IDEX SERIES FUND
(FORMERLY IDEX II SERIES FUND)
201 Highland Avenue, Largo, FL 33770-2597
Customer Service: (800) 851-9777
Prospectus dated September 20, 1996
This Prospectus is a legal document provided to you, the investor, which sets
forth concise information about the IDEX Series Fund that should be considered
carefully before you invest in a Portfolio. Additional and more detailed
information about each Portfolio is contained in the Statement of Additional
Information (the "SAI"), which is incorporated by reference in this Prospectus.
You may obtain a copy of the current SAI, dated September 20, 1996, at no charge
by calling or writing IDEX. You should retain this Prospectus for future
reference.
The investment objective of each Portfolio is set forth on the following page.
There can be, of course, no assurance that a Portfolio will achieve its
investment objective. For further information about the Portfolios, please read
The Portfolios: A Summary of Their Objectives, Investment Practices, and Risks;
Securities in Which the Portfolios Invest; How the Portfolios Invest; and
Additional Risk Factors.
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 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 AND THEREFORE MAY NOT BE SUITABLE FOR ALL INVESTORS. THESE
RISKS ARE DESCRIBED IN ADDITIONAL RISK FACTORS -- HIGH YIELD/HIGH RISK BONDS.
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 ("SEC") 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.
This Prospectus does not constitute an offer to sell securities in any state to
any person to whom it is unlawful to make an offer in such state.
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TABLE OF CONTENTS
The IDEX Series Fund..........................................................1
Summary of Expenses ..........................................................4
Financial Highlights .........................................................9
The Portfolios: A Summary of Their Objectives,
Investment Practices, and Risks............................................17
Introduction to the Portfolios...............................................17
Securities in Which the Portfolios Invest ...................................23
How the Portfolios Invest ...................................................26
Additional Risk Factors .....................................................29
Investment Advisory and Other Services ......................................32
Distributor and Distribution and Service Plans ..............................38
Miscellaneous Information ...................................................39
Distributions and Taxes .....................................................41
Shareholder Information and Instructions ....................................44
Brief Explanation of Rating Categories...............................Appendix A
Glossary of Investment Terms.........................................Appendix B
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e
THE IDEX SERIES FUND
The IDEX Series Fund consists of eleven Portfolios. Each Portfolio is a separate
series of IDEX 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. The Capital
Appreciation Portfolio is non-diversified. Each Portfolio has its own distinct
investment objective and policies, which are summarized below. Either Idex
Management, Inc. or InterSecurities, Inc. serves as investment adviser to each
of the Portfolios. All investments involve risks. For information on specific
Portfolio investment risks, see Additional Risk Factors. For detailed
information about how to purchase, redeem or exchange shares, see Shareholder
Information and Instructions.
AGGRESSIVE GROWTH PORTFOLIO
OBJECTIVE: Long-term capital appreciation.
INVESTMENT POLICY: The Aggressive Growth Portfolio is a diversified, actively
managed portfolio primarily composed of equity securities.
SUB-ADVISER: Fred Alger Management, Inc.
CAPITAL APPRECIATION PORTFOLIO
OBJECTIVE: Long-term growth of capital in a manner consistent with preservation
of capital.
INVESTMENT POLICY: The Capital Appreciation Portfolio is a nondiversified
Portfolio that pursues its objective by normally investing at least 50% of its
equity assets in securities issued by medium-sized companies. Medium-sized
companies are those whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index (the "MidCap Index"). Companies whose
capitalization falls outside this range after the Fund's initial purchase
continue to be considered medium-sized companies for purposes of this policy. As
of December 29, 1995, the MidCap Index included companies with capitalizations
between approximately $118 million and $7.5 billion. The range of the MidCap
Index is expected to change on a regular basis. Subject to the above policy, the
Portfolio may also invest in smaller or larger issuers.
SUB-ADVISER: Janus Capital Corporation
GLOBAL PORTFOLIO
OBJECTIVE: Long-term growth of capital in a manner consistent with preservation
of capital primarily through investments in common stocks of foreign and
domestic issuers.
INVESTMENT POLICY: The Global Portfolio invests primarily in common stocks of
foreign and domestic issuers. It also invests in securities issued by domestic
or foreign governments, government agencies, and other government entities. The
Portfolio is designed for long-term investors who can accept the special risks
involved in foreign investing.
SUB-ADVISER: Janus Capital Corporation
GROWTH PORTFOLIO
OBJECTIVE: Growth of capital.
INVESTMENT POLICY: The Growth Portfolio invests primarily in common stocks
listed on a national securities exchange or on NASDAQ, which the Portfolio's
sub-adviser believes have a good potential for capital growth.
SUB-ADVISER: Janus Capital Corporation
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C.A.S.E. PORTFOLIO
OBJECTIVE: Annual growth of capital through investment in companies whose
management, financial resources and fundamentals appear attractive on a scale
measured against each company's present value.
INVESTMENT POLICY: The C.A.S.E. Portfolio seeks a diversified portfolio with
investments in companies that are perceived to have below market risk
characteristics, but which the sub-adviser believes exhibit superior products
and above average growth rates along with sound management and financial
stability. The Portfolio invests in common, preferred and convertible stocks
listed on national securities exchanges or on domestic over-the-counter markets.
SUB-ADVISER: C.A.S.E. Management, Inc.
EQUITY-INCOME PORTFOLIO
OBJECTIVE: Current income, long-term growth of income, and capital appreciation.
INVESTMENT POLICY: The Equity-Income Portfolio seeks to invest primarily in
common stocks offering above-average dividend yields, income producing
securities convertible into common stocks, and fixed-income securities.
SUB-ADVISER: Luther King Capital Management Corporation
TACTICAL ASSET ALLOCATION PORTFOLIO
OBJECTIVE: Preservation of capital and competitive investment returns.
INVESTMENT POLICY: The Tactical Asset Allocation Portfolio invests primarily in
stocks, U.S. Treasury bonds, notes and bills, and money market funds. Models are
used in determining when the Portfolio's assets are "tactically" allocated among
these groups of investments.
SUB-ADVISER: Dean Investment Associates
BALANCED PORTFOLIO
OBJECTIVE: Long-term capital growth, consistent with preservation of capital
and balanced by current income.
INVESTMENT POLICY: 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.
SUB-ADVISER: Janus Capital Corporation
FLEXIBLE INCOME PORTFOLIO
OBJECTIVE: Maximum total return for shareholders, consistent with preservation
of capital, by actively managing a portfolio of income- producing securities.
INVESTMENT POLICY: The Flexible Income Portfolio seeks to maximize total return
from a combination of current income and capital appreciation, with the emphasis
on income. The Portfolio may invest in all types of income-producing securities;
it may invest without limit in securities rated below investment grade. Its
overall level of risk may make it unsuitable for investors who do not have
alternate sources of income or other, diversified investments.
SUB-ADVISER: Janus Capital Corporation
2
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INCOME PLUS PORTFOLIO
OBJECTIVE: As high a level of current income as is consistent with the avoidance
of excessive risk.
INVESTMENT POLICY: The Income Plus Portfolio invests in a diversified portfolio
of fixed-income and convertible debt securities and dividend-paying common,
preferred and convertible preferred stocks. Because the Portfolio avoids
excessive risk, its income may not be as high as possible. Nonetheless, the
Portfolio may invest in below investment grade debt securities. Its overall
level of risk may make it unsuitable for investors who do not have alternate
sources of income or other, diversified investments.
SUB-ADVISER: AEGON USA Investment Management, Inc.
TAX-EXEMPT PORTFOLIO
OBJECTIVE: Maximum current interest income exempt from federal income tax,
consistent with preservation of capital.
INVESTMENT POLICY: At least 80% of the Tax-Exempt Portfolio's net assets will
ordinarily be invested in a diversified portfolio of municipal bonds and notes,
including industrial development bonds.
SUB-ADVISER: AEGON USA Investment Management, Inc.
3
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<TABLE>
SUMMARY OF EXPENSES
Before investing in IDEX Series Fund, please read this section carefully to
understand the cost of investing in the Portfolios. When you buy Class A, Class
B or Class C shares of any of the Portfolios, or Class T shares of the Growth
Portfolio, you will incur certain expenses. The section titled Shareholder
Transaction Expenses shows the expenses involved in owning shares of the
Portfolios. The section titled Examples of Expenses shows the expenses you might
pay when making a hypothetical $1,000 investment.
