER ASSET-BACKED SECURITIES
Each Portfolio may invest up to 25% of its net assets in mortgage-and other
asset-backed securities. These securities are subject to prepayment risk, that
is, the possibility that prepayments on the underlying mortgages or other loans
will cause the principal and interest on the securities to be paid prior to
their stated maturities. Unscheduled prepayments are more likely to accelerate
during periods of declining long-term interest rates. In the event of a
prepayment during a period of declining interest rates, a Portfolio may be
required to invest the unanticipated proceeds at a lower interest rate.
Prepayments during such periods will also limit a Portfolio's ability to
participate in as large a market gain as may be experienced with a comparable
government security not subject to prepayment.
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WHEN-ISSUED, DELAYED DELIVERY AND FORWARD TRANSACTIONS
Each Portfolio, other than the Tax-Exempt Portfolio, may purchase
securities on a when-issued or delayed delivery basis and may enter into
contracts to purchase securities for a fixed price at a future date beyond
normal settlement time ("forward commitments"). However, each of the Growth,
Global and Flexible Income Portfolios does not intend to invest more than 20% of
its assets in when-issued securities. The Tax-Exempt Portfolio may purchase
Municipal Bonds on a "when-issued" or "delayed delivery" basis. The Portfolios
bear the risk that the value of such securities may change prior to delivery of
the security and the risk that the seller may not complete the transaction.
ILLIQUID SECURITIES
Each of the Growth, Global, Flexible Income, Balanced, Capital
Appreciation, Aggressive Growth and Equity-Income Portfolios may invest up to
15%, and each of the Tax-Exempt and Income Plus Portfolios may invest up to 10%,
of its assets in securities that are considered illiquid because of the absence
of a readily available market or due to legal or contractual restrictions on
resale. The sale of illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts and other selling expenses than
does the sale of securities eligible for trading on national securities
exchanges or in the over-the-counter markets. A Portfolio may be restricted in
its ability to sell such securities at a time when the sub-advisor deems it
advisable to do so. In addition, in order to meet redemption requests, a
Portfolio may have to sell other assets, rather than such illiquid securities,
at a time which is not advantageous. Certain restricted securities that are not
registered for sale to the general public but that can be resold to
institutional investors ("Rule 144A Securities") may not be considered illiquid,
provided that a dealer or institutional trading market exists. Securities
eligible for resale under Rule 144A of the Securities Act of 1933 may be
determined to be liquid by a Portfolio's sub-adviser pursuant to procedures
adopted by the Board of Trustees of the Fund. For each of the Tax-Exempt
Portfolio and the Flexible Income Portfolio, the sub-adviser may also determine
municipal lease obligations held by the Portfolio to be liquid pursuant to
procedures adopted by the Board of Trustees. Securities previously determined to
be liquid pursuant to these procedures may be subsequently deemed to be
illiquid, and investment in Rule 144A securities and municipal lease obligations
could have the effect of increasing portfolio illiquidity.
ZERO COUPON BONDS AND OTHER SECURITIES
Although it is the policy of the Flexible Income and Income Plus Portfolios
to invest in income-producing securities, each of the Portfolios other than the
Aggressive Growth Portfolio may invest up to 10% of their assets in zero coupon
bonds, step coupon bonds, pay-in-kind securities or strips. Zero coupon bonds do
not make regular interest payments; rather, they are sold at a discount from
face value. Principal and accreted discount (representing interest accrued but
not paid) are paid at maturity. Step coupon bonds sell at a discount and pay a
low coupon rate for an initial period and a higher coupon rate thereafter.
Pay-in-kind securities may pay interest in cash or a similar bond. The Flexible
Income Portfolio may also invest in "strips," which are debt securities that are
stripped of their interest after the securities are issued, but otherwise are
comparable to zero coupon bonds. The market value of zero coupon bonds, step
coupon bonds, pay-in-kind securities and "strips" generally fluctuates in
response to changes in interest rates to a greater degree than interest-paying
securities of comparable term and quality. The Portfolios may realize greater
gains or losses as a result of such fluctuations. In order to pay cash
distributions from income earned on zero coupon, step coupon bonds, pay-in-kind
securities and "strips", the Portfolios may sell certain portfolio securities
and may incur a capital gain or loss on such sales.
BORROWING AND LENDING
Each Portfolio may borrow money from banks for temporary or emergency
purposes in an amount not to exceed 25% of its total assets in the case of the
Growth, Global, Flexible Income, Balanced, Capital Appreciation and
Equity-Income Portfolios, and 33 1/3% of its total assets in the case of the
Tax-Exempt and Income Plus Portfolios. To secure borrowings, a Portfolio may not
mortgage or pledge its securities in amounts that exceed 15% of its net assets,
in the case of the Growth, Global, Flexible Income, Balanced, Capital
Appreciation and Equity-Income Portfolios, and 10% of its net assets, in the
case of the Income Plus Portfolio. In addition, each of the Growth, Global,
Flexible Income, Balanced and Capital Appreciation Portfolios may borrow money
from or lend money to other funds that permit such transactions and are advised
or sub-advised by Janus Capital, provided that the Portfolio seeks and obtains
permission to do so from the Securities and Exchange Commission ("SEC"). There
is no assurance that such permission will be sought or granted.
The Aggressive Growth Portfolio may borrow only from banks for investment
purposes. This borrowing is known as leveraging. The 1940 Act requires the
Aggressive Growth Portfolio to maintain continuous asset coverage (that is,
total assets including borrowings, less liabilities exclusive of borrowings) of
300% of the amount borrowed. If such asset coverage should decline to below 300%
as a result of market fluctuations or other reasons, the Aggressive Growth
Portfolio may be required to sell some of the portfolio holdings within three
days to reduce the debt and restore the 300% asset coverage, even though it may
be disadvantageous from an investment standpoint to sell securities at that
time. Leveraging may exaggerate the effect on net asset value of any increase or
decrease in the market value of the Portfolio's securities. Money borrowed for
leveraging will be subject to interest costs which may or may
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not be recovered by appreciation of the securities purchased; in certain cases,
interest costs may exceed the return received on the securities purchased. The
Aggressive Growth Portfolio also may be required to maintain minimum average
balances in connection with such borrowing or to pay a commitment or other fee
to maintain a line of credit; either of these requirements would increase the
cost of borrowing over the stated interest rate. Additional limitations on
borrowing that are imposed by state law and regulations may apply.
Each of the Portfolios other than the Tax-Exempt and Income Plus Portfolios
may also lend their portfolio securities to broker-dealers and financial
institutions for the purpose of realizing additional income. As a fundamental
policy, each such Portfolio, other than the Aggressive Growth Portfolio, will
not lend securities or other assets if, as a result, more than 25% of its total
assets would be lent to other parties, although none of these Portfolios
presently intends to lend securities or make any other loans valued at more than
5% of its total assets. As a fundamental policy, the Aggressive Growth Portfolio
may not make loans to others, except through purchasing qualified debt
obligations, lending portfolio securities or entering into repurchase
agreements. The Aggressive Growth Portfolio will not lend securities or other
assets if, as a result, more than 20% of its total assets would be lent to other
parties. Securities lending may involve some credit risk to a Portfolio if the
borrower defaults and the Portfolio is delayed or prevented from recovering the
collateral or is otherwise required to cover a transaction in the security
loaned. If portfolio securities are loaned, collateral values will be
continuously maintained at no less than 100% by marking to market daily. If a
material event is to be voted upon affecting a Portfolio's investment in
securities which are on loan, the Portfolio will take such action as may be
appropriate in order to vote its shares. For further information about the
Portfolios' policies relating to borrowing and lending, see the Statement of
Additional Information.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each of the Portfolios other than the Equity-Income Portfolio may invest in
repurchase and reverse repurchase agreements. A repurchase agreement involves
the purchase of a security by a Portfolio and a simultaneous agreement by the
seller (generally a bank or broker-dealer) to repurchase that security from the
Portfolio at a specified price and date or upon demand. This technique offers a
method of earning income on idle cash. The repurchase agreement is effectively
secured by the value of the underlying security. A risk associated with
repurchase agreements is the failure of the seller to repurchase the securities
as agreed, which may cause a Portfolio to suffer a loss if the market value of
such securities declines before they can be liquidated on the open market. In
the event of bankruptcy of the seller, a Portfolio may encounter delays and
incur costs in liquidating the underlying security. Repurchase agreements
maturing in more than seven days are subject to the previously stated limit on
illiquid securities.
When a Portfolio invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests or for other temporary or emergency purposes without
the necessity of selling portfolio securities or to earn additional income on
portfolio securities, such as treasury bills and notes.
SHORT SALES
Each of the Portfolios may sell securities "short against the box". While a
short sale is the sale of a security that a Portfolio does not own, it is
"against the box" if at all times when the short position is open, a Portfolio
owns an equal amount of the securities or securities convertible into, or
exchangeable without further consideration for, securities of the same issue as
the securities sold short.
HIGH-YIELD/HIGH-RISK BONDS
High-yield/high-risk, below investment grade securities (commonly known as
"junk bonds") involve significant credit and liquidity concerns and fluctuating
yields and are not suitable for short-term investing. None of the Portfolios
other than the Flexible Income and Income Plus Portfolios may invest more than
5% of its net assets in junk bonds. See "Risk Factors -- High-Yield/High-Risk
Bonds" and the Statement of Additional Information for further information
concerning the risks associated with investing in junk bonds.
DIVERSIFICATION POLICIES
Each of the Portfolios other than the Capital Appreciation Portfolio is a
diversified investment company under the 1940 Act as a matter of fundamental
policy, while the Capital Appreciation Portfolio is a nondiversified investment
company. For more specific information concerning the diversification policies
of each of the Portfolios, see the Statement of Additional Information.
As a fundamental policy, with respect to 50% of its total assets, the
Capital Appreciation Portfolio will not purchase securities of any one issuer
(other than cash items and U.S. government securities) if immediately after and
as a result of such purchase (a) the Capital Appreciation Portfolio owns more
than 10% of the outstanding voting securities of that issuer, or (b) the value
of the Capital Appreciation Portfolio's holdings of that issuer exceeds 5% of
the value of the Capital Appreciation Portfolio's total assets. The other 50% of
the Capital Appreciation Portfolio's assets may be invested in the securities of
as few as two issuers. The Capital Appreciation Portfolio is therefore deemed to
be a nondiversified investment company under the 1940 Act, although it reserves
the right to become a diversified company by investing no more than 25% of its
assets in issuers which represent more than 5% of its total assets. Although the
Capital Appreciation Portfolio may invest
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up to 50% of its assets in the securities of as few as two issuers, it does not
anticipate doing so unless its sub-adviser believes a security has the potential
for substantial capital appreciation consistent with the Capital Appreciation
Portfolio's investment objective and policies. It does, however, intend to take
advantage of the flexibility of nondiversification to invest more than 5% of its
total assets in the securities of one issuer. To the extent that the Capital
Appreciation Portfolio invests more than 5% of its assets in a particular
issuer, its exposure to credit risks and/or market risks associated with that
issuer increases. The Capital Appreciation Portfolio may also realize greater
benefits from increases in the value of one or a small number of securities than
a diversified mutual fund.
As an additional fundamental policy, the Portfolios will not invest more
than 25% of the value of their respective total assets in any particular
industry (other than U.S. government securities).
OTHER INVESTMENT POLICIES AND RESTRICTIONS
The Fund may in the future seek to achieve the investment objective of the
Growth, Global, Flexible Income, Balanced, Capital Appreciation, Aggressive
Growth or Equity-Income Portfolios by investing all of a Portfolio's assets in
another investment company having the same investment objective and
substantially the same investment policies and restrictions as those applicable
to that Portfolio. Shareholders of the Growth, Global, Flexible Income,
Balanced, Capital Appreciation, Aggressive Growth or Equity-Income Portfolios
will be given at least 30 days prior notice of any such investment. Such
investment would be made only if the Board of Trustees of the Fund determines it
to be in the best interests of a Portfolio and its shareholders. In making that
determination, the Board of Trustees will consider, among other things, the
benefits to shareholders and/or the opportunity to reduce costs and achieve
operational efficiencies.
Each Portfolio is subject to investment restrictions, certain of which are
fundamental policies of that Portfolio and as such may not be changed without
approval of that Portfolio's shareholders. Non-fundamental investment
restrictions and operating policies may be changed by the Board of Trustees
without shareholder approval. The investment restrictions of each Portfolio are
described in the Statement of Additional Information.
The securities and financial instruments markets in the United States and
worldwide have been characterized in recent years by rapid change and innovation
in the creation of new instruments and securities. The sub-advisers reserve the
right to evaluate new financial instruments as they are developed and become
actively traded, and subject to any applicable investment restriction of a
Portfolio, a Portfolio may invest in any such investment products that its
portfolio manager believes will further the Portfolio's particular investment
objective.
RISK FACTORS
FOREIGN SECURITIES
Investments in foreign securities involve risks that are different in some
respects from investments in securities of U.S. issuers. For example, changes in
currency exchange rates and exchange rate controls may affect the value of
foreign securities and the value of their dividend or interest payments and,
therefore, a Portfolio's share price and returns. Foreign companies generally
are subject to tax laws and accounting, auditing, and financial reporting
standards, practices and requirements that differ from those applicable to U.S.
companies. There is generally less publicly available information about foreign
companies and less securities and other governmental regulation and supervision
of foreign companies, stock exchanges and securities brokers and dealers. A
Portfolio may encounter difficulties in enforcing obligations in foreign
countries and in negotiating favorable brokerage commission rates. Securities of
some foreign companies are less liquid, and their prices more volatile, than
securities of comparable U.S. companies. Delays may be encountered in settling
securities transactions in certain foreign markets and a Portfolio will incur
costs in converting foreign currencies into U.S. dollars. Custody charges are
generally higher for foreign securities than for domestic securities. In
addition, with respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of
securities, property or other assets of a Portfolio, political or social
instability or war, or diplomatic developments, any or all of which could affect
U.S. investments in those countries. ADRs do not involve the same direct
currency and liquidity risks as securities denominated in foreign currency.