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO CAPITAL APPRECIATION PORTFOLIO GLOBAL PORTFOLIO
CLASS CLASS CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A B C A B C A B C
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as percentage of offering
price) (1) 5.50% None None 5.50% None None 5.50% None None
Exchange Fees (2) None None None None None None None None None
Redemption Fees (3) None None None None None None None None None
Deferred Sales Charge (as a percentage
of original purchase price or
redemption proceeds, whichever is
lower) (4) None 5% None None 5% None None 5% None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Service and Distribution Fees (5) .35% 1.00% .90% .35% 1.00% .90% .35% 1.00% .90%
Other Expenses (net of expense
reimbursements and/or fee waivers, if
any)(6) 1.50% 1.50% 1.50% 1.55% 1.55% 1.55% 0.75% 0.75% 0.75%
----- ----- ----- ----- ----- ----- ----- ----- -----
Total Operating Expenses (net of
expense reimbursements and/or fee
waivers, if any) (6) 2.85% 3.50% 3.40% 2.90% 3.55% 3.45% 2.10% 2.75% 2.65%
EXAMPLES OF EXPENSES: (7)
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:
1 year $ 82 $ 85 $ 34 $ 83 $ 86 $ 35 $ 75 $ 78 $ 27
3 years 138 137 104 140 139 106 117 115 82
5 years 197 192 177 199 194 179 162 155 141
10 years 355 363 368 360 367 373 285 292 298
You would pay the following expenses
on the same investment, assuming no
redemption and therefore no deferred
sales charge:
1 year $ 82 $ 35 $ 34 $ 83 $ 36 $ 35 $ 75 $ 28 $ 27
3 years 138 107 104 140 109 106 117 85 82
5 years 197 182 177 199 184 179 162 145 141
10 years 355 363 368 360 367 373 285 292 298
</TABLE>
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<TABLE>
<CAPTION>
GROWTH PORTFOLIO C.A.S.E. PORTFOLIO
CLASS CLASS
A B C T A B C
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as percentage of offering
price) (1) 5.50% None None 8.50% 5.50% None None
Exchange Fees (2) None None None None None None None
Redemption Fees (3) None None None None None None None
Deferred Sales Charge (as a percentage
of original purchase price or
redemption proceeds, whichever is
lower) (4) None 5% None None None 5% None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00% 100% 1.00% 1.00% 1.00%
e
12b-1 Service and Distribution Fees (5) .35% 1.00% .90% None .35% 1.00% .90%
Other Expenses (net of expense
reimbursements and/or fee waivers, if
any)(6) 0.51% 0.51% 0.51% 0.34% 1.50% 1.50% 1.50%
----- ----- ----- ----- ----- ----- -----
Total Operating Expenses (net of
expense reimbursements and/or fee
waivers, if any) (6) 1.86% 2.51% 2.41% 1.34% 2.85% 3.50% 3.40%
EXAMPLES OF EXPENSES: (7)
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:
1 year $ 73 $ 75 $ 24 $ 97 $ 82 $ 85 $ 34
3 years 110 108 75 124 138 137 104
5 years 150 144 129 152 * * *
10 years 261 268 275 233 * * *
You would pay the following expenses
on the same investment, assuming no
redemption and therefore no deferred
sales charge:
1 year $ 73 $ 25 $ 24 $ 97 $ 82 $ 35 $ 34
3 years 110 78 75 124 138 107 104
5 years 150 134 129 152 * * *
10 years 261 268 275 233 * * *
</TABLE>
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<TABLE>
<CAPTION>
EQUITY-INCOME PORTFOLIO TACTICAL ASSET ALLOCATION BALANCED PORTFOLIO
PORTFOLIO
CLASS CLASS CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A B C A B C A B C
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as percentage of offering
price) (1) 5.50% None None 5.50% None None 5.50% None None
Exchange Fees (2) None None None None None None None None None
Redemption Fees (3) None None None None None None None None None
Deferred Sales Charge (as a percentage
of original purchase price or
redemption proceeds, whichever is
lower) (4) None 5% None None 5% None None 5% None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Service and Distribution Fees (5) .35% 1.00% .90% .35% 1.00% .90% .35% 1.00% .90%
Other Expenses (net of expense
reimbursements and/or fee waivers, if
any)(6) 1.64% 1.64% 1.64% 1.50% 1.50% 1.50% 1.57% 1.57% 1.57%
----- ----- ----- ----- ------ ----- ----- ----- -----
Total Operating Expenses (net of
expense reimbursements and/or fee
waivers, if any) (6) 2.99% 3.64% 3.54% 2.85% 3.50% 3.40% 2.92% 3.57% 3.47%
EXAMPLES OF EXPENSES: (7)
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:
1 year $ 84 $ 87 $36 $ 82 $ 85 $ 34 $ 83 $ 86 $ 35
3 years 142 141 109 138 137 104 140 139 107
5 years 204 198 184 * * * 200 195 180
10 years 368 375 381 * * * 361 369 375
You would pay the following expenses
on the same investment, assuming no
redemption and therefore no deferred
sales charge:
1 year $ 84 $ 37 $ 36 $ 82 $ 35 $ 34 $ 83 $ 36 $ 35
3 years 142 111 109 138 107 104 140 109 107
5 years 204 188 184 * * * 200 185 180
10 years 368 375 381 * * * 361 369 375
</TABLE>
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<TABLE>
<CAPTION>
FLEXIBLE INCOME PORTFOLIO INCOME PLUS PORTFOLIO TAX-EXEMPT PORTFOLIO
CLASS CLASS CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A B C A B C A B C
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as percentage of offering
price) (1) 4.75% None None .75% None None 4.75% None None
Exchange Fees (2) None None None None None None None None None
Redemption Fees (3) None None None None None None None None None
Deferred Sales Charge (as a percentage
of original purchase price or
redemption proceeds, whichever is
lower) (4) None 5% None None 5% None None 5% None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% .90% .90% .60% .60% .60% .60% .60% .60%
12b-1 Service and Distribution Fees (5) .35% 1.00% .90% .35% 1.00% .90% .35% 1.00% .60%
Other Expenses (net of expense
reimbursements and/or fee waivers, if
any)(6) 0.62% 0.62% 0.62% 0.34% .34% 0.34% 0.07% 0.07% 0.07%
----- ----- ----- ----- ----- ----- ----- ----- -----
Total Operating Expenses (net of
expense reimbursements and/or fee
waivers, if any) (6) 1.87% 2.52% 2.42% 1.29% 1.94% 1.84% 1.02% 1.67% 1.27%
EXAMPLES OF EXPENSES: (7)
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:
1 year $ 73 $ 76 $ 25 $ 67 $ 70 $ 19 $ 65 $ 64 $ 13
3 years 111 108 75 94 91 58 86 73 40
5 years 151 144 129 122 115 100 108 85 70
10 years 262 269 276 202 209 216 173 155 153
You would pay the following expenses
on the same investment, assuming no
redemption and therefore no deferred
sales charge:
1 year $ 73 $ 26 $ 25 $ 67 $ 20 $ 19 $ 65 $ 14 $ 13
3 years 111 78 75 94 61 58 86 43 40
5 years 151 134 129 122 105 100 108 75 70
10 years 262 269 276 202 209 216 173 155 153
</TABLE>
7
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(1) On certain purchases of Class A and Class T shares, the sales load may be
reduced or waived. Certain Class A and Class T shares may be subject to a 1%
deferred sales charge. See Note 4. See also Shareholder Information and
Instructions - Class A Shares: Sales Charges, Available Discounts and Dealer
Reallowances and Class T shares: Sales Charges and Available Discounts.
(2) Exchanges must be made in amounts of $500 or more. No service fees are
currently charged for exchanges.
(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
Shareholder Information and Instructions - How to Redeem (Sell) Shares.
(4) The deferred sales charge for Class B shares is 5% during the first year, 4%
during the second year, 3% during the third year, 2% during the fourth year, 1%
during the fifth and sixth years and 0% during the seventh year and later. No
deferred sales charge is assessed on Class B shares acquired through the
reinvestment of dividends or capital gain distributions. On certain purchases of
Class A or Class T shares in amounts greater than $1,000,000, a contingent
deferred sales charge of 1% applies for twelve months.
(5) After eight years, Class B shares will automatically convert to Class A
shares. 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 than the
maximum 0.90% authorized pursuant to its 12b-1 plan.
(6) Other Expenses and Total Operating Expenses for the Class A and Class C
shares of the Growth, Global, Flexible Income, Tax-Exempt, Income Plus,
Balanced, Capital Appreciation, Aggressive Growth and Equity-Income Portfolios
are based on actual expenses for the fiscal year ended September 30, 1995, while
Other Expenses and Total Operating Expenses for the Class B shares of those
Portfolios and the Class A, B and C shares of the Tactical Asset Allocation and
C.A.S.E. Portfolios are based on annualized estimates of other expenses for the
fiscal year ending September 30, 1996. For Aggressive Growth, Capital
Appreciation, C.A.S.E., Equity-Income, Tactical Asset Allocation, Balanced,
Flexible Income and Tax-Exempt Portfolios, Other Expenses and Total Operating
Expenses are stated net of expense reimbursements and/or fee waivers. For the
period ended September 30, 1995, Total Operating Expenses for Aggressive Growth
Class A and Class C, Capital Appreciation Class A and Class C, Equity-Income
Class A and Class C, Balanced Class A and Class C, Flexible Income Class A and
Class C and Tax-Exempt Class A and Class C would have been 3.35% and 3.91%,
4.17% and 4.72%, 4.57% and 5.12%, 4.48% and 5.03%, 1.94% and 2.49%, and 1.35%
and 1.60%, respectively, without expense reimbursement by investment advisers.
For the period ended September 30, 1995, Other Expenses for Aggressive Growth
Class A and Class C, Capital Appreciation Class A and Class C, Equity-Income
Class A and Class C, Balanced Class A and Class C, Flexible Income Class A and
Class C and Tax-Exempt Class A and Class C would have been 2.00% and 2.01%,
2.82% and 2.82%, 3.22% and 3.22%, 3.13% and 3.13%, 0.69% and 0.69% and 0.40% and
0.40%, respectively, without expense reimbursement by investment advisers. For
the period ended September 30, 1996, Total Operating Expenses for C.A.S.E. Class
A, Class B and Class C, Tactical Asset Allocation Class A, Class B and Class C,
Flexible Income Class B and Tax-Exempt Class B are expected to be 4.50%, 5.15%
and 5.05%, 3.50%, 4.15% and 4.05%, 2.59% and 2.00%, respectively, without
reimbursement by investment advisors. For the period ended September 30, 1996,
Other Expenses for C.A.S.E. Class A, Class B and Class C, Tactical Asset
Allocation Class A, Class B and Class C, Flexible Income Class B and Tax-Exempt
Class B are expected to be 3.15%, 3.15% and 3.15%, 2.15%, 2.15% and 2.15%, 0.69%
and 0.40%, respectively, without reimbursement by investment advisers. For the
period ended September 30, 1995, the annualized expense ratios for Capital
Appreciation Class A and Class C, Global Class A and Class C, Growth Class A and
Class C, Equity-Income Class A and Class C, Balanced Class A and Class C,
Flexible Income Class A and Class C, Income Plus Class A and Class C and
Tax-Exempt Class A and Class C would be 2.85% and 3.40%, 1.97% and 2.52%, 1.84%
and 2.38%, 2.85% and 3.40%, 2.85% and 3.40%, 1.85% and 2.40%, 1.26% and 1.81%,
and 1.00% and 1.25%, respectively, after reduction in expenses by affiliated
brokerage and custody earnings credits. Other Expenses and Total Operating
Expenses of Growth Portfolio Class T shares are estimated expenses for the
fiscal year ended September 30, 1996.
(7) The Examples assume all dividends and distributions are paid in additional
shares and no payment of exchange or redemption fees. With respect to Class B
shares, the examples reflect conversion to Class A shares eight years after
purchase and are calculated based upon the assumption that the shareholder was
an owner of the shares on the first day of the first year. The contingent
deferred sales charge was applied as follows: 1 year (5%), 3 years (3%), 5 years
(1%) and 10 years (0%). See Shareholder Information and Instructions - Class B
Shares: Sales Charges, Dealer Reallowances and Possible Waivers.
* Note: Pursuant to applicable rules, Portfolios that have been in operation for
less than 10 months complete only one- and three-year period portions of the
Examples.
The purpose of the preceding table is to help you understand the various costs
and expenses you might bear, directly or indirectly, if you invest in the
Portfolios. For more information about these expenses, please read Investment
Advisory and Other Services and Shareholder Information and Instructions.
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 the National Association of Securities Dealers, Inc. ("NASD").
EXPENSES SHOWN IN THE ABOVE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS ALSO HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OR PREDICTION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE
GREATER OR LESS THAN 5%.
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<TABLE>
FINANCIAL HIGHLIGHTS
The table below shows the actual earnings, capital gains or losses, and expenses
of a share of each class of shares in each of the Portfolios.
The information contained in the table for each fiscal year and for other
periods shown through September 30, 1995 has been audited by Price Waterhouse
LLP, independent accountants, whose report is incorporated by reference into the
SAI. Previous periods ended on or before November 30, 1991 for the Tax-Exempt
and Income Plus Portfolios were audited by other independent accountants.