The considerations noted above may be intensified in the case of investment
in developing countries or countries with limited or developing capital markets.
In particular, developing countries may have relatively unstable governments,
economies based on only a few industries and securities markets that trade a
small number of securities. Securities of issuers located in developing
countries may have limited marketability and may be subject to more abrupt or
erratic price fluctuations.
At times, securities held by the Portfolios may be listed on foreign
exchanges or traded in foreign markets which are open on days (such as Saturday)
when the Portfolios do not compute a price or accept orders for the purchase,
redemption or exchange of shares. As a result, the net asset value of the
Portfolios may be significantly affected by trading on days when shareholders
cannot make transactions.
To the extent that a Portfolio invests in foreign securities, its share
price reflects the movements of both the prices of securities in which it is
invested and the currencies in which the investments are denominated. For a
Portfolio that invests in both U.S. and foreign securities markets, changes in
the Portfolio's share price may have a low correlation with movements in the
U.S. markets. If most of the foreign securities in
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which a Portfolio invests are denominated in foreign currencies, or otherwise
have values that depend on the performance of foreign currencies relative to the
U.S. dollar, the relative strength of the U.S. dollar may be an important factor
in the performance of the Portfolio.
To the extent that a Portfolio invests in foreign securities, it may employ
certain strategies in order to manage exchange rate risks. For example, a
Portfolio may seek to hedge some or all of its investments denominated in a
foreign currency against a decline in the value of that currency. The Portfolios
may exchange foreign currencies for U.S. dollars and for other foreign
currencies in the normal course of business and may buy or sell securities
through forward currency contracts in order to fix a price for securities it has
agreed to buy or sell ("transaction hedge"). The Portfolios may also enter into
contracts to sell that foreign currency for U.S. dollars (not exceeding the
value of that Portfolio's assets denominated in that currency) or by
participating in options or futures contracts with respect to such currency
("position hedge"). The Portfolio could also seek to hedge that position by
selling a second currency, which is expected to perform similarly to the
currency in which portfolio investments are denominated, for U.S. dollars
("proxy hedge"). The Portfolios may also enter into a forward contract to sell
the currency in which the security is denominated for a second currency that is
expected to perform better relative to the U.S. dollar if the portfolio manager
believes there is a reasonable degree of correlation between movements in the
two currencies ("cross-hedge"). As an operating policy, a Portfolio will not
commit more than 10% of its assets to the consummation of cross-hedge contracts
and will either cover such transactions with liquid portfolio securities
denominated in the applicable currency or segregate high-grade, liquid assets in
the amount of such commitments. In addition, when the Portfolio anticipates
purchasing securities denominated in a particular currency, it may enter into a
forward contract to purchase such currency in exchange for the dollar or another
currency ("anticipatory hedge").
These strategies seek to minimize the effect of currency appreciation as
well as depreciation, but do not protect against a decline in the underlying
value of the hedged security. In addition, such strategies may reduce or
eliminate the opportunity to profit from increases in the value of the original
currency and may adversely impact a Portfolio's performance if the portfolio
manager's projection of future exchange rates is inaccurate.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
Generally, the use of strategies involving options, futures contracts,
forward contracts and swap-related products ("derivative instruments") involves
additional investment risks and transaction costs, and draws upon skills and
experience which are different from those needed to select the other instruments
in which a Portfolio invests. If a portfolio manager seeks to protect a
Portfolio against potential adverse movements in the securities, foreign
currency or interest rate markets using these instruments, and if such markets
do not move in a direction adverse to the Portfolio, the Portfolio may not
achieve the desired benefits of the foregoing instruments, and could be left in
a less favorable position than if such strategies had not been used. The use of
such strategies involves special risks, which include: 1) the risk that interest
rates, securities prices and currency markets will not move in the directions
anticipated by the portfolio manager, and thus that the use of these instruments
as hedging techniques may fail and/or losses may result; 2) imperfect
correlation between the price of the instruments and movements in the prices of
the securities, interest rates or currencies being hedged; 3) the fact that
there are not daily price fluctuation limits with respect to options on
currencies, forward contracts and other negotiated or over-the-counter
instruments, and adverse market movements could therefore continue to an
unlimited extent over a period of time; 4) the possible absence of a liquid
secondary market for any particular instrument at any time, and thus the
Portfolio being unable to control losses by closing out a position; and 5) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences. The loss from investing in futures is potentially unlimited. See
the Statement of Additional Information for further information concerning the
use of options, futures and other derivative instruments, and the associated
risks.
FIXED-INCOME INVESTING
The performance of the debt component of a Portfolio depends primarily on
interest rate changes, the average weighted maturity of that Portfolio and the
quality of the securities held. The debt component of a Portfolio will tend to
decrease in value when interest rates rise and increase when interest rates
fall. A Portfolio may vary the average maturities of its portfolio based on the
portfolio manager's analysis of interest rate trends and other factors.
Generally, shorter term securities are less sensitive to interest rate changes,
but longer term securities offer higher yields. A Portfolio's share price and
yield also depend, in part, on the quality of its investments in debt
securities. For example, while U.S. government securities generally are of high
quality, government securities that are not backed by the full faith and credit
of the United States and other debt securities, including those of foreign
governments, may be affected by changes in the creditworthiness of the issuer of
the security. The extent that such changes are reflected in a Portfolio's share
price will depend upon the extent of the Portfolio's investment in such
securities. For further information about a Portfolio's policies relating to
fixed-income investing, see the Statement of Additional Information.
HIGH-YIELD/HIGH-RISK BONDS
High-yield/high-risk, below investment grade securities (commonly known as
"junk bonds") involve significant credit and liquidity concerns and fluctuating
yields and are not
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suitable for short-term investing. Lower rated bonds also involve the risk that
the issuer will not make interest or principal payments when due. In the event
of an unanticipated default, a Portfolio owning such bonds would experience a
reduction in its income, and could expect a decline in the market value of the
securities so affected. More careful analysis of the financial condition of each
issuer of lower rated securities is therefore necessary. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would adversely affect their
ability to service their principal and interest payments obligations, to meet
projected business goals and to obtain additional financing.
The market prices of lower grade securities are generally less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic or political changes or individual developments specific to the
issuer. Periods of economic or political uncertainty and change can be expected
to result in volatility of prices of these securities. Since the last major
economic recession, there has been a substantial increase in the use of
high-yield debt securities to fund highly leveraged corporate acquisitions and
restructurings, so past experience with high-yield securities in a prolonged
economic downturn may not provide an accurate indication of future performance
during such periods. Lower rated securities also may have less liquid markets
than higher rated securities, and their liquidity as well as their value may be
more severely affected by adverse economic conditions. Adverse publicity and
investor perceptions as well as new or proposed laws may also have a greater
negative impact on the market for lower rated bonds.
Higher yields are ordinarily available on fixed-income securities which are
unrated or are rated in the lower rating categories of recognized rating
services such as Moody's and S&P. Unrated securities are not necessarily of
lower quality than rated securities, but the markets for lower rated and
nonrated securities are more limited than those in which higher rated securities
are traded. In addition, an economic downturn or increase in interest rates is
likely to have a greater negative effect on the market for lower rated and
nonrated securities, the value of high yield debt securities held by a
Portfolio, the net asset value of a Portfolio holding such securities and the
ability of the bonds' issuers to repay principal and interest, meet projected
business goals and obtain additional financing than on higher rated securities.
SPECIAL SITUATIONS
Each Portfolio may invest in "special situations" from time to time. A
special situation arises when, in the opinion of the portfolio manager, the
securities of a particular issuer will be recognized and appreciate in value due
to a specific development with respect to that issuer. Developments creating a
special situation might include, among others, a new product or process, a
management change, a technological breakthrough or other extraordinary corporate
event, or differences in market supply of and demand for the security.
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 impact of this strategy on a Portfolio will depend on
that Portfolio's size and the extent of the holdings of the special situation
company relative to the Portfolio's total assets.
OTHER PORTFOLIO POLICIES
Although it is the policy of each of the Growth, Global, Flexible Income,
Balanced, Capital Appreciation, Aggressive Growth and Equity-Income Portfolios
to purchase and hold securities for its stated investment objective, changes in
these holdings will generally be made whenever their respective portfolio
managers believe they are advisable. Portfolio changes in the Growth, Global,
Flexible Income, Balanced, Capital Appreciation, Aggressive Growth and
Equity-Income Portfolio may result from liquidity needs, securities having
reached a price or yield objective, anticipated changes in interest rates or the
credit standing of an issuer or by reason of developments not foreseen at the
time of the investment decision. To a limited extent, the Growth, Global,
Flexible Income, Balanced, Capital Appreciation, Aggressive Growth and
Equity-Income Portfolios each may engage in short-term transactions if such
transactions further their investment objectives. Because investment changes
ordinarily will be made without reference to the length of time a security has
been held, a significant number of short-term transactions may result, and the
rate of portfolio turnover will not be a limiting factor when changes are deemed
to be appropriate. The estimated annual portfolio turnover rates of the Balanced
and Capital Appreciation Portfolios are anticipated to be up to 200%. The
estimated annual portfolio turnover rates of the Aggressive Growth and
Equity-Income Portfolios are anticipated to be under 100%.
The investment policies of the Tax-Exempt and Income Plus Portfolios may
lead to frequent changes in investments, particularly in periods of rapidly
fluctuating interest rates. Securities may be sold in anticipation of a decline
in portfolio value (a rise in interest rates) or purchased in anticipation of a
portfolio value rise (decline in interest rates). In addition, a security may be
sold and another purchased at approximately the same time to take advantage of
what the portfolio manager believes to be a temporary disparity in the normal
yield relationship between the two securities. Yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, due to such factors as changes in the
overall demand for or supply of various types of securities or changes in the
investment objectives of investors. This rate will not be a limiting factor when
the portfolio manager deems it desirable to sell or purchase securities for
either of these Portfolios.
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Certain tax rules may restrict a Portfolio's ability to sell securities in
some circumstances when the security has been held for less than three months.
Increased portfolio turnover necessarily results in correspondingly higher
brokerage costs or mark-up charges for a Portfolio which are ultimately borne by
the shareholders and may also result in short-term capital gains which are taxed
as ordinary income to the shareholders. (See "Distributions and Taxes -- Tax
Information.") For annual portfolio turnover rates, see "Financial Highlights"
and the Statement of Additional Information.
PERFORMANCE
Each Portfolio's performance is calculated separately for Class A and Class
C shares of that Portfolio. Performance may be measured in terms of average
annual total return which is calculated by finding the average annual compounded
rates of return over a period of time that would equate the initial amount
invested to the ending redeemable value. The calculation assumes the deduction
of the maximum sales load from the initial investment and the payment of all
dividends and other distributions in additional shares on the reinvestment dates
during the period. An average annual total return reflects the hypothetical
annually compounded return that would have produced the same cumulative return
if performance had been constant over the entire period. Because average annual
returns for more than one year tend to smooth out variations in performance,
such figures are not the same as actual year-by-year results. The Statement of
Additional Information contains a description of the method used to compute
average annual total return of each Portfolio.
A Portfolio may also advertise non-standardized performance information
which is for periods in addition to those required to be presented, or which
provides cumulative total return, actual year-by-year return, or any combination
thereof. For Class A shares, a Portfolio may also advertise nonstandardized
performance which does not reflect deduction of the maximum sales charge.
The current yield for a particular class of shares of the Flexible Income
Portfolio, the Tax-Exempt Portfolio, or the Income Plus Portfolio is based on
the investment income during a particular 30-day period (including dividends, if
any, and interest), expenses accrued during the period, average shares
outstanding during the 30-day period and the maximum offering price per share on
the last day of the base period, and then annualizing the result. Each class of
shares of the Tax-Exempt Portfolio may also advertise its tax equivalent yield
which is calculated by applying the stated income tax rate to only the net
investment income exempt from taxation, according to a standardized formula. See
the formulas described in greater detail in the Statement of Additional
Information. In addition to the above standardized yields, each of these
Portfolios may also advertise non-standardized yields.
From time to time in advertisements or sales materials, each Portfolio may
present and discuss its performance rankings and/or ratings or other information
as published by recognized mutual fund statistical services, such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Changing Times,
Fortune, Institutional Investor, or Morningstar Mutual Fund Values. Ratings may
include criteria relating to portfolio characteristics in addition to
performance information. In connection with a ranking, a Portfolio will also
provide additional information with respect to the ranking, including the
particular category to which it relates, the number of funds in the category,
the period and criteria on which the ranking is based, and the effect of sales
charges, fee waivers and/or expense reimbursements. A Portfolio may compare its
performance to that of other selected mutual funds or recognized market
indicators, including the Standard & Poor's 500 Stock Index, the Dow Jones
Industrial Average, the Standard & Poor's Midcap Index, the Russell 2000, the
NASDAQ Composite, the Lehman Brothers Government Corporate Bond Index, the
Lehman Brothers Long Municipal Bond Index, the Lehman Brothers Aggregate Bond
Index, the Merrill Lynch High Yield Master Index and the Morgan Stanley Capital
International World Index. In addition, a Portfolio may as appropriate compare
its performance to that of other types of investments such as certificates of
deposit, savings accounts and U.S. Treasury securities, or to certain interest
rate and inflation indices, such as the Consumer Price Index. The Global
Portfolio's performance may also be compared to the record of global market
indicators such as the Morgan Stanley Capital International Europe, Australia,
Far East Index ("EAFE Index"). The EAFE Index is an unmanaged Index of foreign
common stock prices translated into U.S. dollars.