<CAPTION>
NET ASSET NET NET REALIZED TOTAL INCOME
VALUE INVESTMENT AND UNREALIZED (LOSS) FROM
YEAR OR PERIOD BEGINNING OF INCOME GAIN (LOSS) ON INVESTMENT
ENDED (1) PERIOD (LOSS) INVESTMENTS INCOME
<S> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH
Class A 3/31/96 $17.68 $(0.10) $(1.08) $(1.18)
9/30/95 $10.00 $(0.14) $ 7.82 $ 7.68
Class B 3/31/96 $17.64 $(0.14) $(1.08) $(1.22)
Class C 3/31/96 $17.64 $(0.13) $(1.08) $(1.21)
9/30/95 $10.00 $(0.18) $ 7.82 $ 7.64
CAPITAL APPRECIATION
Class A 3/31/96 $13.54 -- $ 1.72 $ 1.72
9/30/95 $10.00 $(0.03) $ 3.57 $ 3.54
Class B 3/31/96 $13.49 $(0.04) $ 1.72 $ 1.68
Class C 3/31/96 $13.49 $(0.03) $ 1.72 $ 1.69
9/30/95 $10.00 $(0.08) $ 3.57 $ 3.49
GLOBAL PORTFOLIO
Class A 3/31/96 $17.73 $(0.12) $ 3.71 $ 3.59
9/30/95 $15.93 $(0.06) $ 2.42 $ 2.36
9/30/94 $13.35 $(0.04) $ 2.62 $ 2.58
9/30/93 $10.00 $(0.04) $ 3.39 $ 3.35
Class B 3/31/96 $17.57 $(0.17) $ 3.71 $ 3.54
Class C 3/31/96 $17.46 $(0.13) $ 3.71 $ 3.58
9/30/95 $15.74 $(0.14) $ 2.42 $ 2.28
9/30/94 $13.35 $(0.23) $ 2.62 $ 2.39
GROWTH PORTFOLIO (2)
Class A 3/31/96 $22.84 $(0.04) $ 2.16 $ 2.12
9/30/95 $16.78 $(0.05) $ 6.18 $ 6.13
9/30/94 (3) $18.46 $ 0.01 $(1.22) $(1.21)
9/30/93 $16.46 $ 0.04 $ 2.42 $ 2.46
9/30/92 $16.22 $ 0.08 $ 0.88 $ 0.96
9/30/91 (3) $13.77 $ 0.14 $ 5.32 $ 5.46
9/30/90 $17.52 $ 0.12 $(2.21) $(2.09)
9/30/89 $11.48 $ 0.09 $ 6.18 $ 6.27
9/30/88 $14.08 $ 0.25 $(1.59) $(1.34)
9/30/87 $ 9.90 $ 0.14 $ 4.11 $ 4.25
9/30/86 $10.00 $ 0.07 $(0.17) $(0.10)
DIVIDENDS DISTRIBUTIONS DISTRIBUTIONS
FROM NET FROM IN EXCESS OF
INVESTMENT REALIZED NET NET REALIZED TOTAL
INCOME CAPITAL GAINS CAPITAL GAINS DISTRIBUTIONS
<S> <C> <C> <C> <C>
AGGRESSIVE GROWTH
Class A -- $(1.02) -- $(1.02)
-- -- -- --
Class B -- $(1.02) -- $(1.02)
Class C -- $(1.02) -- $(1.02)
-- -- -- --
CAPITAL APPRECIATION
Class A $(0.07) -- -- $(0.07)
-- -- -- --
Class B -- -- -- --
Class C $(0.01) -- -- $(0.01)
-- -- -- --
GLOBAL PORTFOLIO
Class A -- $(1.71) -- $(1.71)
-- $(0.56) -- $(0.56)
-- -- -- --
-- -- -- --
Class B -- $(1.71) -- $(1.71)
Class C -- $(1.71) -- $(1.71)
-- $(0.56) -- $(0.56)
-- -- -- --
GROWTH PORTFOLIO (2)
Class A -- $(3.14) -- $(3.14)
-- $(0.07) -- $(0.07)
-- $(0.33) $(0.14) $(0.47)
$(0.07) $(0.39) -- $(0.46)
$(0.07) $(0.65) -- $(0.72)
$(0.17) $(2.84) -- $(3.01)
$(0.09) $(1.57) -- $(1.66)
$(0.23) -- -- $(0.23)
$(0.16) $(1.10) -- $(1.26)
$(0.07) -- -- $(0.07)
-- -- -- --
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
No financial information is shown for Class B shares of the Portfolios for the
fiscal year ended September 30, 1995, as Class B shares were not offered by any
Portfolio until October 1, 1995. No financial information is shown for Class A,
Class B or Class C shares of the Tactical Asset Allocation and C.A.S.E.
Portfolios for the fiscal year ended September 30, 1995, as those Portfolios had
not commenced operations at that time.
The SAI is incorporated by reference in this Prospectus. You may obtain it
without charge by calling or writing the Fund. Further information about
performance of the Fund Portfolios is contained in the Fund's Annual Report to
shareholders, which you may also obtain without charge by calling or writing to
the Fund.
NET ASSET NET ASSETS AT RATIO OF EXPENSES TO AVERAGE NET ASSETS (9)
VALUE AT END TOTAL END OF PERIOD WITHOUT
OF PERIOD RETURN(8) (000's) GROSS NET REIMBURSEMENT
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH
Class A $15.48 (6.54)% $ 20,169 1.86% 1.85% 2.78%
$17.68 76.80% $ 16,747 2.85% 2.85% 3.35%
Class B $15.40 (6.99)% $ 773 2.51% 2.50% 3.43%
Class C $15.41 (6.67)% $ 2,188 2.41% 2.40% 3.33%
$17.64 76.40% $ 1,736 3.40% 3.40% 3.91%
CAPITAL APPRECIATION
Class A $15.19 19.73% $ 9,931 1.86% 1.85% 3.44%
$13.54 35.40% $ 6,241 2.90% 2.85% 4.17%
Class B $15.17 19.57% $ 530 2.51% 2.50% 4.09%
$15.17 19.41% $ 2,904 2.41% 2.40% 3.99%
Class C $13.49 34.90% $ 2,565 3.45% 3.40% 4.72%
GLOBAL PORTFOLIO
Class A $19.61 14.64% $105,562 2.28% 2.21% --
$17.73 15.47% $ 89,397 2.10% 1.97% --
$15.93 19.33% $ 81,241 2.14% -- --
$13.35 33.52% $ 17,430 2.84% -- 3.65%
Class B $19.40 13.40% $ 1,015 2.93% 2.86% --
Class C $19.33 14.76% $ 5,213 2.83% 2.76% --
$17.46 15.14% $ 3,567 2.65% 2.52% --
$15.74 17.90% $ 3,571 4.04% -- --
GROWTH PORTFOLIO (2)
Class A $21.82 9.96% $518,599 1.83% 1.80% --
$22.84 36.70% $485,935 1.86% 1.84% --
$16.78 (6.72)% $431,207 1.76% -- --
$18.46 15.13% $548,564 1.61% -- --
$16.46 6.10% $403,361 1.61% -- --
$16.22 48.00% $126,436 1.48% -- --
$13.77 (12.50)% $ 74,594 1.35% -- --
$17.52 55.70% $ 89,494 1.41% -- --
$11.48 8.00)% $ 65,463 1.47% -- --
$14.08 44.10% $ 78,979 1.32% -- --
$ 9.90 (1.70)% $ 19,745 2.02% -- --
RATIO OF NET
INCOME (LOSS) PORTFOLIO AVERAGE
TO AVERAGE TURNOVER COMMISSION
NET ASSETS RATE (10) RATE (11)
<S> <C> <C> <C>
AGGRESSIVE GROWTH
Class A (1.46)% 66.02% $0.0602
(2.39)% 88.28% --
Class B (2.11)% 66.02% $0.0602
Class C (2.01)% 66.02% $0.0602
(2.94)% 88.28% --
CAPITAL APPRECIATION
Class A (1.40)% 65.41% $0.0801
0.75% 262.97% --
Class B (2.05)% 65.41% $0.0801
Class C (1.95)% 65.41% $0.0801
0.20% 262.97% --
GLOBAL PORTFOLIO
Class A (1.49)% 55.08% $0.0876
(0.43)% 161.48% --
(0.55)% 148.01% --
(0.87)% 116.98% --
Class B (2.14)% 55.08% $0.0876
Class C (2.04)% 55.08% $0.0876
(0.98)% 161.48% --
(2.46)% 148.01% --
GROWTH PORTFOLIO (2)
Class A (0.40)% 32.73% $0.0418
(0.26)% 123.26% --
0.04% 63.73% --
0.29% 97.40% --
0.69% 56.21% --
0.88% 102.16% --
0.75% 127.79% --
0.67% 98.88% --
2.45% 133.28% --
0.94% 167.58% --
2.35% 19.57% --
</TABLE>
10
<PAGE>
<TABLE>
NET ASSET NET NET REALIZED AND TOTAL INCOME
VALUE INVESTMENT UNREALIZED GAIN (LOSS) FROM
YEAR OR PERIOD BEGINNING INCOME (LOSS) ON INVESTMENT
ENDED (1) OF PERIOD (LOSS) INVESTMENTS INCOME
<CAPTION>
<S> <C> <C> <C> <C> <C>
GROWTH (CONTINUED)
Class B 3/31/96 $22.64 $(0.13) $ 2.16 $2.03
Class C 3/31/96 $22.64 $(0.09) $ 2.16 $2.07
9/30/95 $16.68 $(0.15) $ 6.18 $6.03
9/30/94 $18.46 $(0.09) $(1.22) $(1.31)
EQUITY-INCOME
Class A 3/31/96 $11.74 $ 0.24 $ 0.96 $1.20
9/30/95 $10.00 $ 0.09 $ 1.75 $1.84
Class B 3/31/96 $11.73 $ 0.20 $ 0.96 $1.16
Class C 3/31/96 $11.73 $ 0.21 $ 0.96 $1.17
9/30/95 $10.00 $ 0.03 $ 1.75 $1.78
BALANCED
Class A 3/31/96 $11.47 $ 0.30 $ 1.08 $1.38
9/30/95 $10.00 $ 0.05 $ 1.47 $1.52
Class B 3/31/96 $11.47 $ 0.26 $ 1.08 $1.34
Class C 3/31/96 $11.47 $ 0.27 $ 1.08 $1.35
9/30/95 $10.00 $ 0.01 $ 1.47 $1.48
FLEXIBLE INCOME (2)(4)
Class A 3/31/96 $ 9.17 $ 1.08 $(0.81) $0.27
9/30/95 $ 8.83 $ 0.61 $ 0.37 $0.98
9/30/94 (3) $ 9.59 $ 0.65 $(0.81) $(0.16)
9/30/93 $ 8.95 $ 0.70 $ 0.60 $1.30