Each Portfolio will include performance data for both Class A and Class C
shares of the Portfolio in any advertisements or information that includes
performance data for that Portfolio. All performance figures are based upon
historical results and are not intended to indicate future performance. The
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
INVESTMENT ADVISORY AND OTHER SERVICES
TRUSTEES
The Board of Trustees is responsible for managing the business and affairs
of the Fund, and it oversees the operation of the Fund by its officers.
Information concerning the Trustees and officers of the Fund is contained in the
Statement of Additional Information.
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INVESTMENT ADVISERS
GROWTH, GLOBAL, FLEXIBLE INCOME, BALANCED AND CAPITAL APPRECIATION
PORTFOLIOS. The Growth, Global, Flexible Income, Balanced and Capital
Appreciation Portfolios have each entered into a Management and Investment
Advisory Agreement ("Advisory Agreement") with Idex Management, Inc. ("IMI"),
whose address is 201 Highland Avenue, Largo, Florida 34640, to act as its
investment adviser. IMI has served as investment adviser to IDEX Fund, IDEX II
Series Fund Growth, Global, Flexible Income (and its predecessor, IDEX Total
Income Trust), Balanced and Capital Appreciation Portfolios and IDEX Fund 3
since inception of each fund or portfolio. Fifty percent (50%) of the
outstanding stock of IMI and 100% of the outstanding stock of InterSecurities,
Inc., principal underwriter of the Fund's shares, is owned by AUSA Holding
Company ("AUSA"). AUSA is a holding company which is wholly-owned by AEGON USA,
Inc. ("AEGON USA"), a financial services holding company whose primary emphasis
is on life and health insurance and annuity and investment products. AEGON USA
is a wholly-owned indirect subsidiary of AEGON nv, a Netherlands corporation and
publicly traded international insurance group. Janus Capital Corporation ("Janus
Capital"), the sub-adviser of the Growth, Global, Flexible Income, Balanced and
Capital Appreciation Portfolios, owns the remaining 50% of the outstanding
shares of IMI. Kansas City Southern Industries, Inc., a publicly-owned holding
company whose primary subsidiaries are engaged in transportation and financial
services, owns approximately 83% of Janus Capital.
IMI is responsible for furnishing or causing to be furnished to each of
these five Portfolios investment advice and recommendations and supervising the
purchase and sale of securities as directed by appropriate Fund officers. In
addition, IMI is responsible for the administration of each of these five
Portfolios. For services furnished to the Growth, Global, Balanced and Capital
Appreciation Portfolios, respectively, IMI receives an annual fee, computed
daily and paid monthly, equal to 1.00% of the first $750 million of that
Portfolio's average daily net assets, 0.9% of the next $250 million of that
Portfolio's average daily net assets, and 0.85% of the average daily net assets
of that Portfolio in excess of $1 billion. For its services to the Flexible
Income Portfolio, IMI receives an annual fee, computed daily and paid monthly,
equal to 0.9% of the first $100 million of that Portfolio's average daily net
assets, 0.8% of the next $150 million of that Portfolio's average daily net
assets and 0.7% of the average daily net assets of that Portfolio in excess of
$250 million. The investment advisory fees paid by each of the Growth, Global,
Flexible Income, Balanced and Capital Appreciation Portfolios are higher than
those paid by many other funds.
For the fiscal year ended September 30, 1994, the investment advisory fee
paid by the Growth and Global Portfolios was 1.00% of each Portfolio's
respective average daily net assets. For the fiscal year ended September 30,
1994, the investment advisory fee incurred by the Flexible Income Portfolio, was
.52% of that Portfolio's average daily net assets, net of fees waived by IMI.
In addition to the investment advisory fee, under its Advisory Agreement,
the Growth, Global, Flexible Income, Balanced and Capital Appreciation
Portfolios each pay most of its operating costs, including administrative,
bookkeeping and clerical expenses, legal fees, auditing and accounting fees,
shareholder services and transfer agent fees, custodian fees, costs of complying
with federal and state regulations, preparing, printing and distributing reports
to shareholders, non-interested trustees' fees and expenses, interest,
insurance, dues for trade associations and taxes. Each Portfolio also pays all
brokers' commissions in connection with its portfolio transactions. IMI will
reimburse any of these Portfolios or waive fees, or both, to the extent that the
Portfolio's normal operating expenses, including investment advisory fees but
excluding interest, taxes, brokerage commissions and 12b-1 fees, exceed on an
annual basis the lesser of the most restrictive expense limitation imposed by
any state in which its shares are offered or, with respect to the Growth
Portfolio and the Flexible Income Portfolio, 1.50% of that Portfolio's average
daily net assets, and with respect to the Balanced Portfolio and the Capital
Appreciation Portfolio, 2.50% of that Portfolio's average daily net assets for
the fiscal year ended September 30, 1995, and 1.50% thereafter.
For the fiscal year ended September 30, 1994, the total expenses of the
Growth Portfolio Class A and Class C shares, including the investment advisory
fee, amounted to 1.76% and 3.48%, respectively, of each Class's respective
average daily net assets. For the year ended September 30, 1994, the total
expenses of the Global Portfolio Class A and Class C shares, including the
investment advisory fee, amounted to 2.14% and 4.04%, respectively, of each
Class's respective average daily net assets. For the fiscal year ended September
30, 1994, the total expenses of the Flexible Income Portfolio Class A and Class
C shares, including the investment advisory fee, amounted to 1.85% and 2.40%,
respectively, of each Class's respective average daily net assets during that
period (net of fees waived by IMI).
TAX-EXEMPT, INCOME PLUS, AGGRESSIVE GROWTH AND EQUITY-INCOME
PORTFOLIOS. The Tax-Exempt, Income Plus, Aggressive Growth and Equity-Income
Portfolios have each entered into an Advisory Agreement with InterSecurities,
Inc. ("ISI"), whose address is 201 Highland Avenue, Largo, Florida 34640, to act
as the investment adviser. ISI has served as investment adviser to the
Tax-Exempt and Income Plus Portfolios since 1992, and to the Aggressive Growth
and Equity-Income Portfolios since their inception, December 1994. In addition,
its affiliate, IMI, is and has served as investment adviser to IDEX Fund, IDEX
II Series Fund Growth, Global, Flexible Income (and its predecessor, IDEX Total
Income
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<PAGE> 27
Trust), Balanced and Capital Appreciation Portfolios and IDEX Fund 3 since
inception of each fund or portfolio. All of the outstanding stock of ISI is
owned by AUSA, a wholly-owned subsidiary of AEGON USA and thus, ISI is an
affiliate of IMI.
ISI is responsible for furnishing or causing to be furnished to the
Tax-Exempt, Income Plus, Aggressive Growth and Equity-Income Portfolios
investment advice and recommendations and supervising the purchase and sale of
securities as directed by appropriate Fund officers. In addition, ISI provides
all administrative services and facilities to each of these Portfolios,
including furnishing all executive and managerial personnel, office space and
equipment, regulatory compliance, financial reports, supervising preparation of
tax returns and recordkeeping. For services furnished to the Tax-Exempt and
Income Plus Portfolios, respectively, ISI receives an annual fee, computed daily
and paid monthly, equal to 0.60% of the average daily net assets of that
Portfolio. For services furnished to the Aggressive Growth and Equity-Income
Portfolios, respectively, ISI receives an annual fee, computed daily and paid
monthly, equal to 1.00% of the first $750 million of that Portfolio's average
daily net assets, 0.90% of the next $250 million of that Portfolio's average
daily net assets, and 0.85% of the average daily net assets of the Portfolio in
excess of $1 billion. The investment advisory fees paid by the Tax-Exempt,
Income Plus, Aggressive Growth and Equity-Income Portfolios are higher than
those paid by many other funds.
For the fiscal year ended September 30, 1994, the investment advisory fee
paid by the Tax-Exempt Portfolio was .22% of that Portfolio's average daily net
assets, net of fees waived by ISI. For the fiscal year ended September 30, 1994,
the investment advisory fee paid by the Income Plus Portfolio was .60% of that
Portfolio's average daily net assets.
In addition to the investment advisory fee, under its Advisory Agreement
the Tax-Exempt, Income Plus, Aggressive Growth and Equity-Income Portfolios each
pay most of its operating costs, including administrative, bookkeeping and
clerical expenses, legal fees, auditing and accounting fees, shareholder
services and transfer agent fees, custodian fees, costs of complying with
federal and state regulations, preparing, printing and distributing reports to
shareholders, non-interested trustees' fees, interest, insurance, dues for trade
associations and taxes. Each Portfolio also pays all brokers' commissions in
connection with its portfolio transactions. Pursuant to an expense limitation
voluntarily adopted by ISI, ISI plans to reimburse each of the Tax-Exempt,
Income Plus, Aggressive Growth and Equity-Income Portfolios or waive fees, or
both, to the extent that the Portfolio's normal operating expenses, including
investment advisory fees but excluding interest, taxes, brokerage commissions
and 12b-1 fees, exceed on an annual basis, with respect to the Tax-Exempt
Portfolio and the Income Plus Portfolio, .65% and 1.25%, respectively, of the
average daily net assets of the Portfolio, and with respect to the Aggressive
Growth Portfolio and the Equity-Income Portfolio, the lesser of the most
restrictive expense limitation imposed by any state in which its shares are
offered or 2.50% of that Portfolio's average daily net assets for the fiscal
year ended September 30, 1995, and 1.50% thereafter.
For the fiscal year ended September 30, 1994, the total expenses of the
Tax-Exempt Portfolio Class A and Class C shares, including the investment
advisory fee, amounted to 1.00% and 1.25%, respectively, of each Class's
respective average net assets (net of voluntary expense reimbursements and/or
fee waivers). For the fiscal year ended September 30, 1994, the total expenses
of the Income Plus Portfolio Class A and Class C shares, including the
investment advisory fee, amounted to 1.33% and 3.52%, respectively, of each
Class's respective average daily net assets.
BALANCED, CAPITAL APPRECIATION, AGGRESSIVE GROWTH AND EQUITY-INCOME
PORTFOLIOS. No investment advisory fees or expenses were assessed for the
fiscal year ended September 30, 1994 for the IDEX II Balanced, Capital
Appreciation, Aggressive Growth and Equity-Income Portfolios, as these
Portfolios did not commence operations until December 5, 1994.
SUB-ADVISERS
GROWTH, GLOBAL, FLEXIBLE INCOME, BALANCED AND CAPITAL APPRECIATION
PORTFOLIOS. IMI has entered into an Investment Counsel Agreement for each of
the Growth, Global, Flexible Income, Balanced and Capital Appreciation
Portfolios with Janus Capital, whose address is 100 Fillmore Street, Suite 300,
Denver, Colorado 80206. Janus Capital is a registered investment adviser which
serves as the investment adviser or sub-adviser to other mutual funds and
private accounts. Janus Capital provides IMI with investment advice and
recommendations for each Portfolio consistent with that Portfolio's investment
objective, policies and restrictions, and supervises the purchase and sale of
all security transactions on behalf of the Portfolio, including the negotiation
of commissions and the allocation of principal business and portfolio brokerage.
In allocating such portfolio transactions, Janus Capital may consider research
and other services furnished to it and may place portfolio transactions with
broker-dealers that are affiliated with IMI or Janus Capital. In placing
portfolio business with all dealers, Janus Capital seeks the best execution of
each transaction and all brokerage placement must be consistent with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. While
Janus Capital carries out most of IMI's advisory functions, IMI retains
responsibility for the performance of such functions. For its services, Janus
Capital receives 50% of the fees received by IMI under each of the Growth,
Global, Flexible Income, Balanced and Capital Appreciation Portfolios'
respective Advisory Agreements less 50% of any amount reimbursed to the
Portfolio or waived by IMI pursuant to that Portfolio's expense limitation. IMI
may pay additional compensation to Janus Capital under certain cir-
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<PAGE> 28
cumstances depending on the level of the aggregate net assets of certain mutual
funds in the IDEX Group of Mutual Funds, as described in the Statement of
Additional Information.
Thomas F. Marsico has served as portfolio manager of the Growth Portfolio
since its inception. Mr. Marsico also serves as portfolio manager of other
mutual funds in the IDEX Group: IDEX Fund and IDEX Fund 3. Mr. Marsico is an
Executive Vice President of Janus Investment Fund and has been a Vice President
of Janus Capital since 1986.
Helen Y. Hayes has served as portfolio manager of the Global Portfolio
since its inception. Ms. Hayes is also an Executive Vice President of Janus
Investment Fund and Janus Aspen Series. Ms. Hayes has been employed by Janus
Capital since 1987.
Ronald V. Speaker has served as portfolio manager of the Flexible Income
Portfolio since its inception, and served as portfolio manager of the Flexible
Income Portfolio's predecessor, IDEX Total Income Trust since February 1992. Mr.
Speaker is also an Executive Vice President of Janus Investment Fund and Janus
Aspen Series and previously served as a securities analyst and research
associate at Janus Capital, since 1986.
James P. Craig has served as portfolio manager of the Balanced Portfolio
since its inception. Mr. Craig has been active in the investment management
business for twelve years and has managed Janus Fund since 1986, Janus Venture
Fund from its inception in April 1985 to December 1993 and Janus Balanced Fund
since December 1993. He holds a Bachelor of Arts in Business from the University
of Alabama and a Master of Arts in Finance from the Wharton School of the
University of Pennsylvania.
James P. Goff has served as portfolio manager of the Capital Appreciation
Portfolio since its inception. Mr. Goff joined Janus Capital in 1988 and has
managed Janus Enterprise Fund since its inception in September 1992 and has co-
managed Janus Venture Fund since December 1993. He holds a Bachelor of Arts in
Economics from Yale University and is a Chartered Financial Analyst.