10/31/92 $ 8.73 $ 0.80 $ 0.22 $1.02
10/31/91 $ 7.74 $ 0.82 $ 1.10 $1.92
10/31/90 $ 9.55 $ 0.90 $(1.80) $(0.90)
10/31/89 $10.15 $ 0.95 $(0.46) $0.49
10/31/88 $ 9.60 $ 0.91 $ 0.55 $1.46
10/31/87 $10.00 $ 0.25 $(0.40) $(0.15)
Class B 3/31/96 $ 9.17 $ 1.05 $(0.81) $0.24
Class C 3/31/96 $ 9.17 $ 1.05 $(0.81) $0.24
9/30/95 $ 8.83 $ 0.56 $ 0.37 $0.93
9/30/94 $ 9.59 $ 0.60 $(0.81) $(0.21)
DIVIDENDS DISTRIBUTIONS DISTRIBUTIONS
FROM NET FROM IN EXCESS OF
INVESTMENT REALIZED NET NET REALIZED TOTAL
INCOME CAPITAL GAINS CAPITAL GAINS DISTRIBUTIONS
<S> <C> <C> <C> <C>
GROWTH (CONTINUED)
Class B -- $(3.14) -- $(3.14)
Class C -- $(3.14) -- $(3.14)
-- $(0.07) -- $(0.07)
-- $(0.33) $(0.14) $(0.47)
EQUITY-INCOME
Class A $(0.07) $(0.15) -- $(0.22)
$(0.10) -- -- $(0.10)
Class B $(0.03) $(0.15) -- $(0.18)
Class C $(0.04) $(0.15) -- $(0.19)
$(0.05) -- -- $(0.05)
BALANCED
Class A $(0.09) $(0.28) -- $(0.37)
$(0.05) -- -- $(0.05)
Class B $(0.05) $(0.28) -- $(0.33)
Class C $(0.06) $(0.28) -- $(0.34)
$(0.01) -- -- $(0.01)
FLEXIBLE INCOME (2)(4)
Class A $(0.28) -- -- $(0.28)
$(0.64) -- -- $(0.64)
$(0.60) -- -- $(0.60)
$(0.66) -- -- $(0.66)
$(0.80) -- -- $(0.80)
$(0.80) $(0.13) -- $(0.93)
$(0.91) -- -- $(0.91)
$(0.93) $(0.16) -- $(1.09)
$(0.91) -- -- $(0.91)
$(0.25) -- -- $(0.25)
Class B $(0.25) -- -- $(0.25)
Class C $(0.25) -- -- $(0.25)
$(0.59) -- -- $(0.59)
$(0.55) -- -- $(0.55)
11
<PAGE>
NET ASSET NET ASSETS AT RATIO OF EXPENSES TO AVERAGE NET ASSETS (9)
VALUE AT END TOTAL RETURN END OF PERIOD WITHOUT
OF PERIOD (8) (000'S) GROSS NET REIMBURSEMENT
<S> <C> <C> <C> <C> <C> <C>
GROWTH (CONTINUED)
Class B $21.53 8.64% $1,400 2.48% 2.45% --
Class C $21.57 9.82% $7,651 2.38% 2.35% --
$22.64 36.32% $5,593 2.41% 2.38% --
$16.68 (7.72)% $3,423 3.48% -- --
EQUITY-INCOME
Class A $12.72 10.38% $8,350 1.85% 1.85% 3.41%
$11.74 18.43% $5,167 2.99% 2.85% 4.57%
Class B $12.71 9.95% $586 2.50% 2.50% 4.06%
Class C $12.71 10.08% $1,033 2.40% 2.40% 3.96%
$11.73 17.95% $281 3.54% 3.40% 5.12%
BALANCED
Class A $12.48 12.06% $6,124 1.86% 1.85% 3.48%
$11.47 15.27% $3,670 2.92% 2.85% 4.48%
Class B $12.48 11.71% $261 2.51% 2.50% 4.13%
Class C $12.48 11.86% $3,454 2.41% 2.40% 4.03%
$11.47 14.77% $3,365 3.47% 3.40% 5.03%
FLEXIBLE INCOME (2)(4)
Class A $ 9.16 2.89% $18,260 1.96% 1.85% 2.06%
$ 9.17 11.57% $19,786 1.87% 1.85% 1.94%
$ 8.83 (1.54)% $21,527 1.85% -- 2.13%
$ 9.59 13.66% $29,232 1.50% -- 1.56%
$ 8.95 12.17% $26,676 1.50% -- 1.66%
$ 8.73 26.38% $18,696 1.50% -- 1.75%
$ 7.74 (10.22)% $18,760 1.50% -- --
$ 9.55 5.17% $27,645 1.29% -- --
$10.15 15.62% $20,469 1.00% -- --
$ 9.60 (1.90)% $4,676 1.14% -- --
Class B $ 9.16 2.23% $251 2.60% 2.50% 2.71%
Class C $ 9.16 2.61% $905 2.50% 2.40% 2.61%
$ 9.17 10.95% $558 2.42% 2.40% 2.49%
$ 8.83 (2.15)% $691 2.40% -- 8.59%
RATIO OF NET PORTFOLIO
INCOME (LOSS) TURNOVER AVERAGE
TO AVERAGE RATE COMMISSION
NET ASSETS (10) RATE (11)
<S> <C> <C> <C>
GROWTH (CONTINUED)
Class B (1.05)% 32.73% $0.0418
Class C (0.95)% 32.73% $0.0418
(0.81)% 123.26% --
(1.68)% 63.73% --
EQUITY-INCOME
Class A 1.74% 19.31% $0.0655
0.85% 34.67% --
Class B 1.09% 19.31% $0.0655
Class C 1.19% 19.31% $0.0655
0.30% 34.67% --
BALANCED
Class A 1.72% 91.59% $0.0531
0.56% 82.48% --
Class B 1.07% 91.59% $0.0531
Class C 1.17% 91.59% $0.0531
0.01% 82.48% --
FLEXIBLE INCOME (2)(4)
Class A 6.15% 54.96% --
7.03% 149.58% --
6.57% 105.40% --
7.76% 138.86% --
8.55% 140.23% --
9.84% 130.73% --
10.51% 72.40% --
9.63% 71.44% --
9.22% 54.42% --
7.88% 68.21% --
Class B 5.50% 54.96% --
Class C 5.60% 54.96% --
6.48% 149.58% --
6.03% 105.40% --
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NET ASSET NET NET REALIZED TOTAL INCOME
VALUE INVESTMENT AND UNREALIZED (LOSS) FROM
YEAR OR PERIOD BEGINNING INCOME GAIN (LOSS) ON INVESTMENT
ENDED (1) OF PERIOD (LOSS) INVESTMENTS INCOME
<S> <C> <C> <C> <C> <C>
INCOME PLUS (5)
Class A 3/31/96 $10.36 $1.34 $(1.05) $ 0.29
9/30/95 $ 9.75 $0.75 $ 0.71 $ 1.46
9/30/94 $10.98 $0.76 $(1.10) $(0.34)
9/30/93 $10.55 $0.83 $ 0.46 $ 1.29
9/30/92 $10.04 $0.76 $ 0.64 $ 1.40
11/30/91 $ 9.20 $0.98 $ 0.87 $ 1.85
11/30/90 $ 9.99 $1.04 $(0.79) $ 0.25
11/30/89 $ 9.89 $1.04 $ 0.10 $ 1.14
11/30/88 $ 9.85 $1.04 $ 0.06 $ 1.10
11/30/87 $10.94 $1.08 $(1.03) $ 0.05
11/30/86 $10.28 $1.06 $ 0.73 $ 1.79
11/30/85 $10.00 $0.44 $ 0.29 $ 0.73
Class B 3/31/96 $10.35 $1.32 $(1.05) $ 0.27
Class C 3/31/96 $10.35 $1.32 $(1.05) $ 0.27
9/30/95 $ 9.74 $0.69 $ 0.71 $ 1.40
9/30/94 $10.98 $0.66 $(1.10) $(0.44)
TAX-EXEMPT (6)
Class A 3/31/96 $11.34 $1.07 $(0.83) $ 0.24
9/30/95 $11.10 $0.55 $ 0.29 $ 0.84
9/3094 $12.07 $0.56 $(0.60) $(0.04)
9/30/93 $11.62 $0.56 $ 0.45 $ 1.01
9/30/92 $11.46 $0.54 $ 0.28 $ 0.82
11/30/91 $11.27 $0.75 $ 0.26 $ 1.01
11/30/90 $11.39 $0.78 $(0.12) $ 0.66
11/30/89 $10.97 $0.78 $ 0.42 $ 1.20
11/30/88 $10.44 $0.79 $ 0.53 $ 1.32
11/30/87 $11.81 $0.77 $(1.37) $(0.60)
11/30/86 $10.56 $0.79 $ 1.42 $ 2.21
11/30/85 $10.00 $0.60 $ 0.56 $ 1.16
Class B 3/31/96 $11.34 $1.04 $(0.83) $ 0.21
Class C 3/31/96 $11.34 $1.06 $(0.83) $ 0.23
9/30/95 $11.10 $0.52 $ 0.29 $ 0.81
9/30/94 $12.07 $0.53 $(0.60) $(0.07)
TACTICAL ASSET
ALLOCATION
Class A 3/31/96 $10.00 $0.11 $ 0.70 $ 0.81
Class B 3/31/96 $10.00 $0.08 $ 0.70 $ 0.78
Class C 3/31/96 $10.00 $0.08 $ 0.70 $ 0.78
C.A.S.E.
Class A 3/31/96 $10.00 $0.01 $ 0.03 $ 0.04
Class B 3/31/96 $10.00 -- $ 0.03 $ 0.03
Class C 3/31/96 $10.00 -- $ 0.03 $ 0.03
DIVIDENDS DISTRIBUTIONS DISTRIBUTIONS
FROM NET FROM IN EXCESS OF
INVESTMENT REALIZED NET NET REALIZED TOTAL
INCOME CAPITAL GAINS CAPITAL GAINS DISTRIBUTIONS
<S> <C> <C> <C> <C>
INCOME PLUS (5)
Class A $(0.35) -- -- $(0.35)
$(0.75) $(0.10) -- $(0.85)
$(0.75) $(0.14) -- $(0.89)
$(0.81) $(0.05) -- $(0.86)
$(0.76) $(0.13) -- $(0.89)
$(0.98) $(0.03) -- $(1.01)
$(1.04) -- -- $(1.04)
$(1.04) -- -- $(1.04)
$(1.04) $(0.02) -- $(1.06)
$(1.08) $(0.06) -- $(1.14)
$(1.06) $(0.07) -- $(1.13)
$(0.44) $(0.01) -- $(0.45)
Class B $(0.32) -- -- $(0.32)
Class C $(0.32) -- -- $(0.32)
$(0.69) $(0.10) -- $(0.79)
$(0.66) $(0.14) -- $(0.80)
TAX-EXEMPT (6)
Class A $(0.28) $(0.07) -- $(0.35)
$(0.56) $(0.04) -- $(0.60)
$(0.54) $(0.39) -- $(0.93)
$(0.54) $(0.02) -- $(0.56)
$(0.54) $(0.12) -- $(0.66)
$(0.75) $(0.07) -- $(0.82)
$(0.78) -- -- $(0.78)
$(0.78) -- -- $(0.78)
$(0.79) -- -- $(0.79)
$(0.77) -- -- $(0.77)
$(0.79) $(0.17) -- $(0.96)
$(0.60) -- -- $(0.60)
Class B $(0.25) $(0.07) -- $(0.32)
Class C $(0.27) $(0.07) -- $(0.34)
$(0.53) $(0.04) -- $(0.57)
$(0.51) $(0.39) -- $(0.90)
TACTICAL ASSET
ALLOCATION
Class A $(0.04) -- -- $(0.04)
Class B $(0.01) -- -- $(0.01)
Class C $(0.01) -- -- $(0.01)
C.A.S.E.