TAX-EXEMPT AND INCOME PLUS PORTFOLIOS. AEGON USA Investment Management,
Inc. ("AEGON Management"), 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499,
serves as the investment sub-adviser to each of the Tax-Exempt and Income Plus
Portfolios pursuant to an Investment Counsel Agreement relating to each
Portfolio. Each Investment Counsel Agreement was entered into between ISI and
AEGON USA Securities, Inc. ("AEGON Securities") (formerly known as MidAmerica
Management Corporation), which assigned each Agreement to AEGON Management, on
September 30, 1992. AEGON Securities previously served as the investment adviser
to each series of AEGON USA Managed Portfolios, Inc. AEGON Management is a
wholly-owned indirect subsidiary of AEGON USA and thus is an affiliate of ISI
and IMI.
AEGON Management provides ISI with investment advice and recommendations
for the Tax-Exempt and Income Plus Portfolios consistent with each Portfolio's
investment objective, policies and restrictions, and supervises the purchase and
sale of all security transactions on behalf of each Portfolio, including the
negotiation of commissions and the allocation of principal business and
portfolio brokerage. In allocating such portfolio transactions, AEGON Management
may consider research and other services furnished to it and may place portfolio
transactions with broker-dealers that are affiliated with ISI or AEGON
Management. In placing portfolio business with all dealers, AEGON Management
seeks the best execution of each transaction and all brokerage placement must be
consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. While AEGON Management carries out most of ISI's
advisory functions, ISI retains responsibility for the performance of such
functions. For its services, AEGON Management receives 50% of the fees received
by ISI under the Tax-Exempt and the Income Plus Portfolio's Advisory Agreement
less 50% of any amount reimbursed to that Portfolio or waived by ISI pursuant to
the Portfolio's expense limitation.
Rachel A. Dennis has served as portfolio manager of the Tax-Exempt
Portfolio since its inception. Ms. Dennis is also a Vice President of AEGON
Management. Ms. Dennis has been employed by AEGON Management and its affiliates
in various positions since 1977.
David R. Halfpap has served as portfolio manager of the Income Plus
Portfolio since its inception. Mr. Halfpap is a Vice President of AEGON
Management and has been employed by AEGON Management and its affiliates in
various positions since 1975.
AGGRESSIVE GROWTH AND EQUITY-INCOME PORTFOLIOS. Fred Alger Management,
Inc., located at 75 Maiden Lane, New York, NY 10038 ("Alger Management"), serves
as the investment sub-adviser to the Aggressive Growth Portfolio pursuant to an
Investment Counsel Agreement relating to the Portfolio. Alger Management, a
registered investment adviser, is a wholly-owned subsidiary of Fred Alger &
Company, Incorporated ("Alger, Inc."), which in turn is a wholly-owned
subsidiary of Alger Associates, Inc., a financial services holding company
controlled by Fred M. Alger. As of December 31, 1994, Alger Management had
approximately $2.9 billion in assets under management for investment companies
and private accounts. Alger Management has served as the investment sub-adviser
to the WRL Series Fund, Inc. Aggressive Growth Portfolio since its inception in
February 1994. See the Statement of Additional Information for a more detailed
description of the previous experience of Alger Management as an investment
adviser.
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<PAGE> 29
David Alger has served as portfolio manager of the Aggressive Growth
Portfolio since its inception. Mr. Alger has served as an Executive Vice
President and Director of Research of Alger Management since 1971, and as
President since 1995. He serves as portfolio manager for other mutual funds and
investment accounts managed by Alger Management. Mr. Alger has also served as
the portfolio manager of the WRL Series Fund, Inc. Aggressive Growth Portfolio
since its inception in February 1994.
Luther King Capital Management Corporation ("Luther King"), located at 301
Commerce Street, Suite 1600, Fort Worth, Texas 76102, serves as the investment
sub-adviser to the Equity-Income Portfolio pursuant to an Investment Counsel
Agreement relating to the Portfolio. Ultimate control of the sub-adviser is
exercised by J. Luther King, Jr. Luther King is a registered investment adviser
and provides investment management services to accounts of individual and other
institutional investors. Luther King has served as the investment sub-adviser to
the WRL Series Fund, Inc. Equity-Income Portfolio since its inception in
February 1993. See the Statement of Additional Information for a more detailed
description of the previous experience of Luther King as an investment adviser.
Luther King, Jr., Scot C. Hollmann and John Patrick Clegg have served as
portfolio managers of the Equity-Income Portfolio since its inception. Mr. King
has been President of Luther King since 1979. Mr. Hollmann has served as Vice
President of Luther King since 1983 and Mr. Clegg has served as Vice President
of Luther King since 1991. From 1986 to 1991, Mr. Clegg served as Assistant
Portfolio Manager to various investment companies advised by American Capital
Management & Research, Inc. Messrs. King, Hollman and Clegg have also served as
portfolio managers of the WRL Series Fund, Inc. Equity-Income Portfolio since
its inception in February 1993.
Alger Management and Luther King provide ISI with investment advice and
recommendations for the Aggressive Growth and Equity-Income Portfolios,
respectively, consistent with each Portfolio's investment objective, policies
and restrictions, and supervise the purchase and sale of all security
transactions on behalf of each Portfolio, including the negotiation of
commissions and the allocation of principal business and portfolio brokerage. In
allocating such portfolio transactions, Alger Management and Luther King may
consider research and other services furnished to them. It is anticipated that
Alger, Inc., an affiliate of Alger Management, will serve as the Aggressive
Growth Portfolio's broker in effecting substantially all of the Aggressive
Growth Portfolio's transactions on securities exchanges and will retain
commissions in accordance with certain regulations of the Securities and
Exchange Commission. In placing portfolio business with all dealers, Alger
Management and Luther King seek the best execution of each transaction and all
brokerage placement must be consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. While Alger Management and
Luther King carry out most of ISI's advisory functions, ISI retains
responsibility for the performance of such functions. For their services, Alger
Management and Luther King each receive 40% of the fees received by ISI under
the Aggressive Growth and the Equity-Income Portfolio's respective Advisory
Agreement, less 40% of any amount reimbursed to each respective Portfolio or
waived by ISI pursuant to the Portfolio's expense limitation.
Janus Capital, AEGON Management, Alger Management and Luther King may be
referred to herein collectively as the "sub-advisers" and individually as a
"sub-adviser."
ADMINISTRATOR
IMI has entered into an Administrative Services Agreement ("Administrative
Agreement") pursuant to which ISI serves as administrator to each of the Growth,
Global, Flexible Income, Balanced and Capital Appreciation Portfolios. Under the
Administrative Agreements, ISI provides all services required to carry on the
general administrative and corporate affairs of these Portfolios. These services
include furnishing all executive and managerial personnel, office space and
equipment, arrangements for and supervision of all shareholder services, federal
and state regulatory compliance and responsibility for accounting and
recordkeeping. For its services under an Administrative Agreement, ISI receives
50% of the fees received by IMI under the corresponding Advisory Agreement.
Under certain circumstances, the amounts payable to ISI under an Administrative
Agreement will be reduced by any additional compensation payable by IMI to Janus
Capital, as described in the Statement of Additional Information.
DISTRIBUTOR AND DISTRIBUTION AND SERVICE PLANS
The Fund has entered into an Underwriting Agreement with ISI pursuant to
which ISI serves as principal underwriter and performs services and bears
expenses relating to the offering of Fund shares for sale to the public. ISI
also serves as principal underwriter of IDEX Fund and IDEX Fund 3. As
compensation for the expenses borne by ISI and the distribution services
provided, ISI receives the sales charges imposed on Class A shares and reallows
a portion of such charges to brokers or dealers that have sold Class A shares.
See "Shareholders' Manual -- How to Purchase Shares" for a more complete
description of the sales charges for Class A shares. ISI may also receive annual
service and distribution fees in accordance with the Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act, adopted with respect to each class of
shares of a Portfolio.
Under its Plan of Distribution for Class A shares ("Class A Plan"), a
Portfolio may pay ISI an annual distribution fee of up to 0.35%, and an annual
service fee of up to
27
<PAGE> 30
0.25%, of the average daily net assets of that Portfolio's Class A shares;
however, to the extent that a Portfolio pays service fees, the amount which the
Portfolio may pay as a distribution fee is reduced accordingly so that the total
fees payable under the Class A Plan may not exceed on an annualized basis 0.35%
of the average daily net assets of that Portfolio's Class A shares.
Under its Plan of Distribution for Class C shares ("Class C Plan"), a
Portfolio may pay ISI an annual distribution fee of up to 0.75% and an annual
service fee of up to 0.25%, of the average daily net assets of that Portfolio's
Class C shares; however, the total fee payable pursuant to a Class C Plan may
not on an annualized basis exceed 0.90% of the average daily net assets of each
Portfolio, and the Tax-Exempt Portfolio currently intends to limit the total
fees payable pursuant to its Class C Plan to 0.60% of the average daily net
assets of that Portfolio's Class C shares.
ISI may use the fees payable under the Class A and Class C Plans as it
deems appropriate to pay for activities or expenses primarily intended to result
in the sale of Class A or Class C shares, respectively, or in personal service
to and/or maintenance of Class A or Class C shareholder accounts, respectively.
For each class, these activities and expenses may include, but are not limited
to: compensation to employees of ISI; compensation to and expenses of ISI and
other selected dealers who engage in or otherwise support the distribution of
shares or who service shareholder accounts; the costs of printing and
distributing prospectuses, statements of additional information and reports for
other than existing shareholders; and the costs of preparing, printing and
distributing sales literature and advertising materials.
Of the distribution and service fees received by ISI for Class A shares,
ISI currently reallows an annual amount of 0.25% of the average daily net assets
of that Portfolio's Class A shares to brokers or dealers that have sold such
Class A shares. Of the distribution and service fees received by ISI for Class C
shares, ISI currently reallows the total fees to brokers or dealers that have
sold such Class C shares.
DISTRIBUTIONS AND TAXES
DISTRIBUTION PAYMENT POLICY
Each of the Growth, Global, Aggressive Growth and Capital Appreciation
Portfolios ordinarily declares and pays semi-annual dividends from its net
investment income available for distribution, and each of the Flexible Income,
Tax-Exempt and Income Plus Portfolios ordinarily declares and pays monthly
dividends from its net investment income available for distribution. The
Balanced and Equity-Income Portfolios ordinarily pay quarterly dividends from
their net investment income available for distribution. Each Portfolio makes
annual distributions of any net realized short-term capital gains, net gains
from certain foreign currency transactions and net capital gain (the excess of
net long-term capital gain over net short-term capital loss). Capital gain
distributions realized during each fiscal year (ending on September 30) normally
will be declared and paid in the subsequent fiscal year. To avoid a 4% excise
tax on undistributed amounts of ordinary income and capital gains, as described
in the Statement of Additional Information, a Portfolio may, to the extent
permitted by applicable rules adopted by the Securities and Exchange Commission,
pay additional distributions of capital gain in any year and make additional
dividend distributions.
Dividends and other distributions paid by a Portfolio with respect to its
Class A and Class C shares are calculated in the same manner and declared and
paid at the same time. The per share dividends from net investment income on
Class C shares of a Portfolio are expected to be lower than the per share
dividends from net investment income on Class A shares of that Portfolio as a
result of the higher service and distribution fees applicable to Class C shares.
All dividends and capital gain distributions, if any, with respect to a
particular class, will be paid automatically in additional shares of that class
at the net asset value per share determined as of the next business day
following the record date, unless the shareholder elects on his or her New
Account Application or by written request to ISI, one of the following options:
1. to receive or direct to another payee all dividends and capital gain
distributions in cash;
2. to receive or direct to another payee all dividends in cash and to receive
all capital gain distributions in additional shares at net asset value; or
3. to invest all dividends and capital gain distributions in the shares of the
same class of another IDEX portfolio or fund on which an initial sales charge
is imposed held by the shareholder in the same type of account (either
retirement or non-retirement).
Checks for cash distributions and distribution confirmations are usually
mailed to shareholders within ten days of the record date. Checks for cash
distributions will be made payable to the shareholder of record and sent by
first class mail to the shareholder's address of record unless otherwise
requested by the shareholder on the New Account Application or by a separate
written request. Any checks which are unable to be delivered and are returned to
the Fund or Idex Investor Services, Inc. (the "Transfer Agent") will be
reinvested into the shareholder's account in full or fractional shares at the
net asset value next computed after the check has been received by the Transfer
Agent. To reduce costs to a Portfolio, checks outstanding and uncashed for over
180 days may be "stop-paid" and reinvested back into the shareholder/payee's
account at the discretion of the Transfer Agent. Also at the discretion of the
Transfer Agent, cash distribution checks less
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<PAGE> 31
than $5.00 may be reinvested back into the account and the distribution option
changed to automatic payment of distributions in additional shares of the
Portfolio.
Each shareholder of the Flexible Income, Tax-Exempt and Income Plus
Portfolios whose dividends are automatically paid in additional shares will
receive quarterly statements that confirm the dividend transactions during the
period, unless the shareholder elects to receive confirmation at the time of
each transaction.
Further information concerning dividends and distributions may be obtained
by calling Customer Service at (800) 851-9777. Shareholders may change their
dividend or distribution options any time before the record date of any dividend
or distribution by calling Customer Service or writing to Idex Investor
Services, Inc., P.O. Box 9015, Clearwater, FL 34618-9015.
TAX INFORMATION
Each Portfolio is treated as a separate entity for federal tax purposes. As
a result, each Portfolio must separately meet, and intends to meet, the
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended,
for treatment as a regulated investment company so as to avoid paying federal
income tax on that portion of its investment company taxable income (consisting
generally of net investment income and net short-term capital gain) and net
capital gain distributed to its shareholders. Dividends paid from a Portfolio's
investment company taxable income are taxable to its shareholders (other than
those exempt from income tax) as ordinary income, whether received in cash or in
additional shares, to the extent of the Portfolio's earnings and profits.
Distributions paid from a Portfolio's net capital gain, when designated as such
by the Portfolio, are taxable to shareholders (other than those exempt from
income tax) as long-term capital gains, whether received in cash or in
additional shares and regardless of how long shareholders have held their
shares. If a Portfolio declares a dividend or other distribution in October,
November or December payable to shareholders of record on a specified date in
such a month, and if the Portfolio pays the distribution to the shareholders
during January of the following year, then each shareholder will be treated as
receiving the distribution on December 31 of that year, and the Portfolio will
be treated as having paid the distribution on that date.
As a general rule, a shareholder's gain or loss on a sale (redemption or
exchange out of a Portfolio) of his or her shares will be a long-term capital
gain or loss if the shares have been held for more than one year and a
short-term capital gain or loss if held for one year or less. Individuals are
subject to a maximum federal tax rate of 28% on net capital gain. The maximum
rate of 28% applies to both capital gain distributions from the Portfolio to
individual shareholders and to net long-term capital gains on the disposition of
shares by individual shareholders. For most accounts (other than retirement plan
accounts which will receive Form 1099-B), the Transfer Agent will provide basis
information incorporated within Form 1099-B on the gain or loss on sale of
Portfolio shares based upon the Internal Revenue Service single category average
cost method. Shareholders are encouraged to keep regular account statements to
use in conjunction with average cost information (if received) in order to
determine gain or loss on the sale of Portfolio shares for tax purposes.
To the extent that dividends paid by a Portfolio are attributable to
qualifying dividend income received from U.S. corporations, dividends paid by
the Portfolio will qualify for the dividends-received deduction for
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
If shares of a Portfolio are redeemed at a loss after being held for six
months or less, the loss will be disallowed to the extent of any exempt-interest
dividends received with respect to those shares; any portion of the loss that is
allowed will be treated as long-term capital loss to the extent of any capital
gain distributions on those shares. It is anticipated that this situation could
only occur for shareholders in the Tax-Exempt Portfolio.
Generally, shareholders should be aware that if shares of a non-retirement
plan account are purchased on or shortly before the record date for a dividend
or other taxable distribution, the shareholder will pay full price for the
shares and receive some portion of the price back as a taxable distribution.
Generally a redemption of Portfolio shares will result in taxable gain or
loss to the redeeming shareholder, depending on whether the redemption proceeds
are more or less than the shareholder's adjusted basis for the redeemed shares
(which normally includes any sales charge paid on Class A shares). An exchange
of Portfolio shares for shares of any other IDEX portfolio or fund generally
will have similar tax consequences. However, special rules apply when a
shareholder (1) disposes of Class A shares through a redemption or exchange
within 90 days after his or her purchase thereof and (2) subsequently acquires
Class A shares of the Portfolio or another IDEX portfolio or fund on which an
initial sales charge normally is imposed, without paying a sales charge due to
the exchange privilege or 90-day reinvestment privilege. (See "Shareholders'
Manual -- How to Exchange Shares" and "Shareholders' Manual -- How to Redeem
Shares -- Reinvestment Privilege.") In these cases, any gain on the disposition
of the Class A shares would be increased, or loss decreased, by the amount of
the sales charge paid when those shares were acquired, and that amount will
increase the adjusted basis of the shares subsequently acquired. In addition, if
Portfolio shares are purchased (whether pursuant to the reinvestment privilege
or otherwise) within 30 days before or after redeeming other shares of the
Portfolio at a loss, that loss ("wash sale-loss") will be deferred rather than
currently deductible, and
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<PAGE> 32
thus will increase the basis of the newly purchased shares. The Transfer Agent
currently is able to calculate and track for shareholders wash sale adjustments,
but is unable to adjust shareholders' basis information for any applicable 90
day sales load deferral adjustment as described above.
The Tax-Exempt Portfolio intends to continue to qualify to pay "exempt
interest" dividends which are distributions from that Portfolio's investment
income attributable to interest on Municipal Obligations, designated as such by
the Portfolio to its shareholders on a statement provided in January.
Exempt-interest dividends are generally treated as excludable from the gross
income of recipients for federal income tax purposes. (However, shareholders who
are "substantial users" or persons related to "substantial users" of certain
facilities financed by industrial development bonds may not exclude
exempt-interest dividends relating to those bonds.) Interest on indebtedness
incurred or continued to purchase or carry Tax-Exempt Portfolio shares is not
deductible to the extent attributable to exempt-interest dividends. Some
securities held by the Tax-Exempt Portfolio may be specified private activity
bonds the interest on which is a specific item of tax preference for purposes of
computing the federal alternative minimum tax for both individuals and
corporations. Therefore, to the extent the Tax-Exempt Portfolio receives income
from such securities, a portion of the dividends paid by the Tax-Exempt
Portfolio will be subject to the alternative minimum tax. In addition, for
certain corporate shareholders, all tax-exempt income, including all
exempt-interest dividends, to the extent not treated as an item of tax
preference, as discussed above, will be included in determining the
corporation's alternative minimum tax.
Shareholders of the Tax-Exempt Portfolio should note that they may, in
addition to receiving exempt-interest dividends, receive additional dividends
that are taxable as ordinary income or capital gains.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for a benefit recipient if the sum of his or her
adjusted gross income, income from tax-exempt sources such as exempt interest
dividends from the Tax-Exempt Portfolio, plus 50% of his or her benefits exceeds
certain base amounts. Exempt interest dividends from the Tax-Exempt Portfolio
still are tax-exempt to the extent described above; they are only included in
the calculation of whether a recipient's income exceeds established amounts.
In many states, shareholders are not subject to state income taxation on
distributions made by a registered investment company that were derived from
interest on direct obligations of the U.S. government (although dividends
derived from interest on obligations issued by agencies or instrumentalities of
the U.S., or interest earned on repurchase obligations secured by such
obligations or direct obligations of the U.S. may be subject to state income
taxation).
Statements as to the tax status of the dividends and other distributions
paid by a Portfolio are mailed annually. For most types of accounts, the
Transfer Agent will report the proceeds of redemptions to shareholders and the
Internal Revenue Service annually. Average cost basis information on non-
retirement plan account redemptions is not currently reported to the IRS.
Each Portfolio, except the Tax-Exempt Portfolio, is required to withhold
31% of all dividends, and each Portfolio, including the Tax-Exempt Portfolio, is
required to withhold 31% of capital gain distributions and redemption proceeds,
paid on behalf of any individuals and certain other noncorporate shareholders
who do not furnish the Portfolio with a correct taxpayer identification number.
Withholding from dividends and capital gain distributions also is required for
shareholders who otherwise are subject to backup withholding.
The foregoing is only a summary of some of the important federal tax
considerations under current tax law generally affecting each Portfolio and its
shareholders; see the Statement of Additional Information for further
discussion. Because there may be other federal, state or local tax
considerations applicable to a particular shareholder, shareholders are urged to
consult their own tax advisers.
MISCELLANEOUS INFORMATION
ORGANIZATION
Each Portfolio is a series of IDEX II Series Fund (the "Fund"), a
Massachusetts business trust that was formed by a Declaration of Trust dated
January 7, 1986 and whose operations are governed by a Restatement of
Declaration of Trust dated as of August 30, 1991 ("Declaration of Trust"), a
copy of which is on file with the Secretary of the Commonwealth of
Massachusetts. Prior to its organization as a series company, the name of the
Fund was IDEX II.
The Fund is managed by its Board of Trustees pursuant to the Declaration of
Trust. The Declaration of Trust permits the Board of Trustees to issue an
unlimited number of shares of beneficial interest in the Fund. The shares of
beneficial interest of each Portfolio are divided into two classes, currently
Class A and Class C. Each class represents interests in the same assets of the
Portfolio and differ as follows: each class of shares has exclusive voting
rights on matters pertaining to its plan of distribution or any other matters
appropriately limited to that class; Class A shares are subject to an initial
sales charge; Class C shares are subject to higher ongoing distribution and
service fees; each class may bear differing amounts of certain class-specific
expenses; and each class has a separate exchange privilege. The Fund does not
anticipate that there will be any conflicts between the interests of holders of
the different classes of shares of the same Portfolio by virtue of those
classes. On an ongoing basis, the Board of Trustees will consider whether any
such conflict exists and, if so, take
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<PAGE> 33
appropriate action. Each share of a series is entitled to equal voting,
dividend, liquidation and redemption rights, except that due to the differing
expenses borne by the two classes, dividends and liquidation proceeds of Class C
shares are expected to be lower than for Class A shares of the same Portfolio.
The Fund does not intend to hold annual meetings of shareholders, unless
required to do so by the 1940 Act or by the Declaration of Trust. A meeting will
be called for the election of trustees upon the written request of holders of
10% of the outstanding shares of the Fund. Shareholders have neither preemptive
nor cumulative voting rights.
On August 7, 1992, in a tax-free reorganization, IDEX II Tax-Exempt
Portfolio acquired all of the assets and assumed all of the liabilities of AEGON
USA Tax-Exempt Portfolio in exchange for shares of IDEX II Tax-Exempt Portfolio
which were then distributed to the AEGON USA Tax-Exempt Portfolio shareholders,
and IDEX II Income Plus Portfolio acquired all of the assets and assumed all of
the liabilities of AEGON USA High Yield Portfolio in exchange for shares of IDEX
II Income Plus Portfolio which were then distributed to the AEGON USA High Yield
Portfolio shareholders. All historical financial information set forth in this
Prospectus relates to the AEGON USA Tax-Exempt Portfolio and the AEGON USA High
Yield Portfolio prior to the date they were reorganized into the IDEX II
Tax-Exempt Portfolio and the IDEX II Income Plus Portfolio, respectively. On
August 21, 1992, in a tax-free reorganization, IDEX II Growth Portfolio acquired
all of the assets and assumed all of the liabilities of AEGON USA Growth
Portfolio and AEGON USA Capital Appreciation Portfolio in exchange for shares of
IDEX II Growth Portfolio which were then distributed on a prorata basis to the
respective AEGON USA Growth Portfolio and AEGON USA Capital Appreciation
shareholders.
On October 1, 1993, in a tax-free reorganization, IDEX II Flexible Income
Portfolio acquired all of the assets and assumed all of the liabilities of IDEX
Total Income Trust in exchange for shares of IDEX II Flexible Income Portfolio
which were then distributed to the IDEX Total Income Trust shareholders. All
historical financial information in this Prospectus pertaining to IDEX II
Flexible Income Portfolio relates to IDEX Total Income Trust prior to the date
it was reorganized into that Portfolio.
CERTAIN LIABILITIES
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of Fund
assets for all loss and expense of any shareholder held personally liable by
reason of being or having been a shareholder. Liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations,
a possibility that the adviser believes is remote.
TRANSFER AGENT
Idex Investor Services, Inc., P.O. Box 9015, Clearwater, Florida
34618-9015, an affiliate of IMI and ISI, is the Fund's Transfer Agent,
withholding agent and dividend paying agent. All written correspondence relating
to a shareholder's account should be sent to the Transfer Agent.
CUSTODIAN
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, is custodian of the Fund's assets and serves as custodian or
trustee for qualified retirement plans and individual retirement plan accounts.
However, correspondence regarding a shareholder's account should be sent to the
Transfer Agent at the address shown above.
SHAREHOLDER INQUIRIES
Any inquiries by shareholders relating to a Portfolio or the Fund or
requests for forms for establishing or changing shareholder accounts or plans
should be made by calling Customer Service at (800) 851-9777 or writing the
Transfer Agent at P.O. Box 9015, Clearwater, Florida 34618-9015.
SHAREHOLDER REPORTS, PROSPECTUSES AND CONSOLIDATED STATEMENTS
The Fund sends annual and semi-annual reports and updated prospectuses to
shareholders. The annual reports contain audited financial statements. To reduce
costs, a shareholder who has more than one account in the Fund, each with the
same taxpayer identification number, will be sent only one copy (rather than
multiple copies) of certain shareholder mailings and will receive a consolidated
statement with respect to such accounts. Further, two or more shareholders may
elect to receive a consolidated statement and only one copy (rather than
multiple copies) of certain shareholder mailings for their accounts as long as
the shareholders have the same surname and address of record and each of the
affected shareholders so elects on the New Account Application or by written
request to the Transfer Agent. Additional copies of shareholder reports and
prospectuses may be obtained by calling Customer Service at (800) 851-9777.
SHAREHOLDERS' MANUAL
OPENING AN ACCOUNT
To open an account, complete and sign the New Account Application. Each
Portfolio currently offers two classes of shares. You can buy Class A and Class
C shares of a Portfolio in several ways which are described below. Additional
documentation may be required for corporations, associations and certain
fiduciaries. A special application is required for IDEX IRA's and other
retirement plans. If you have an account in
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<PAGE> 34
another IDEX fund or portfolio, you may open an account in a Portfolio of this
Fund with the same features by sending a written request to the Transfer Agent.
If you have any questions or need extra forms, please call Customer Service at
(800) 851-9777 or write the Transfer Agent.
TAX IDENTIFICATION NUMBER. To avoid being subject to a 31% federal
withholding tax on dividends, capital gain distributions and proceeds of
redemption, an individual or other non-exempt investor must furnish the Fund
with the investor's taxpayer identification number and certify in writing that
the number furnished is correct and that the investor is not subject to backup
withholding. The appropriate number may be furnished and certified on the
application to purchase shares or on IRS Form W-9. To avoid the additional
expense of withholding taxes on dividends and other distributions, the Fund may
involuntarily redeem any accounts for which certified taxpayer identification
numbers have not been furnished within 60 days of the initial purchase of shares
in those accounts. Foreign shareholders ordinarily must recertify their foreign
status to the Transfer Agent every three years on IRS Form W-8.