Class A -- -- -- --
Class B -- -- -- --
Class C -- -- -- --
13
<PAGE>
NET ASSET NET ASSETS AT RATIO OF EXPENSES TO AVERAGE NET ASSETS (9)
VALUE AT END TOTAL RETURN END OF PERIOD WITHOUT
OF PERIOD (8) (000'S) GROSS NET REIMBURSEMENT
<S> <C> <C> <C> <C> <C> <C>
INCOME PLUS (5)
Class A $10.30 2.84% $65,988 1.40% 1.37% --
$10.36 15.85% $68,746 1.29% 1.26% --
$ 9.75 (3.28)% $63,995 1.33% -- --
$10.98 12.80% $72,401 1.33% -- --
$10.55 14.40% $54,647 1.17% -- --
$10.04 21.00% $47,334 1.15% -- 1.21%
$ 9.20 2.50% $33,182 0.69% -- --
$ 9.99 12.10% $23,416 0.70% -- --
$ 9.89 11.50% $17,078 0.68% -- --
$ 9.85 0.30% $11,349 0.64% -- --
$10.94 17.90% $ 4,221 1.29% -- --
$10.28 8.80% $ 2,282 0.60% -- --
Class B $10.30 2.51% $ 566 2.05% 2.02% --
Class C $10.30 2.66% $ 2,742 1.95% 1.92% --
$10.35 15.08% $ 1,980 1.84% 1.81% --
$ 9.74 (4.55)% $ 2,112 3.52% -- --
TAX-EXEMPT (6)
Class A $11.23 2.12% $25,695 1.11% 1.00% 1.50%
$11.34 7.75% $27,401 1.02% 1.00% 1.35%
$11.10 (0.41)% $29,096 1.00% -- 1.30%
$12.07 8.97% $30,717 1.00% -- 1.43%
$11.62 7.20% $28,363 1.00% -- 1.20%
$11.46 9.20% $28,242 0.95% -- 1.24%
$11.27 6.00% $22,708 0.68% -- --
$11.39 11.20% $15,916 0.70% -- --
$10.97 12.90% $11,805 0.70% -- --
$10.44 (5.20)% $ 8,833 0.64% -- --
$11.81 21.40% $ 3,112 1.21% -- --
$10.56 7.80% $ 1,294 0.93% -- --
Class B $11.23 1.43% $ 181 1.76% 1.65% 2.15%
Class C $11.23 1.99% $ 516 1.36% 1.25% 1.75%
$11.34 7.48% $ 454 1.27% 1.25% 1.60%
$11.10 (0.73)% $ 277 1.25% -- 20.88%
TACTICAL ASSET
ALLOCATION
Class A $10.77 8.11% $ 3,095 3.16% 2.85% 3.27%
Class B $10.77 7.79% $ 1,960 3.81% 3.40% 3.92%
Class C $10.77 7.84% $ 1,786 3.71% 3.40% 3.82%
C.A.S.E.
Class A $10.04 0.40% $ 688 2.85% 2.85% 4.63%
Class B $10.03 0.30% $ 281 3.50% 3.50% 5.28%
Class C $10.03 0.30% $ 673 3.40% 3.40% 5.18%
NET INCOME PORTFOLIO
(LOSS) TO TURNOVER AVERAGE
AVERAGE NET RATE COMMISSION
ASSETS (10) RATE (11)
<S> <C> <C> <C>
INCOME PLUS (5)
Class A 6.76% 39.26% --
7.53% 25.07% --
7.35% 48.12% --
7.73% 54.51% --
8.79% 91.01% --
10.20% 52.79% --
11.12% 18.54% --
10.59% 57.50% --
10.55% 34.29% --
10.82% 34.13% --
9.93% 29.80% --
10.80% 25.08% --
Class B 6.11% 39.26% --
Class C 6.21% 39.26% --
6.98% 25.07% --
5.16% 48.12% --
TAX-EXEMPT (6)
Class A 4.65% 45.41% --
4.83% 126.48% --
4.83% 59.84% --
4.83% 91.03% --
5.49% 106.89% --
6.67% 117.92% --
6.92% 81.17% --
6.98% 67.45% --
7.28% 35.44% --
7.16% 87.03% --
6.89% 38.00% --
8.18% 20.15% --
Class B 4.00% 45.41% --
Class C 4.40% 45.41% --
4.58% 126.48% --
4.58% 59.84% --
TACTICAL ASSET
ALLOCATION
Class A 0.80% 4.78% 0.0788%
Class B 0.15% 4.78% 0.0788%
Class C 0.25% 4.78% 0.0788%
C.A.S.E.
Class A (0.39)% 11.00% 0.0601%
Class B (1.04)% 11.00% 0.0601%
Class C (0.94)% 11.00% 0.0601%
</TABLE>
14
<PAGE>
(1) 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 Growth, Global, Flexible Income, Tax-Exempt and Income
Plus was October 1, 1993. Commencement of operations for Class A and Class C
shares of Balanced, Capital Appreciation, Aggressive Growth and Equity-Income
was December 2, 1994. Commencement of operations for Class B shares of each of
the Portfolios was October 1, 1995. Commencement of operations for Class A,
Class B and Class C shares of the Tactical Asset Allocation Portfolio was
October 1, 1995. Commencement of operations for Class A, Class B and Class C
shares of the C.A.S.E. Portfolio was February 1, 1996.
(2) As of October 1, 1992, Growth Class A and Flexible Income Class A
discontinued the practice of equalization accounting.
(3) 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. Effective October 1, 1993 Growth Class A
shares' 12b-1 fee rate changed from 0.25% to 0.35%. 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.
(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 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.
(6) 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 AEGON
Tax-Exempt in exchange for shares of Tax-Exempt. All historical financial
information prior to August 7, 1992 relates to AEGON Tax-Exempt.
(7) On September 20, 1996, IDEX Fund and IDEX Fund 3 were reorganized into
Growth Portfolio Class T shares which had no prior operating history. Pursuant
to the Agreement and Plan of Reorganization and Liquidation, the Growth
Portfolio acquired all of the assets and assumed all of the liabilities of each
of IDEX Fund and IDEX Fund 3 in exchange for Class T shares of Growth Portfolio.
(8) 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.
(9) Ratio of expenses to average net assets include: Gross expenses (total
expenses less amounts waived/reimbursed by the investment adviser); Net expenses
(total expenses less amounts waived/reimbursed by the investment adviser and
reduced by affiliated brokerage and custody earnings credits); and Without
reimbursement expenses (total expenses without waived/reimbursed amounts by the
investment adviser). Short periods (where applicable) are annualized.
(10) 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. Rates for periods of less than a
full year are not annualized
(11) This rate is calculated by dividing total commissions paid on purchases and
sales of securities during the period by total shares purchased or sold in those
same transactions and is reported for the periods ended March 31, 1996 and
forward to the extent that commissionable trades constitute more than 10% of the
average net assets for the period.
15
<PAGE>
PERFORMANCE/TOTAL RETURN
Mutual fund performance is most often stated as "total return." Total return,
expressed as a percentage, shows the change in value of fund shares, plus its
income and capital gain distributions, net of expenses or sales charges, from
the beginning of a period to the end of a period. Total return may be annual --
the return achieved in a year -- or cumulative, over a period of several years.
Each IDEX Portfolio's performance is calculated separately for Class A, Class B
and Class C shares and Class T shares of the Growth Portfolio.
You may also see a Portfolio's performance described in terms of "average annual
total return." This rate shows the hypothetical annual 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 SAI contains a more detailed description of the method used to calculate
average annual total return for each Portfolio.
YIELD
The current 30-day yield for a class of shares of the Flexible Income Portfolio,
the Tax-Exempt Portfolio or the Income Plus Portfolio is based on the investment
income earned during a particular 30-day period (including dividends, if any,
and interest), less expenses (excluding reductions for affiliated brokerage and
custody earnings credits) accrued during that period, divided by average shares
outstanding during the period, and divided by the maximum offering price per
share on the last day of the period. The resulting figure is multiplied by 12
for an annual yield.
PERFORMANCE SHOWN IN ADVERTISING
The Portfolios may advertise their returns in non-standard ways, or for periods
in addition to those the NASD and SEC require to be shown. The Portfolios may
also advertise returns without deducting sales charges; such returns would
appear higher than actual returns which reflect sales charges.
Each class of shares of the Tax-Exempt Portfolio may advertise its "taxable
equivalent yield." This figure shows the percentage yield an investor in a given
tax bracket -- typically the highest -- would have to earn on a taxable
investment in order to equal the tax-exempt income of the Portfolio.
COMMERCIAL PERFORMANCE RANKINGS AND COMPARISONS TO STANDARD INVESTING INDEXES
The Portfolios may sometimes advertise their "Lipper Rankings" or "Morningstar
Ratings," or other ratings or rankings published by business magazines or
newspapers such as Forbes, Money, the Wall Street Journal, Business Week,
Barron's, Changing Times, Fortune or Institutional Investor. These rankings or
ratings may include criteria relating to Portfolio characteristics, as well as
to performance.
When the Portfolios advertise such rankings or ratings relating to the Portfolio
performance, information will be included about the ranking category, 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 also compare its performance to other selected funds or to
recognized market indexes, such as the Standard & Poor's 500 Stock Index (the
"S&P 500"), the Dow Jones Industrial Average, the Standard & Poor's MidCap
Index, the Russell 2000, the NASDAQ Composite, the Lehman Brothers Intermediate
Government Corporate Bond Index, the Lehman Brothers Long Government Corporate
Bond Index, the Merrill Lynch High Yield Master Index, the Lehman Brothers Long
Municipal Bond Index or the Morgan Stanley Capital International World Index.
The Global Portfolio's performance may 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.
In addition, a Portfolio may make appropriate comparisons of its performance to
the performance of other types of investments, including certificates of
deposit, savings accounts and U.S. Treasury securities, or of certain interest
rate and inflation indexes, such as the Consumer Price Index.
All performance figures are based on historical results and are not intended to
predict future performance. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when sold, may be worth
more or less than their original cost.
16
<PAGE>
THE PORTFOLIOS: A SUMMARY OF THEIR OBJECTIVES,
INVESTMENT PRACTICES AND RISKS
/BULLET/THIS SECTION PROVIDES A DESCRIPTION OF THE IDEX PORTFOLIOS. THE
PORTFOLIOS ARE GENERALLY LISTED IN ORDER FROM THOSE WITH HIGHER TO LOWER
RISK/REWARD CHARACTERISTICS. PORTFOLIOS WITH HIGHER RISK/REWARD
CHARACTERISTICS MAY EXPERIENCE GREATER VOLATILITY IN NET ASSET VALUE
CHANGES AND TOTAL RETURN. THIS SUMMARY SHOULD BE READ IN CONJUNCTION
WITH THE SECTIONS CALLED: SECURITIES IN WHICH THE PORTFOLIOS INVEST; HOW
THE PORTFOLIOS INVEST; AND ADDITIONAL RISK FACTORS, WHICH PROVIDE MORE
INFORMATION ABOUT THE PORTFOLIOS' INVESTMENTS, PRACTICES AND RISKS.