HOW TO PURCHASE SHARES
Class A and Class C shares of a Portfolio may be purchased at the public
offering price through ISI or through dealers who have sales agreements with
ISI. WHEN PLACING PURCHASE ORDERS, INVESTORS SHOULD SPECIFY WHETHER THE ORDER IS
FOR CLASS A OR CLASS C SHARES OF A PORTFOLIO. Investments by check should be
payable in dollars and drawn on U.S. institutions. Ordinarily, the minimum
initial investment in the Portfolios, inclusive of the applicable sales charge
for Class A shares, is $500. Purchases through plans for regular investment,
such as the Automatic Investment Plan, payroll deduction plans or comparable
plans, ordinarily do not require a minimum initial investment. Subsequent
investments must ordinarily be at least $50. The minimum initial and subsequent
investment for military allotment programs and for shares purchased along with
other products offered by an affiliate of ISI is $10. A $15 service charge will
be charged (through a redemption of shares) when a check, pre-authorized draft
or an electronic transfer of monies through Automated Clearing House ("ACH") (or
other similar means of purchasing shares) is returned or rejected by the paying
bank because of insufficient or uncollected funds or because of a stop payment
order.
All orders to purchase shares are subject to acceptance by the Fund and are
not binding until so accepted, and are subject to ultimate collectibility of
funds. The Fund may decline to accept a purchase order when in the judgment of
management the acceptance of an order is not in the best interest of existing
shareholders. All orders are processed at the appropriate offering price based
on the net asset value of a Portfolio's shares next computed after receipt and
acceptance of the order.
BY MAIL
Once an account is established, shareholders may purchase additional Class
A or Class C shares at any time by sending checks for subsequent investments
directly to the Transfer Agent:
Idex Investor Services, Inc.
P.O. Box 9015
Clearwater, FL 34618-9015
Make your check payable to IDEX Mutual Funds and indicate the class of
shares. Please note your account number on the check.
BY AUTOMATIC INVESTMENT PLAN
Shareholders may purchase either Class A or Class C shares through an IDEX
Automatic Investment Plan under which investments may be made periodically by
means of a pre-authorized charge on their bank accounts on approximately the 5th
and/or the 20th day of the month. The monies are electronically transferred
through ACH or through a pre-authorized draft. Such transactions will be
confirmed on the shareholder's bank statement as an ACH debit or a pre-
authorized withdrawal. The shareholder's IDEX confirmation will reflect the
shares so purchased. A shareholder may change the amount of the shareholder's
regular investment or discontinue investments under the Automatic Investment
Plan without penalty by calling Customer Service at (800) 851-9777 or writing
the Transfer Agent. A shareholder may also request that the amount of his or her
regular investment under the Automatic Investment Plan be automatically
increased monthly, quarterly, semi-annually or annually. The periodic increases
may be stated as a percentage of the automatic investment amount or as a
specified dollar amount. Shareholders may participate in an Automatic Investment
Plan by completing the appropriate section on the New Account Application or by
written request to the Transfer Agent. Forms for establishing an Automatic
Investment Plan may be obtained by calling Customer Service or writing the
Transfer Agent.
BY TELEPHONE
Once an account is established, shareholders may purchase additional Class
A or Class C shares by telephone request and make payment by means of a
pre-authorized charge on their bank accounts. The shareholder may elect this
additional purchase option on the New Account Application or by written request
to the Transfer Agent. Payments for telephone purchases are automatically
transferred from the shareholder's bank account to his or her IDEX account
through ACH on approximately the second bank business day after the purchase
request is effected. The purchase is confirmed on the shareholder's bank
statement as a pre-authorized charge or withdrawal. The shareholder's IDEX
confirmation will reflect the shares purchased. See "Other
Information -- Telephone Transactions" for further information relating to the
purchase of shares by telephone request.
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<PAGE> 35
PURCHASES THROUGH AUTHORIZED DEALERS
Purchase orders of at least $1,000 may be made by telephone by authorized
dealers ("confirmed purchases"). Confirmed purchases can be paid to the Transfer
Agent by a check or Federal funds bank wire. Dealers who wish to pay for orders
with a Federal funds bank wire are referred to the wire instructions described
below. If the confirmed purchase is for a new account, registration instructions
including dealer certification of the shareholder's tax identification number
must be mailed to the Transfer Agent. If the confirmed purchase is for an
existing account, no additional documentation is needed. (It is the dealer's
responsibility to transmit such orders promptly.)
As described above, confirmed purchases of at least $1,000 can be paid by
dealers to the Transfer Agent through a Federal funds bank wire. Dealers that
pay for orders with a bank wire should instruct their bank to wire Federal funds
as follows:
NationsBank, N.A.
Tampa, Florida
ABA #063100277
DDA #3601194554
ATTN: Idex Investor Services, Inc.
Confirmed purchase order number(s)
Shareholder's account name(s)
There may be a charge by the dealer's bank for sending out a bank wire, but
the Transfer Agent currently does not charge for this convenience.
PUBLIC OFFERING PRICE AND NET ASSET VALUE
The public offering price of a Class A or Class C share of a Portfolio is
the net asset value per share next determined after receipt and acceptance of
the order plus, if Class A shares, the applicable sales charge, if any. Net
asset value is determined separately for each class of shares of a Portfolio.
The net asset value ("NAV") per share of a Portfolio's Class A or Class C shares
refers to the value of one share of that class and is determined by the Fund's
custodian once daily as of the close of the regular session of business on the
New York Stock Exchange (the "Exchange"), currently 4:00 p.m. Eastern time, each
day the Exchange is open, and at such other times as the Fund may determine. The
per share NAV of each class of shares of a Portfolio is determined by dividing
the total value of the Portfolio's securities and other assets, less
liabilities, allocable to that class by the total number of shares outstanding
of that class. In determining NAV, securities and other portfolio investments
are valued at market value. Investments for which quotations are not readily
available are valued at fair value determined in good faith by the sub-advisers
under the supervision of the Board of Trustees. The different expenses borne by
each class of shares will result in different NAV's and dividends. The per share
NAV of Class C shares will generally be lower than the Class A shares of that
Portfolio because of the higher expenses borne by the Class C shares.
PURCHASING CLASS A SHARES
SALES CHARGES
The public offering price of a Class A share is equal to the net asset
value per share plus a sales charge determined in accordance with the following
schedules:
IDEX II GROWTH PORTFOLIO -- CLASS A SHARES
IDEX II GLOBAL PORTFOLIO -- CLASS A SHARES
IDEX II BALANCED PORTFOLIO -- CLASS A SHARES
IDEX II CAPITAL APPRECIATION PORTFOLIO -- CLASS A SHARES
IDEX II AGGRESSIVE GROWTH PORTFOLIO -- CLASS A SHARES
IDEX II EQUITY-INCOME PORTFOLIO -- CLASS A SHARES
<TABLE>
<CAPTION>
Sales Charge Reallowance Sales Charge
as % of Offering to Dealers as a % of as % of Amount
Amount of Purchase Price Offering Price Invested
---------------- -------------------- --------------
<S> <C> <C> <C>
Less than $25,000........................... 5.50% 4.75% 5.82%
$25,000 but less than $50,000............... 5.00% 4.25% 5.26%
$50,000 but less than $75,000............... 4.50% 3.75% 4.71%
$75,000 but less than $100,000.............. 4.00% 3.25% 4.17%
$100,000 but less than $250,000............. 3.25% 2.75% 3.36%
$250,000 but less than $500,000............. 2.00% 1.50% 2.04%
$500,000 but less than $1,000,000........... 1.00% 0.75% 1.01%
$1,000,000 or more.......................... 0.00% 0.25%* 0.00%
</TABLE>
* This amount is not a charge incurred by shareholders. ISI, at its own expense,
may make such a payment in accordance with its procedures as may be in effect
from time to time. ISI's procedures currently provide for a payment in the
amount shown.
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<PAGE> 36
IDEX II FLEXIBLE INCOME PORTFOLIO -- CLASS A SHARES
IDEX II TAX-EXEMPT PORTFOLIO -- CLASS A SHARES
IDEX II INCOME PLUS PORTFOLIO -- CLASS A SHARES
<TABLE>
<CAPTION>
Sales Charge Reallowance Sales Charge
as % of Offering to Dealers as a % of as % of Amount
Amount of Purchase Price Offering Price Invested
---------------- -------------------- --------------
<S> <C> <C> <C>
Less than $25,000........................... 4.75% 4.00% 4.99%
$25,000 but less than $50,000............... 4.25% 3.50% 4.44%
$50,000 but less than $75,000............... 3.75% 3.00% 3.90%
$75,000 but less than $100,000.............. 3.25% 2.50% 3.36%
$100,000 but less than $250,000............. 2.25% 1.75% 2.30%
$250,000 but less than $500,000............. 1.50% 1.00% 1.52%
$500,000 but less than $1,000,000........... 0.75% 0.50% 0.76%
$1,000,000 or more.......................... 0.00% 0.25%* 0.00%
</TABLE>
* This amount is not a charge incurred by shareholders. ISI, at its own expense,
may make such a payment in accordance with its procedures as may be in effect
from time to time. ISI's procedures currently provide for a payment in the
amount shown.
Each Portfolio receives the entire NAV of all of its shares sold. ISI
retains the sales charge from which it reallows discounts from the applicable
public offering price to dealers which are uniform for all dealers in the United
States and its territories. From time to time, ISI may reallow up to the full
applicable sales charge on Class A shares, as shown in the above tables, to
selected dealers who sell or are expected to sell significant amounts of shares
during specified time periods or who render designated training services. During
periods when substantially the entire sales charge is reallowed, such dealers
may be deemed to be underwriters as that term is defined in the Securities Act
of 1933, as amended. In addition, ISI from time to time provides noncash
compensation to dealers that employ registered representatives that sell a
minimum dollar amount of shares of funds in the IDEX Group of Funds. Such
noncash compensation is in the form of merchandise and attendance by registered
representatives at seminars conducted by ISI, including lodging and travel
expenses. ISI may also pay amounts equal to the applicable reallowance, as shown
in the above tables, to selected banks and other financial institutions to
compensate such institutions for their services in connection with the purchase
of Class A shares of a Portfolio and servicing of shareholder accounts. In
addition, ISI may pay fees from its own funds to certain dealers and financial
institutions whose clients maintain significant account balances in one or more
IDEX portfolios or funds to compensate such dealers and financial institutions
for rendering administrative and shareholder services.
The above sales charge schedules are applicable to purchases of Class A
shares of a Portfolio by any "purchaser" which includes: (i) an individual, (ii)
an individual, his or her spouse and children under the age of 21, and (iii) a
trustee or other fiduciary of a single trust estate or single fiduciary account
(including pension, profit-sharing and other employee benefit trusts qualified
under Section 401 of the Internal Revenue Code of 1986 ("Code")) although more
than one beneficiary is involved.
REDUCED SALES CHARGE PLANS FOR CLASS A SHARES
RIGHT OF ACCUMULATION
The sales charges described above also apply to current purchases of Class
A shares of a Portfolio by a purchaser, as defined above, where the aggregate
value of Class A shares of a Portfolio plus the value of certain shares of other
IDEX portfolios or funds held by the shareholder, as determined at their
respective NAVs at the time of the current purchase of Class A shares, amounts
to more than the specified amounts in the sales charge schedules, provided ISI
or the Transfer Agent is notified by such investor or the investor's dealer that
such purchase is made under the Right of Accumulation privilege. THE FOREGOING
RIGHT OF ACCUMULATION APPLIES ONLY TO CLASS A SHARES OF A PORTFOLIO AND OTHER
FUNDS OR PORTFOLIOS IN THE IDEX GROUP ON WHICH AN INITIAL SALES CHARGE IS
IMPOSED.
LETTER OF INTENTION
The above sales charges are also applicable to the total value of purchases
of Class A shares of a Portfolio (excluding any dividends and capital gain
distributions received in additional shares) made by a purchaser, as defined
above, pursuant to a Letter of Intention ("LOI") to invest a certain amount
within a 13-month period. AN LOI WILL APPLY ONLY TO CLASS A SHARES OF A
PORTFOLIO, AND TO OTHER FUNDS OR PORTFOLIOS IN THE IDEX GROUP ON WHICH AN
INITIAL SALES CHARGE IS IMPOSED. THE VALUE OF CLASS C SHARES OF ANY PORTFOLIO OF
THE FUND WILL NOT BE COUNTED TOWARD THE FULFILLMENT OF AN LOI. Subject to the
terms of escrow described below, each purchase made under an LOI will be made at
the current public offering price applicable to the full amount covered by the
LOI. In the event of a change in the sales charges set forth above, any
purchases made under an existing LOI after the effective date of the change will
be subject to the revised sales charge. Should the
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<PAGE> 37
amount actually purchased during the 13-month period be more or less than that
indicated in the LOI, an adjustment in the sales charge will be made. A purchase
not made pursuant to an LOI may be included thereunder if the LOI is filed
within 90 days of such purchase and the 13-month period will commence on the
date of such purchase. Any shareholder also may obtain the reduced sales charge
by including the value (at the NAV) of all of his or her Class A shares in a
Portfolio, together with shares of other IDEX funds or portfolios on which an
initial sales charge is imposed, held of record as of the date of his or her LOI
as a credit toward determining the applicable scale of sales charges for the
shares to be purchased under the LOI. If the total purchases made under an LOI
plus any credit under the Right of Accumulation described above, are large
enough to qualify for a lower sales charge category than specified in the LOI,
all transactions will be recomputed on the expiration date of the LOI to effect
the lower sales charge.
An LOI authorizes the Transfer Agent to escrow Class A shares having a
purchase price of 5% of the minimum dollar amount specified in the LOI. All
dividends and capital gain distributions on shares held in escrow will be paid
in additional shares unless the shareholder elects another distribution option
on the New Account Application or by written request to the Transfer Agent. When
the minimum investment specified in the LOI is completed, the shares held in
escrow will remain on deposit unless the shareholder requests a certificate for
such shares. Shares held in escrow can be redeemed by the Transfer Agent to
retroactively adjust upward the sales charge which results when the amount
invested differs from the amount intended to be invested. In any retroactive
reduction in sales charge, the amount of the reduction will be invested in
additional shares at NAV, or remitted to the shareholder if otherwise requested
by the shareholder.
An LOI is not a binding obligation upon the investor to purchase, nor a
Portfolio to sell, the full amount indicated. To insure that all purchases will
receive a quantity discount, the shareholder or the shareholder's dealer should
notify the Fund or Transfer Agent that an LOI is in effect at the time an
initial investment in shares is made. Forms and other information concerning
LOIs may be obtained by calling Customer Service or writing the Transfer Agent.
CERTAIN GROUPS
An individual who is a member of a qualified group may purchase Class A
shares of a Portfolio at the reduced sales charge which ISI anticipates will be
applicable to the group as a whole within a specified period. The applicable
sales charge is determined by ISI by taking into account the anticipated
aggregate amount of purchases by members of the group of Class A shares of a
Portfolio and of all other IDEX funds or portfolios available for sale to the
public on which an initial sales charge is imposed. A "qualified group" is one
which (i) has been in existence for more than six months, (ii) has a purpose
other than to acquire shares of the Portfolio or similar investments (e.g.,
investment clubs), and (iii) satisfies uniform criteria which allows ISI and/or
other dealers offering Portfolio shares to realize economies of scale in
distributing such shares. A qualified group does not include one whose sole
organizational nexus, for example, is that its participants are credit card
holders of the same institution. Pension or other employee benefit plan
participants may qualify for group purchases. The Fund reserves the right to
modify this privilege at any time. Further information about qualifying groups
may be obtained by calling Customer Service at (800) 851-9777.
CERTAIN PURCHASES
Class A shares of a Portfolio may be sold at NAV per share without a sales
charge, if such shares are purchased for investment purposes and may not be
resold except to the Fund, to: (a) current or former trustees, trustees emeriti,
directors, officers, full-time employees or sales representatives of the Fund,
IMI, Janus Capital, ISI, AEGON Management, Alger Management, Luther King or of
any of their affiliates; (b) directors, officers, full-time employees and sales
representatives of any dealer having a sales agreement with ISI; (c) any trust,
pension, profit-sharing or other benefit plan for any of the foregoing persons;
(d) any members of the family (e.g., spouse, children, siblings, parents and
parents-in-law) of any of the foregoing persons; or (e) IMI, Janus Capital, ISI,
AEGON Management, Alger Management, Luther King or any of their affiliates. Any
person who was eligible to purchase Class A shares of a Portfolio at NAV
pursuant to (a) through (e) above, who subsequently becomes ineligible may
continue to purchase Class A shares of the Portfolio at NAV for accounts opened
prior to such ineligibility. The Fund reserves the right to modify or eliminate
this privilege at any time.
PURCHASING CLASS C SHARES
The public offering price of Class C shares of a Portfolio is the net asset
value per share. Since Class C shares are sold without an initial sales charge,
Class C investors enjoy the benefit of permitting all of their investment
dollars to work from the time the investments are made. Class C shares are
subject to ongoing service and distribution fees at an annual rate of up to
0.90% of the average daily net assets of that class, although the Tax-Exempt
Portfolio currently intends to limit the total of these fees to .60% of the
average daily net assets of the Tax-Exempt Portfolio's Class C shares.
HOW TO EXCHANGE SHARES
EXCHANGE PRIVILEGE
CLASS A SHARES OF A PORTFOLIO MAY BE EXCHANGED ONLY FOR SHARES OF OTHER
FUNDS OR PORTFOLIOS IN THE IDEX GROUP ON
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<PAGE> 38
WHICH AN INITIAL SALES CHARGE IS IMPOSED. CLASS C SHARES MAY BE EXCHANGED ONLY
FOR CLASS C SHARES OF OTHER PORTFOLIOS OF THE FUND. Shares of a Portfolio which
have been owned by a shareholder for at least 15 days may be exchanged for the
same class of shares of any other IDEX fund or portfolio which is then offering
shares for sale in the shareholder's state of residence, and for Class A shares,
on which an initial sales charge is imposed. Class A or Class C shares of a
Portfolio may also be exchanged for shares of various portfolios of the Cash
Equivalent Fund or the California Tax-Exempt Money Market Fund, money market
mutual funds managed by Kemper Financial Services, Inc. (See "Money Market Fund
Exchange Privilege.")
Any IDEX exchange will be based on the respective NAV's of the shares
involved and may be made in amounts of $1,000 or more. If an exchange
transaction is less than $1,000, a $5 service charge may be deducted from the
shareholder's account through a redemption of Portfolio shares. There is no
sales commission involved in an exchange of Class A and Class C shares.
A shareholder will automatically have exchange privileges unless the
shareholder gives instructions to the contrary on the shareholder's New Account
Application or by written notice to the Transfer Agent. Exchange requests may be
made by either: 1) submitting written instructions to the Transfer Agent, or 2)
providing telephone exchange instructions to Customer Service. A shareholder may
make a full exchange to a new account by written request and in that case all
special account features such as an Automatic Investment Plan, Letter of
Intention or Systematic Withdrawal/Exchange Plan will be transferred to the new
account unless the Transfer Agent is otherwise instructed. A shareholder may
make a partial exchange to a new account by written request and in that case all
special account features except the Automatic Investment Plan and the Systematic
Withdrawal/Exchange Plan will be transferred to the new account unless the
Transfer Agent is otherwise instructed. Before making an exchange, the investor
should consider the investment objective of the fund or portfolio whose shares
are to be purchased, which can be found in the current prospectus of that fund
or portfolio. A prospectus for any of the IDEX funds may be obtained by calling
Customer Service at (800) 851-9777 or writing the Transfer Agent.
All exchange requests will be processed at the NAV per share next
determined after the request is received. The Fund reserves the right to
establish limitations as to the amounts or frequency of such exchanges, to
change the service charge for such exchanges and to impose such other
restrictions as may be necessary to assure that such exchanges do not
disadvantage the Fund and its shareholders. The Fund reserves the right to
reject any exchange request and to modify or terminate the exchange privilege at
any time. For further information concerning the exchange privilege, or to
obtain appropriate forms, please call Customer Service or write the Transfer
Agent.
TELEPHONE EXCHANGES
To place a telephone exchange request, call Customer Service at (800)
851-9777 before 4:00 p.m. Eastern Time. Shares acquired by telephone exchange
must be registered exactly as the account from which the exchange was made.
Certificated shares are not eligible for the telephone exchange privilege. See
"Other Information -- Telephone Transactions" for further information relating
to the telephone exchange privilege.
SYSTEMATIC EXCHANGES
A shareholder who owns Class A or Class C shares of a Portfolio worth at
least $10,000 at the current public offering price may elect on his or her New
Account Application or by written request to the Transfer Agent a systematic
exchange option providing for monthly exchanges of that class of shares of the
Portfolio for shares of the same class of shares of any other IDEX fund or
portfolio which is then offering shares for sale in the shareholder's state of
residence, and for Class A shares, on which an initial sales charge is imposed.
Shareholders may also systematically redeem shares of a Portfolio and invest the
proceeds in various portfolios of the Cash Equivalent Fund or the California
Tax-Exempt Money Market Fund (See "Money Market Fund Exchange Privilege".)
Shares acquired by systematic exchange must be registered exactly as the account
from which the exchange is made. Certificated shares are not eligible for the
systematic exchange privilege.
MONEY MARKET FUND EXCHANGE PRIVILEGE
Shareholders may redeem Class A or Class C shares of a Portfolio having a
value of at least $1,000 and automatically invest the proceeds in various
portfolios of the Cash Equivalent Fund or the California Tax-Exempt Money Market
Fund (collectively, the "Money Market Funds"), which are separately managed,
diversified open-end money market mutual funds. Shareholders may subsequently
redeem their shares of any of the Money Market Funds in minimum amounts of
$1,000 and automatically invest the proceeds of such redemption in the same
class of shares of the Portfolio at the then applicable NAV per share. If an
exchange transaction is less than $1,000, a $5 service charge may be deducted
from the shareholder's account through a redemption of Portfolio shares. The
Fund reserves the right to change this service charge or the amount of such
exchanges at any time. Shareholders may also elect a systematic exchange option
providing for monthly exchanges of shares between a Portfolio and any of the
Money Market Funds.
To the extent that Money Market Fund shares were originally acquired other
than pursuant to an exchange of Fund shares, purchases of Class A shares of any
of the Portfolios of the Fund with the proceeds of Money Market Fund shares will
not be considered to be made in accordance with the exchange privilege described
above. Accordingly, the purchase of Class A shares subsequent to the redemption
of Money Market
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Fund shares not originally acquired pursuant to an exchange of Fund shares shall
be subject to the otherwise applicable sales charge on such Class A shares.
Redemptions of shares in connection with Money Market Fund exchanges will
be effected as of the end of the day on which an exchange request is received,
if received before 4:00 p.m., Eastern time. This exchange privilege does not
constitute an offering or recommendation of Money Market Fund shares by the
Fund. Before making such an exchange, the investor should consider the
investment objective of the fund or portfolio whose shares are to be purchased,
which can be found in the current prospectus of that fund or portfolio.
Shareholders will receive a Money Market Fund Prospectus with their initial
confirmation statement. Exchanges may be requested by writing the Transfer Agent
or calling Customer Service at (800) 851-9777.
HOW TO REDEEM SHARES
GENERAL INFORMATION
Shareholders may redeem their shares at any time at a price equal to the
NAV per share next determined following receipt of a valid redemption request by
the Transfer Agent. Payment of redemption proceeds will normally be made within
seven days of the Fund's receipt of a valid redemption request, as described
below. IF SHARES HAVE BEEN PURCHASED BY CHECK OR OTHER MEANS THAT ARE SUBJECT TO
FINAL COLLECTION, THE FUND WILL NOT MAKE REDEMPTION PROCEEDS AVAILABLE UNTIL
SUCH PURCHASE(S) HAS CLEARED THE SHAREHOLDER'S BANK, WHICH MAY TAKE UP TO 15
DAYS OR MORE. Redemption proceeds will be sent by regular first class mail, or
for a $20 service charge, by overnight mail, if requested. A shareholder can pay
the $20 by check. Otherwise, the charge will be deducted from the shareholder's
account or the proceeds of such redemption. The Transfer Agent may be unable to
provide overnight mail service when mailing to addresses other than street
addresses or if this delivery is not available to a given location.
The value of Portfolio shares on redemption may be more or less than the
shareholder's cost or basis, depending upon the Portfolio's NAV at the time of
redemption. Shares will normally be redeemed for cash, except under unusual
circumstances as described in the Statement of Additional Information under
"Redemption of Shares." Redemption and repurchase of shares may be suspended or
payment postponed during any period in which the Exchange is closed (other than
on weekends or customary holidays) or trading on the Exchange is restricted, or
during periods of an emergency or other periods during which the SEC permits
such suspension.
REDEMPTIONS REQUESTED IN WRITING
To redeem shares in writing, the shareholder must send a written redemption
request, together with any outstanding certificates representing the shares to
be redeemed, to:
Idex Investor Services, Inc.
P.O. Box 9015
Clearwater, Florida 34618-9015
The written request must be signed by the owner(s) of the account (or a
person authorized to act on behalf of such owner(s)) and should specify the name
of the Portfolio, the class of shares, the number of shares or dollars of that
class of shares being redeemed, the account number and the name(s) on the
account. Any outstanding certificates must be endorsed by the registered owner
or owners, with signatures guaranteed, if required. FOR YOUR PROTECTION,
SIGNATURE GUARANTEES ARE REQUIRED IF THE AMOUNT OF THE REDEMPTION IS MORE THAN
$50,000 OR IF THE REDEMPTION PROCEEDS ARE BEING MAILED TO AN ADDRESS OTHER THAN
THE ADDRESS OF RECORD. All required guarantees of signatures must be made by a
national or state bank, a member firm of a national stock exchange or any other
institution which is an eligible guarantor institution as defined by rules and
regulations of the SEC. If shares are held of record in the name of a
corporation, partnership, trust or fiduciary, evidence of the authority of the
person seeking redemption is required before the request for redemption is
accepted, including redemptions under $50,000. For additional information, call
Customer Service at (800) 851-9777.
TELEPHONE AND EXPEDITED REDEMPTIONS
Shareholders may automatically redeem Portfolio shares by telephone and
have redemption proceeds paid by check unless instructions to the contrary are
indicated on the shareholder's New Account Application or by written request to
the Transfer Agent. These privileges are not available for newly purchased
shares (within the prior 15 days), retirement plan accounts or for shares
represented by certificate. The Fund reserves the right to modify or eliminate
these privileges without prior notice to shareholders at any time. If an account
has multiple owners, the Transfer Agent may rely on the instructions of any one
owner. See "Other Information -- Telephone Transactions" for further information
relating to the telephone redemption privilege.
TELEPHONE REDEMPTIONS. Shareholders may redeem Portfolio shares in amounts
up to $25,000 by telephone by calling Customer Service at (800) 851-9777 if this
privilege is in effect for your account. Redemption proceeds paid by check will
be made payable to the shareholder(s) of record and may only be sent to the
address of record for the account. A redemption requested by telephone and
payable by check will not be made if the address of record has been changed
within 30 days of the telephone redemption request. Only one telephone
redemption is permitted in each 30-day period.