INTRODUCTION TO THE PORTFOLIOS
Each Portfolio is a series of IDEX Series Fund (formerly 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. The Capital Appreciation Portfolio is
nondiversified. See How the Portfolios Invest - Diversification.
Each Portfolio has its own investment objective and policies. These are
described, Portfolio by Portfolio, below.
Each Portfolio may change its investment objective without shareholder approval.
You will be notified 30 days before any such change. Unless otherwise noted, a
Portfolio may also change its investment policies without shareholder approval.
If a Portfolio changes its investment objective, its new objective may not suit
your needs. You will be allowed 30 days after notice of an investment objective
change to sell or exchange your Portfolio shares without paying a sales or
exchange fee. If you sell or exchange your shares, you may, however, realize a
taxable gain or loss.
There can be no assurance that a Portfolio will achieve its investment
objective.
AGGRESSIVE GROWTH PORTFOLIO
OBJECTIVE: Long-term capital appreciation.
INVESTMENT FOCUS: The Aggressive Growth Portfolio is a diversified, actively
managed portfolio primarily composed of equity securities traded on domestic
stock exchanges or in the over-the-counter market. These securities include
common or preferred stocks, or securities convertible into or exchangeable for
equity securities, including warrants and rights.
INVESTOR PROFILE: For the investor who aggressively seeks capital growth, and
who can tolerate volatility in the value of an investment.
PRIMARY INVESTMENT PRACTICES: The Portfolio may engage in leveraging and options
and futures transactions, which are considered speculative and which may cause
the Portfolio's net asset value to be more volatile than the net asset value of
a fund which does not engage in these activities.
Except during temporary defensive periods, the Portfolio invests at least 85% of
its assets in equity securities. The sub-adviser may pick stocks of developing
companies; older companies that appear to be entering a new stage of growth due
to management changes or development of new technologies, products or markets;
or 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. Under those circumstances, investment income may constitute a
proportionately larger amount of the return realized by the Portfolio.
CAPITAL APPRECIATION PORTFOLIO
OBJECTIVE: Long-term growth of capital in a manner consistent with the
preservation of capital.
INVESTMENT FOCUS: The Capital Appreciation Portfolio is a nondiversified
Portfolio that pursues its objective by normally investing at least 50% of its
equity assets in securities issued by medium-sized companies. Medium-sized
companies are those whose market capitalizations fall within the range of
companies in the MidCap Index. Companies whose capitalization falls outside this
range after the Portfolio's initial purchase continue to be considered
medium-sized companies for purposes of this policy. As of December 29, 1995,
17
<PAGE>
the MidCap Index included companies with capitalizations between approximately
$118 million and $7.5 billion. The range of the MidCap Index is expected to
change on a regular basis. Subject to the above policy, the Portfolio may also
invest in smaller or larger issuers.
INVESTOR PROFILE: For the investor who wants capital growth, but who also wants
an investment which is intended to sustain its principal value over time.
PRIMARY INVESTMENT PRACTICES: The Portfolio invests in industries and stocks of
companies the sub-adviser believes are experiencing favorable demand for their
products and services, and which operate in a favorable competitive environment
and regulatory climate. The sub-adviser searches especially for stocks with
earnings growth potential that may not be recognized by the market. Some fund
holdings may create incidental income.
Medium-sized companies may suffer more significant losses as well as realize
more substantial growth than larger issuers. Investments in such companies tend
to be more volatile than investments in larger companies, and are somewhat
speculative.
GLOBAL PORTFOLIO
OBJECTIVE: Long-term growth of capital in a manner consistent with preservation
of capital primarily through investing in common stocks of foreign and domestic
issuers.
INVESTMENT FOCUS: The Global Portfolio invests primarily in common stocks of
foreign and domestic issuers. It also invests in securities issued by foreign or
domestic governments, government agencies, and other government entities.
INVESTOR PROFILE: For the investor who wants capital growth without being
limited to investments in U.S. securities. The investor should also be able to
tolerate the significant risk factors associated with foreign investing.
PRIMARY INVESTMENT PRACTICES: The Global Portfolio's assets are normally
invested in securities of issuers from at least five different countries,
including the United States. Under unusual marketing circumstances, the
Portfolio may, however, invest its assets in as few as three countries, or for
temporary emergency defensive purposes, in a single country.
The Portfolio seeks to invest substantially all of its assets in common stocks
of companies that the sub-adviser believes are experiencing favorable demand for
their products and services, and which operate in a favorable competitive
environment and regulatory climate. These stocks are selected solely for their
capital growth potential; investment income is not a consideration.
In evaluating foreign investments, the manager looks for: 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.
GROWTH PORTFOLIO
OBJECTIVE: Growth of capital.
INVESTMENT FOCUS: The Growth Portfolio invests primarily in common stocks listed
on a national securities exchange or on NASDAQ, which the Portfolio's
sub-adviser believes have a good potential for capital growth. Investment
analysis focuses on stocks with earnings growth potential that may not be
recognized by the market. These securities are selected solely for their growth
potential; investment income is not a consideration.
INVESTOR PROFILE: For the investor who wants capital growth in a broadly
diversified stock portfolio, and who can tolerate significant fluctuations in
value.
PRIMARY INVESTMENT PRACTICES: The Growth Portfolio seeks to invest substantially
all of its assets in common stocks when its sub-adviser believes that the
relevant market environment favors such investing. 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.
18
<PAGE>
C.A.S.E. PORTFOLIO
OBJECTIVE: Annual growth of capital through investment in companies whose
management, financial resources and fundamentals appear attractive on a scale
measured against each company's present value.
INVESTMENT FOCUS: The C.A.S.E. Portfolio's assets are normally invested in
companies whose securities are traded on a national exchange or in the domestic
over-the-counter markets. Companies are selected based on their perceived
qualitative and quantitative fundamental strengths, on a market relative basis
against other companies in the same industry, sector and against the broad
market.
INVESTOR PROFILE: For investors who seek growth in excess of the S&P 500 on a
quarterly basis, in good markets as well as bad markets, but want a diversified
portfolio that seeks to have investments in companies that have below market
risk characteristics. The investor should be comfortable
with the price fluctuations of a stock portfolio.
PRIMARY INVESTMENT PRACTICES: Employing the sub-adviser's proprietary forms of
market comparative and stock specific research, companies are selected after
evaluating the present nature of the economic cycle and after the sub-adviser
identifies what it believes to be attractive sectors, industries and company
specific circumstances. The C.A.S.E. Portfolio normally invests in common,
preferred and convertible stocks of firms that the sub-adviser believes exhibit
below market risk characteristics supported by below market multiples on a
leading, lagging and ten-year basis, and are perceived to have above average
fundamentals including return on equity, price to earnings ratio and other
balance sheet components to obtain long-term capital growth. The sub-adviser
applies its proprietary forms of research to such companies which it believes
exhibit superior products, above average growth rates along with sound
management and financials. Each company selected in the Portfolio is monitored
against more than two dozen disciplines, on a market and comparative basis,
including insider's activity, market style leadership, earnings surprise,
analyst's change in earnings projection, return on equity, five-year earnings
per share growth, price earnings ratio, price-to-book, price to cash flow,
institutional activity and holdings, stock price changes, price to 200 day
moving average, price to historical rising inflation, price to declining U.S.
dollar and earnings projected change. The sub-adviser believes that above
average performance is as much a condition of eliminating bad situations as it
is discovering good ones. Securities are sold when companies appear overvalued
or lose the fundamentals necessary for future confidence as determined by the
sub-adviser of the Portfolio. Under certain circumstances, the Portfolio may
elect to invest 20% or more of its investable assets in money market
instruments, repurchase agreements and cash equivalents.
EQUITY-INCOME PORTFOLIO
OBJECTIVE: Current income, long-term growth of income and capital appreciation.
INVESTMENT FOCUS: The Equity-Income Portfolio seeks to invest primarily in a
blend of equity and fixed-income securities, including common stocks,
income-producing securities convertible into common stock and fixed-income
securities. The Portfolio will primarily invest in equity and debt securities of
companies with established operating histories and strong fundamental
characteristics.
INVESTOR PROFILE: For the investor who wants current income with the prospect of
income growth, plus the prospect of capital growth. The investor should be
comfortable with the price fluctuations of a portfolio that invests in both
equity and fixed-income securities.
PRIMARY INVESTMENT PRACTICES: The Equity-Income Portfolio seeks to invest its
assets primarily in income producing common or preferred stock, debt
obligations, some of which will typically be convertible into common stock, and
other fixed-income securities. The sub-adviser typically seeks companies which
exhibit strong fundamental characteristics and considers fundamental factors
such as balance sheet quality, cash flow generation, earnings and dividend
growth record and outlook, and profitability levels. The sub-advisor presently
intends to consider these and other fundamental characteristics in determining
attractive investment opportunities in equity and fixed-income investment
securities. However, the sub-adviser may select securities based on other
factors. For example, some securities may be purchased at an apparent discount
to their appropriate value, anticipating that they will increase to that value
over time. The Portfolio seeks to achieve an income yield in excess of the
average dividend income yield of the stocks in the S&P 500 primarily by
utilizing both equity and fixed-income securities. The Portfolio does not, at
present, intend to invest more than 20% of its assets in equities which do not
pay a dividend.
The sub-adviser expects that the majority of the Portfolio's equity securities
will be listed on a national securities exchange or traded on NASDAQ or in the
U.S. over-the-counter market.
TACTICAL ASSET ALLOCATION PORTFOLIO
OBJECTIVE: Preservation of capital and competitive investment returns.
INVESTMENT FOCUS: The Tactical Asset Allocation Portfolio invests primarily in
stocks, U.S. Treasury bonds, notes and bills and money market funds. Models are
used in determining when the Portfolio's assets are "tactically" allocated among
these groups of investments.
INVESTOR PROFILE: For the investor who wants a combination of capital growth and
income, and who is comfortable with the risks associated with an actively traded
portfolio which shifts assets between equity and debt.
19
<PAGE>
PRIMARY INVESTMENT PRACTICES: The Tactical Asset Allocation Portfolio does not,
at present, intend to invest more than 20% of its assets in equities which do
not pay a dividend. The Portfolio focuses on high quality, liquid, large
capitalization stocks. These stocks are selected via a "bottom-up" screening
method (i.e., company by company, not industry by industry, or by any other
large category) which seeks to identify undervalued companies. The screening
method compares financial characteristics such as the price-to-cash flow ratio,
price-to-sales ratio, price-to-earnings ratio (P/E ratio), dividend yield, and
return on equity to a stock's historical norms. The Portfolio seeks to achieve
an income yield in excess of the dividend income yield of the S&P 500.
Undervalued companies -- those which are selling at less than true value -- are
by definition out of favor with most investors. However, the portfolio manager
believes that investors' expectations and the company's operating performance
ultimately determine which statistically "undervalued" stocks make good
investments. In order to preserve a margin of safety for the Portfolio's
investors, the sub-adviser thoroughly reviews the risks surrounding stocks under
consideration for investment. The goal is to choose stocks whose price has been
driven down due to an "overreaction" by the market to their perceived risks.
Stocks are given a careful fundamental and technical evaluation to determine
their likely prospects for positive investment performance.
"Asset allocation" is an investment technique which shifts assets from one class
of investment to another in anticipation of changes in market direction. The
Tactical Asset Allocation Portfolio seeks to enhance its returns in positive
markets by increasing its equity exposure, then to protect itself in negative
markets by shifting assets into fixed income investments and reducing equity
exposure.
The portfolio manager utilizes a series of linear statistical models that
attempt to forecast total stock market returns for both short (12 to 18 months)
and long (36 to 60 months) time periods. These time series models, developed by
the sub-adviser, help compare anticipated risks and rewards of holding stocks
versus holding treasury notes and money market funds. The models therefore
determine when the sub-adviser "tactically" adjusts asset allocation through a
gradual shifting of assets among stocks, U.S. Treasury bonds and notes and money
market funds. A combination of fundamental, technical, sentiment and monetary
variables is used in the forecasting models.
The Portfolio seeks to invest its assets primarily in income producing common or
preferred stock when the sub-adviser believes that the market environment favors
profitable investing in such securities. The remainder of the Portfolio will
ordinarily be invested in debt obligations of U.S. issuers, some of which will
typically be convertible into common stock.
If the forecasting models predict a decline in the stock market, the Portfolio
may invest as much as 10% of its total assets in money market funds, within
limits imposed by the 1940 Act, which restricts the Portfolio's investments in
investment companies. The Portfolio will indirectly bear its proportionate share
of any investment advisory fees and expenses paid by the funds in which it
invests, in addition to the investment advisory fee and expenses paid by the
Portfolio.
BALANCED PORTFOLIO
OBJECTIVE: Long-term capital growth, consistent with preservation of capital and
balanced by current income.
INVESTMENT FOCUS: 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 normally will be
invested in fixed income senior securities, which include corporate debt and
preferred stocks.
INVESTOR PROFILE: For the investor who wants capital growth and income from the
same investment, but who also wants an investment which has the prospect of
sustaining its interim principal value through maintaining a balance between
equity and debt. The Portfolio is not designed for investors who desire a
consistent level of income.
PRIMARY INVESTMENT PRACTICES: The growth component of the Portfolio is expected
to consist primarily of common stocks, selected in industries and companies that
the sub-adviser believes are experiencing favorable demand for their products
and services, and which operate in a favorable competitive environment and
regulatory climate. The sub-adviser's analysis of these stocks aims to find
companies with earnings growth potential that may not be recognized by the
market.
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.
The Portfolio may select equity securities for the income component on the basis
of growth potential, dividend paying properties, or some combination of both.
The Balanced Portfolio may shift assets between the growth and income portions
of its portfolio based on its manager's analysis of the relevant market,
financial and economic conditions. If the sub-adviser believes that growth
securities will provide better returns than the yields available or expected on
income-producing securities, then the Portfolio will place a greater emphasis on
growth securities.
20
<PAGE>
FLEXIBLE INCOME PORTFOLIO
OBJECTIVE: Maximum total return for shareholders, consistent with preservation
of capital, by actively managing a portfolio of income-producing securities.
INVESTMENT FOCUS: As a fundamental policy, the Flexible Income Portfolio will
normally invest at least 80% of its assets in income-producing securities. It
may invest in all types of income-producing securities, including domestic or
foreign securities issued by companies or by governments or governmental
agencies and lower rated securities.
INVESTOR PROFILE: For the investor who wants current income enhanced by possible
capital growth, and is willing to tolerate the fluctuation in principal value
associated with changes in the interest rate environment and the risks
associated with substantial holdings of high-yield/ high-risk bonds.
PRIMARY INVESTMENT PRACTICES: The Portfolio emphasizes total return, primarily
through investing in corporate debt securities which offer higher yield but more
risk than higher grade securities. It may purchase debt securities of any
maturity. The average maturity of the Portfolio may vary substantially,
depending on the sub-adviser'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. The Portfolio
may also invest in unrated debt securities of foreign and domestic issuers.
The Flexible Income Portfolio may, at times, have substantial holdings of
high-yield/high-risk bonds or unrated bonds of foreign and domestic issuers.
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.
If rated securities held by the Portfolio are downgraded by a ratings agency,
the sub-adviser will consider the advisability of keeping these securities.
The sub-adviser uses, but does not place sole reliance on, credit ratings in
evaluating bonds and determining credit quality of the issuer.
INCOME PLUS PORTFOLIO
OBJECTIVE: As high a level of current income as is consistent with the avoidance
of excessive risk.
INVESTMENT FOCUS: The Income Plus Portfolio invests 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 Portfolio may invest in convertible
securities if the total return in expected to provide higher current income than
nonconvertible securities. The 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.
INVESTOR PROFILE: For the investor who wants high current income and is willing
to tolerate the fluctuation in principal value associated with changes in the
interest rate environment.
PRIMARY INVESTMENT PRACTICES: The Portfolio seeks yields as high as possible
while managing risk through certain investment policies described below.
The 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). It may invest in unrated securities which, in
the manager's judgment, are of equivalent quality. The Portfolio may not invest
in rated corporate securities if, after such investment, more than 50% of its
total holdings of securities (other than commercial paper) would then be rated
below B by Moody's or B by S&P.
The 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. It may invest in unrated
commercial paper of comparable quality, as determined by the sub-adviser.
Under certain 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
restrictions described in the SAI); and (d) obligations of the U.S. government,
its agencies or instrumentalities. Before investing in any foreign short-term
bank obligations, the sub-adviser will consider factors including the political
and economic condition in a country, the prospect for changes
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in the value of its currency, the possibility of expropriation or
nationalization, and interest payment limitations, based on existing or prior
actions of the foreign government. Such risks cannot be entirely eliminated from
foreign investing.
If rated securities held by the Portfolio are downgraded by a ratings agency,
the sub-adviser will consider the advisability of keeping these securities. At
all times, however, the sub-adviser will ensure that no more than 50% of the
Portfolio's total holdings (other than commercial paper) would be rated below B
by Moody's or B by S&P.
The sub-adviser uses, but does not place sole reliance on, credit ratings in
evaluating bonds and determining credit quality of the issuer.
TAX-EXEMPT PORTFOLIO
OBJECTIVE: Maximum current interest income exempt from federal income tax,
consistent with preservation of capital.
INVESTMENT FOCUS: Ordinarily, at least 80% of the Tax-Exempt Portfolio's net
assets will be invested in municipal obligations. These are obligations issued
by states, territories or possessions of the United States, the District of
Columbia and their political subdivisions, agencies, instrumentalities and
authorities if the interest on such securities is, in the opinion of bond
counsel, exempt from federal income tax. Income from municipal obligations may
be subject to state and local tax and may constitute an item of preference for
determining the federal alternative minimum tax. The weighted average maturity
of securities in the Tax-Exempt Portfolio is generally expected to be between 20
and 35 years.
INVESTOR PROFILE: For the investor who wants high current federal tax-free
income, and is willing to tolerate the fluctuation in principal value associated
with changes in the interest rate environment. Yields on municipal obligations
are typically lower than on similar taxable securities. The Tax-Exempt Portfolio
is not well suited as an investment vehicle for tax-exempt retirement programs
which receive no benefit from the tax-exempt nature of the majority of the
Portfolio's income. Also, the benefits of tax-exempt income are greater for
persons with higher taxable incomes.
PRIMARY INVESTMENT PRACTICES: The Portfolio seeks yields as high as possible
while managing risk through certain investment policies described below.
The Portfolio normally invests at least 75% of its net assets in (a) municipal
obligations which are rated at the time of purchase within the four highest
ratings of 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 (with maturities between 6 months and 3 years) of issuers which,
at the time of purchase, have outstanding at least one issue of municipal bonds
rated in the four highest ratings of Moody's or S&P. In addition, the Portfolio
may invest in unrated municipal obligations which the portfolio manager
considers equal in quality to the four highest ratings of Moody's or S&P.
Unrated municipal securities may be less liquid than rated securities.
Therefore, their purchase by the Portfolio may entail somewhat greater risk than
that involved in rated municipal obligations.
Bonds rated in the fourth category by Moody's or S&P have some speculative
characteristics. The Portfolio's operating policies place no specific limit on
the proportion of the Portfolio which may be made up of bonds in these
categories, so long as the sub-adviser believes that the Portfolio's objective
of preserving capital is being met.
If rated securities held by the Portfolio are downgraded by a ratings agency,
the sub-adviser will consider the advisability of keeping these securities.
The Portfolio may also invest in floating and variable rate municipal
obligations or participation interests in such obligations. The interest on
these obligations or participations must be free from federal income tax, and
the credit quality must be equal to long-term bonds rated in the four highest
Moody's or S&P categories, or to short-term bonds rated in the two highest
Moody's or S&P categories.
Under certain conditions, the Portfolio may invest as much as 20% of its assets
in taxable securities. For example, the Portfolio may make such investments due
to market conditions, while temporarily holding funds in readiness for
tax-exempt investments, or to provide highly liquid securities to meet
anticipated share sales. Such investments may also be made when the sub-adviser
determines that a defensive position is required in anticipation of a decline in
the market value of portfolio securities. These temporary investments may
consist of the following fixed-income, short-term securities: (a) U.S.
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.
A period of rising commercial interest rates may adversely affect the value of
the Portfolio and its net asset value per share. This may require rapid
portfolio turnover, with temporary investments in lower-yielding and taxable
instruments, to adjust the Portfolio to higher prevailing rates. Conversely,
portfolio values will tend to increase in periods of falling commercial rates.
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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. Such legislation would affect the availability of
municipal obligations for investment and the value of the Portfolio's assets.
The Portfolio's income which is exempt from federal taxes is not generally
exempt from state and local income taxes.
SECURITIES IN WHICH THE PORTFOLIOS INVEST
A Portfolio's potential risks and rewards are achieved fundamentally from the
investments it makes. Certain limitations may apply to Portfolio investments.
Unless otherwise indicated, all limitations apply at the time of investment.
Limitations on borrowing and investments in illiquid securities apply on a
continuous basis. This section discusses those securities with special
risk/reward considerations. This section should be read together with the
section called Additional Risk Factors.
FOREIGN SECURITIES
Subject to the following limitations, nine of the eleven Portfolios may invest
directly in foreign securities denominated in a foreign currency and not
publicly traded in the United States.
/BULLET/ The Growth, Balanced, Capital Appreciation, Aggressive Growth, Tactical
Asset Allocation and C.A.S.E. Portfolios may invest up to 25% of their
individual assets, directly or indirectly, in foreign securities.
/BULLET/ The Global Portfolio may invest without limit in foreign securities.
/BULLET/ 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 such securities denominated in
foreign currency and not publicly traded in the United States.
/BULLET/ 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.
In addition to direct foreign investment, these Portfolios may also invest in
foreign securities through American Depositary Receipts ("ADRs") or American
Depositary Shares ("ADSs"), which are dollar-denominated receipts issued by
domestic banks or securities firms. ADRs and ADSs are publicly traded on U.S.
exchanges, and may not involve the same risks as securities denominated in
foreign currency.
Each of these Portfolios may also indirectly invest in foreign securities
through European Depositary Receipts ("EDRs"), which are typically issued by
European banks; in Global Depositary Receipts ("GDRs"), which may be issued by
domestic or foreign banks; and in other types of receipts evidencing ownership
of foreign securities.