EXPEDITED REDEMPTIONS. Shareholders may elect to have the privilege of
receiving redemption proceeds by ACH or Federal funds bank wire to a designated
bank account by completing the appropriate section of the New Account
Application. This privilege may be added to an existing account by mailing a
signature guaranteed request with complete bank information (usually a voided
check) to the Transfer Agent. Redemption proceeds of up to $25,000 may be
electronically transferred through ACH whereby the redemption proceeds are
credited directly to the shareholder's pre-designated bank account on
approximately the third bank business day after the
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redemption request is effected. The Transfer Agent currently does not charge for
the convenience of paying redemptions electronically through ACH.
If the expedited redemption privilege has been elected, redemption proceeds
up to $25,000 may also be electronically transferred to a pre-designated bank
account through a Federal funds bank wire for a $20 service charge. The charge
will be deducted from the shareholder's account through a redemption of
Portfolio shares. The minimum redemption amount for a Federal funds bank wire is
$1,000. The bank wire for the redemption proceeds normally will be transmitted
by the Transfer Agent to the designated bank account on the next bank business
day after the redemption request is effected. The bank routing and account
numbers for standing expedited redemption privileges must be provided on the New
Account Application or by written request to the Transfer Agent and may be
changed only by signature guaranteed instructions by all registered owners.
Expedited redemption requests may be made by calling Customer Service or by
writing the Transfer Agent. Shareholder accounts without standing expedited
redemption privileges can request redemptions to be sent by Federal funds bank
wire for a $20 charge to a U.S. bank account by submitting an original, written
request to the Transfer Agent with all Fund account owners' signatures
guaranteed. The request must specify the necessary bank routing and account
numbers and the names on the bank account.
REDEMPTIONS THROUGH AN AUTHORIZED DEALER
Shareholders may also request dealers to place confirmed redemption orders
(including those through the National Securities Clearing Corporation ("NSCC")
electronic order system). It is the responsibility of dealers to transmit such
orders promptly. For shareholders redeeming through dealers, payment will be
made directly to the dealer within seven days after receipt by the Transfer
Agent of the written settlement instructions and certificates for shares,
properly endorsed and with signatures guaranteed as described above. Redemptions
through NSCC are settled after review by the Transfer Agent for good order.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who own Class A or Class C shares of a Portfolio worth at
least $10,000 at the current public offering price may establish a Systematic
Withdrawal Plan ("SWP") providing for monthly, quarterly or annual payments of
at least $50. Under an SWP, sufficient Class A or Class C shares of a Portfolio
are in most instances redeemed to provide the amount of the periodic payment.
Such payments may be paid through ACH, whereby the redemption proceeds are
credited directly to the shareholder's bank account or, upon request, paid by a
check from the Fund. Redemptions of shares in connection with an SWP are
normally effected approximately seven to ten days prior to the first day of the
month; however, the Fund cannot guarantee that payment will be received by the
date selected. Dividends and capital gain distributions on shares in an account
with an active SWP are usually paid in additional shares only of the Portfolio.
If the requested payments under an SWP require redemption of more shares than
have been credited through the payment of dividends and capital gain
distributions in additional shares, the shareholder's original investment may be
depleted and ultimately exhausted. The amounts received by a shareholder under
an SWP cannot be considered an actual yield or income on investment since such
payments may include a return of the shareholder's original investment. It may
be disadvantageous to an investor to maintain an SWP concurrently with the
additional purchase of shares because a sales charge may apply to such
purchases. An SWP may be amended or terminated at any time upon written notice
to the Transfer Agent, and will be terminated when all shares in an account with
an active SWP have been redeemed or upon notification of the shareholder's
death. Forms for establishing an SWP may be obtained by calling Customer
Service.
REINVESTMENT PRIVILEGE
A shareholder who has redeemed Class A shares of a Portfolio may reinvest
in that class of shares of any of the Portfolios of the Fund or in the shares of
IDEX Fund, an amount not to exceed the amount of redemption proceeds, without a
sales commission, if the shareholder sends a written request to the Fund or the
Transfer Agent within 90 days after the redemption. (Prior to March 1, 1995,
this reinvestment privilege is limited to reinvestment in the Class A shares of
the Portfolio owned prior to redemption.) The redemption proceeds will be
reinvested on the basis of the NAV of the shares in effect immediately after
receipt of the written request. This
reinvestment privilege may be exercised only once by a shareholder upon
redemption of Class A shares of a Portfolio.
MINIMUM ACCOUNT BALANCE
The Fund may redeem shares in any account and pay the proceeds to the
shareholder if, due to redemptions, the account balance falls below $500, and
the account reflects no purchases of shares, other than through the payment of
dividends or capital gains in additional shares, during the sixty days prior to
the mailing of the notice of intent to redeem. The Fund will give the
shareholder sixty days written notice of intent to redeem prior to any such
redemption. During the sixty-day period following mailing of the notice, the
shareholder may increase the value of his or her account through additional
purchases and avoid involuntary redemption. A notice of intent to redeem will
usually be sent to shareholders within 24 months of establishment of an account.
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REPURCHASE
For the convenience of shareholders, the Fund has authorized ISI to act as
its agent in the repurchase of Fund shares. The Fund reserves the right to
terminate this procedure at any time. Offers to sell shares to the Fund may be
communicated to ISI by wire or telephone from dealers for their customers. The
Fund's practice will be to repurchase shares offered to it at the NAV per share
determined as of the close of the regular session of business on the Exchange on
the day the offer for repurchase is received and accepted by the dealer, if the
offer is received by the dealer before the close of the regular session of
business on the Exchange and is received by ISI before the close of ISI's
business on that day. The dealer will be responsible for the prompt transmission
of orders.
Payment of the repurchase proceeds will be made in cash to the dealer
placing the order. Neither the Fund nor ISI charges any fee or commission upon
such repurchase which is then settled as an ordinary transaction with the dealer
delivering the shares repurchased. However, dealers may charge a fee. Payment
will normally be made within seven days after receipt of an order to repurchase
provided that the certificates, or stock powers if no certificates have been
issued, have been delivered to the Transfer Agent in proper form as described
above.
OTHER INFORMATION
RETIREMENT PLANS. Class A and Class C shares of a Portfolio may be
purchased in conjunction with individual retirement accounts, Simplified
Employee Pension Plans, 401(k) Plans, corporate and self-employed pension and
profit sharing plans and 403(b)(7) programs. These plans require the completion
of a separate application and a prototype agreement which are available without
charge upon request to the Transfer Agent. Ordinarily, the annual maintenance
fee for retirement plan accounts is $12 per account with a maximum of $24 per
tax identification number. However, this annual fee will be waived if the
account balances per tax identification number are greater than $50,000.
Additional information about retirement plans is included in the Statement of
Additional Information, and may also be obtained by calling Customer Service at
(800) 851-9777. With respect to plans intended to provide tax deferred benefits,
investors may wish to consult with their own tax counsel or advisors.
TELEPHONE TRANSACTIONS. As described above under "How to Purchase Shares,"
"How to Exchange Shares," and "How to Redeem Shares", shareholders may purchase,
exchange and/or redeem shares by telephone request. The registered
representative of record may also purchase, exchange and/or redeem shares on a
shareholder's behalf pursuant to a shareholder's instructions. The Fund, ISI and
the Transfer Agent will not be liable for complying with telephone instructions
and investors will bear the risk of any such loss. The Fund, ISI and/or the
Transfer Agent will employ reasonable procedures to determine that telephone
instructions are genuine. If the Fund, ISI and/or the Transfer Agent do not
employ such procedures, they may be liable for losses due to unauthorized or
fraudulent instructions. Such procedures may include, among others, requiring
forms of personal identification prior to acting upon telephone instructions,
providing written confirmation of such transactions and/or tape recording
telephone instructions.
CONFIRMATIONS, HISTORICAL STATEMENTS AND CERTIFICATES. After every account
transaction, except the automatic payment of dividends and distributions in
shares, a shareholder will receive a statement showing the details of the
transaction, the number of shares held, and a record of transactions since the
beginning of the year. For shareholders who request a historical transcript of
their accounts, the Fund charges a fee based upon the number of years
researched, currently $10 per year researched beyond the two most current years.
The shareholder can pay the fee by check. Otherwise, the charge will be deducted
from the shareholder's account. The Fund reserves the right to make other
charges to investors to cover administrative costs.
Shares purchased are ordinarily in non-certificated form. Certificates
representing shares owned will not be delivered to the shareholder unless
requested in writing from the Transfer Agent. No certificate will be issued for
fractional shares and no certificate will be issued to a shareholder who would
thereafter hold a certificate or certificates representing in the aggregate less
than 30 shares (except in connection with sales or transfers of shares
represented by certificates already outstanding). Certificates are issued only
in like registration to that of the account. Certificates may be returned to the
Transfer Agent at any time. No charge is made for this safekeeping service. If
certificates have been lost or stolen, notify the Transfer Agent immediately.
There may be a charge for cancelling and replacing certificates.
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APPENDIX A
SECURITIES RATINGS
The ratings by Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Group ("S&P") are a generally accepted measurement of credit
risk. However, they are subject to certain limitations. Ratings are generally
based upon historical events and do not necessarily reflect the future. In
addition, there is a period of time between the issuance of a rating and the
update of a rating, during which time a published rating may be inaccurate.
A. KEY TO MOODY'S RATINGS
1. Description of Moody's Corporate, Utility and Government Bond Rating
Categories:
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation or 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 Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Conditional Rating: Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Conditional rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic category. Such
modifiers are not considered in applying the Tax-Exempt Portfolio's operating
policy restrictions on corporate investments.
2. Description of Moody's Municipal Note Rating Categories:
The four ratings of Moody's for short-term notes are MIG1, MIG2, MIG3, AND
MIG4. MIG1 denotes "best-quality, enjoying strong protection from established
cash flow"; MIG2 denotes "high-quality" with "ample margins of protection"; MIG3
notes are of "favorable quality . . . but lacking the undeniable strength of the
preceding grades"; MIG4 notes are of "adequate quality, carrying specific risk
but having protection . . . and not distinctly or predominately speculative".
3. Description of Moody's Preferred Stock Rating Categories:
aaa. An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
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aa. An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a. An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
baa. An issue which is rated "baa" is considered to be a medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
ba. An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b. An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
Moody's major rating categories for preferred stocks continue in descending
order as follows: Caa, Ca, C.
Note: Moody's may apply numerical modifiers identical in significance to
those described for bond rating categories to preferred stocks rated "aa"
through "b". Such modifiers are not considered in applying the Tax-Exempt
Portfolio's operating policy restrictions on corporate investments.
4. Description of Moody's Commercial Paper Rating Categories:
Moody's commercial paper ratings are opinions of the ability of issuers (or
related supporting institutions) to repay punctually promissory obligations not
having an original maturity in excess of 9 months. Moody's employs the following
3 designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated Prime-1 ("P-1") have a superior capacity for repayment of
short-term promissory obligations.
Issuers rated Prime-2 ("P-2") have a strong capacity for repayment of
short-term promissory obligations.
Issuers rated Prime-3 ("P-3") 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.
5. Absence of Moody's Rating
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspense or withdrawal may occur; if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
B. KEY TO S&P RATINGS
1. Description of S&P Bond Rating Categories:
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debts in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by the large uncertainties or major risk exposures to adverse
conditions.
C1. The rating C1 is reserved for income bonds on which no interest is
being paid.
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D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-). The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
2. Description of S&P Preferred Stock Rating Categories:
AAA. This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA. A preferred stock issue rated "AA" also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A. An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB. An issue rated "BBB" is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Although it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB, B, CCC, C, D. Preferred stock rated BB, B, CCC, CC, C and D are
regarded, on balance, as predominately speculative with respect to the issuer's
capacity to pay preferred stock obligations. BB indicates the lowest degree of
speculation and D the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposure to adverse conditions.
Plus (+) or Minus (-). The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
3. Description of S&P's Commercial Paper Rating Categories:
An S&P 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 for "A" for the highest quality
obligations to "D" for the lowest. The "A" rating category consists of the
following:
A. Issues assigned to the 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.
4. Absence of S&P Rating:
"NR" indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that S&P does not rate a
particular type of obligation as a matter of policy.
42
<PAGE> 45
IDEX II FLEXIBLE INCOME PORTFOLIO
SECURITIES HOLDINGS BY RATING CATEGORY
At September 30, 1994, the percentage of securities holdings of the
Flexible Income Portfolio, by rating category based upon a weighted average by
market value was:
Bonds -- Standard & Poor's Rating
<TABLE>
<S> <C>
AAA.................................. 2.19%
AA................................... 4.50
A+................................... 2.07
A-................................... 2.30
BBB.................................. 7.21
BBB-................................. 27.48
BB+.................................. 3.59
BB................................... 2.17
BB-.................................. 4.61
B+................................... 2.53
B.................................... 7.49
B-................................... 9.19
CCC.................................. 2.99
C.................................... 1.86
Nonrated............................. 12.71
Non-Convertible Preferred Stocks..... 3.30
Convertible Preferred Stocks......... 1.90
Other................................ 1.91
------
TOTAL................................ 100.00%
</TABLE>
IDEX II INCOME PLUS PORTFOLIO
SECURITIES HOLDINGS BY RATING CATEGORY
At September 30, 1994, the percentage of securities holdings of the Income
Plus Portfolio, by rating category based upon a weighted average by market value
was:
Bonds -- Standard & Poor's Rating
<TABLE>
<S> <C>
AA-.................................. 2.82%
BBB+................................. 7.12
BBB.................................. 16.89
BBB-................................. 26.91
BB+.................................. 2.41
BB................................... 6.67
BB-.................................. 4.53
B+................................... 13.35
B.................................... 14.61
B-................................... 0.46
Preferred Stocks..................... 1.15
Short-Term & Cash.................... 3.08
------
TOTAL................................ 100.00%
</TABLE>
43