Investments in foreign securities involve different risks from investing in
domestic securities. See Additional Risk Factors.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
The Growth, Global, Flexible Income, Balanced, Capital Appreciation, Aggressive
Growth, Equity-Income, Tactical Asset Allocation and C.A.S.E. 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. These instruments are commonly called derivatives,
because their price is derived from an underlying index, security or other
measure of value.
These Portfolios use derivatives primarily as a hedge -- that is, to protect
portfolio positions against market or currency swings.
Futures contracts and related options may be used to attempt to enhance profit,
but each Portfolio limits non-hedging use of such instruments by requiring that
the aggregate initial margin and premiums required to establish non-hedging
positions will not exceed 5% of the fair market value of such Portfolio's net
assets.
The Equity-Income and Tactical Asset Allocation Portfolios do not currently
intend to purchase or sell any derivatives. However, they may do so in the
future.
The Flexible Income Portfolio may also write and purchase options on securities
to attempt to enhance income. Call options, which give the buyer the right to
"call away" a portfolio security at a designated price until a certain date,
must be "covered" -- that is, the Portfolio must own the securities required to
fulfill the contract.
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The Income Plus Portfolio may purchase and sell contracts for the future
delivery of fixed-income securities at an established price, commonly called
"interest rate futures contracts." It does so only for the purpose of hedging
against anticipated interest rate changes that would adversely affect the value
of Portfolio securities. The 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 its position is fully collateralized and that
its use of such contracts is minimally leveraged.
The Aggressive Growth Portfolio intends to use derivatives for hedging as well
as to enhance income, subject to these limitations:
/BULLET/ The 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.
/BULLET/ The Portfolio does not intend to write any put options.
/BULLET/ The Portfolio may buy only those options listed on a national
securities exchange.
/BULLET/ The Portfolio will not purchase options if, as a result, the aggregate
cost of all outstanding options exceeds 10% of the Portfolio's total
assets.
/BULLET/ No more than 5% of the Portfolio's total assets will be committed to
non-hedging transactions.
/BULLET/ The Portfolio will buy and sell stock index futures contracts and
options on stock index futures only for hedging or other permissible
risk-management purposes, not for speculation. Aggregate initial
margins and premiums on such investments may not be more than 5% of the
Portfolio's assets.
The Portfolios' futures contracts activities are limited in such a manner as to
qualify for certain exemptions from registration with the Commodity Futures
Trading Commission.
There can be no assurance that the use of derivatives will help a Portfolio
achieve its investment objective. Derivatives involve special risks. See
Additional Risk Factors.
For more information about derivatives and their risks, see the SAI.
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 are subject to prepayment risk -- the possibility
that early payoffs of underlying mortgages or other loans will cause the
principal and interest on the security to be paid before its stated maturity.
These early payments are more likely during periods when long-term interest
rates decline. In the event of such a prepayment during an interest rate
decline, 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 the kind of market gains possible with
comparable government securities not subject to prepayment.
CONVERTIBLE SECURITIES
The Portfolios may invest in varying degrees in convertible securities, which
may include corporate notes or preferred stock, but ordinarily are long-term
debt obligations which are convertible at a stated rate and time into common
stock of the issuer.
As with all debt securities, the market value of convertibles tends to decline
as interest rates rise and to increase as interest rates fall. Convertible
securities generally offer lower interest rates or dividend yields than
non-convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible exceeds the conversion price, the
price of the convertible tends to rise like the common stock price. When the
price of the underlying stock declines, the convertible tends to trade
increasingly on a yield basis; therefore, its price may not fall as much as the
price of the common stock.
Convertible securities generally rank senior to common stocks in an issuer's
capital structure. That means convertible obligations are supposed to be paid
off before common stock obligations. Consequently, most convertibles are of
higher quality and entail less risk of decline in market value than the issuer's
common stock. However, the extent to which such risk is reduced depends largely
on the market value of the convertible as a debt security -- i.e., if compared
to other debt securities, the convertible pays a competitive rate and is in
demand, its price will hold up.
Each Portfolio will evaluate convertibles for potential investment using the
same ratings criteria as such Portfolio would use for investments in non-
convertible debt securities. See Securities in Which the Portfolios Invest -
Debt Securities.
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WHEN-ISSUED, DELAYED DELIVERY AND FORWARD TRANSACTIONS
Each Portfolio, other than the Tax-Exempt and Tactical Asset Allocation
Portfolios, may buy securities on a when-issued or delayed delivery basis. They
may also enter into contracts to buy securities for a fixed price at a future
date beyond normal settlement time ("forward commitments"). See Appendix B for
more information.
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 before
delivery and the risk that the seller may not complete the transaction.
ILLIQUID SECURITIES
The Growth, Global, Flexible Income, Balanced, Capital Appreciation, Aggressive
Growth, Equity-Income, Tactical Asset Allocation and C.A.S.E. Portfolios may
invest as much as 15% of their net assets in securities that are considered
illiquid. The Tax-Exempt and Income Plus Portfolios may invest as much as 10% of
net assets in such securities.
Securities are considered illiquid if there is no readily available market for
them, or because they carry legal or contractual restrictions on resale. It
often takes more time to sell illiquid securities, and costs more in brokerage
or dealer discounts or other expenses than does the sale of exchange-listed
securities or securities traded over-the-counter. As a result, a Portfolio may
not be able to sell such securities readily when the sub-adviser thinks it
proper to do so. The sub-adviser may have to sell an alternative security in
order to meet short-term needs for cash such as shareholder redemption requests
at a time that may not be advantageous.
Certain securities, called Rule 144A securities, are not registered for sale to
the public, but may be sold to certain institutional investors. Rule 144A
securities may be considered liquid if a dealer or an institutional market
exists for them. Procedures have been established by the Portfolios'
sub-advisers and Board of Trustees to determine if certain Rule 144A securities
and other securities, including commercial paper, are liquid. Under similar
procedures for the Flexible Income and Tax-Exempt Portfolios, the sub-adviser
and Board of Trustees may determine that certain municipal leases are liquid.
Securities purchased under these rules may later become illiquid. The
Portfolios' investments in such securities could have the effect of increasing
the level of Portfolio illiquidity to the extent that a dealer or institutional
trading market declines.
The Tactical Asset Allocation Portfolio does not currently intend to invest in
illiquid securities.
ZERO COUPON BONDS AND OTHER SECURITIES
Each of the Portfolios other than the Aggressive Growth Portfolio may invest as
much as 10% of their assets in zero coupon bonds, step coupon bonds, pay-in-kind
securities or strips.
/BULLET/ Zero coupon bonds do not make regular interest payments. They are sold
at a discount from face value. Principal and accreted discount
(representing interest accrued but not paid) are paid at maturity.
/BULLET/ Step coupon bonds sell at a discount and pay a low coupon rate for an
initial period, then pay a higher coupon rate thereafter.
/BULLET/ Pay-in-kind securities may pay interest in cash or in the form of a
similar bond or other asset.
/BULLET/ Strips are debt securities that are stripped of their interest after
the securities are issued, but are comparable to zero coupon bonds.
The market value of these four kinds of securities generally fluctuates more in
response to interest rate changes than does the market value of interest-paying
securities of comparable quality and term. The Portfolios may realize greater
gains or losses as a result of such fluctuations.
To pay cash distributions from income earned on these kinds of securities, the
Portfolios may sell certain securities and may incur a capital gain or loss on
the sale.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each of the Portfolios may invest in repurchase and reverse repurchase
agreements. In a repurchase agreement, the Portfolio buys a security and
simultaneously agrees to resell it to the seller, generally a bank or
broker-dealer who agrees to repurchase the security, at a specified price and
date or on demand. This technique is a method of earning income on idle cash.
The repurchase agreement is effectively secured by the value of the underlying
security.
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If a seller fails to repurchase the security as agreed, the Portfolio may suffer
a loss if the security's value declines before it can be sold on the open
market. If the seller goes bankrupt, a Portfolio may encounter delays and
increased costs in selling the underlying security.
Repurchase agreements maturing in more than seven days are subject to the limits
described above on illiquid securities.
In a reverse repurchase agreement, a Portfolio sells a security to another party
such as a bank or broker-dealer in return for cash and the Portfolio agrees to
buy the security back at a future date and price. These agreements may provide
cash to satisfy unusually heavy redemption requests or for other temporary or
emergency purposes without actually selling portfolio securities. They also may
help earn additional income on securities like treasury bills and notes.
U.S. GOVERNMENT SECURITIES
Each of the Portfolios may invest in U.S. government securities, which are debt
securities backed either by the credit of the U.S. government as a whole or only
by the credit of the issuing agency or instrumentality. Securities issued by the
Federal Home Loan Banks and the Federal National Mortgage Association (FNMA) are
supported by the agency's right to borrow money from the U.S. Treasury under
certain circumstances. U.S. Treasury bonds, notes and bills, and some agency
securities, such as those issued by the Government National Mortgage Association
(GNMA), are backed by the full faith and credit of the U.S. government as to
payment of principal and interest and are the highest quality U.S. government
securities.
The Portfolios themselves, and their share prices and yields, are not guaranteed
by the U.S. government.
DEBT SECURITIES
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. The
Flexible Income Portfolio may invest without limit, and the Income Plus
Portfolio may invest up to 50% of its assets, in junk bonds. Bonds rated below
investment grade are commonly known as "junk bonds" and normally involve greater
risk than investment grade securities. (See Additional Risk Factors.)
The Aggressive Growth and C.A.S.E. Portfolios may invest in debt securities
rated only in the three highest categories by Moody's (Aaa, Aa or A) or S&P
(AAA, AA or A).
The Equity-Income and Tactical Asset Allocation Portfolios will limit
investments in commercial paper to obligations rated Prime-1 by Moody's or A-1
by S&P.
The Portfolios may also buy unrated securities that, in the sub-adviser's
opinion, are equal in quality to the Portfolio's rated debt securities.
Unrated debt securities are not necessarily of lower grade than rated
securities, but they may not be as attractive to some buyers. The Portfolios
rely on the credit analysis of their sub-advisers when investing in unrated debt
securities.
See the IDEX Tax-Exempt Portfolio - Primary Investment Practices for a
discussion of the Portfolio's investments in debt securities.
HOW THE PORTFOLIOS INVEST
A Portfolio's potential risks and rewards are affected by the investment
techniques practiced by the Portfolio. This section discusses investing
techniques with special risk/reward considerations.
DIVERSIFICATION
Diversification is the practice of spreading a portfolio's assets over a number
of investments, investment types, industries or countries to reduce risk. A
non-diversified portfolio has the ability to take larger positions in fewer
issuers. Because the appreciation or depreciation of a single security may have
a greater impact on the net asset value of a non-diversified portfolio, its
share price can be expected to fluctuate more than a comparable diversified
portfolio.
Each of the Portfolios other than the Capital Appreciation Portfolio is
diversified as a matter of fundamental policy, and is defined as a diversified
investment company under the 1940 Act. A diversified company must have at lease
75% of the value of its total assets in cash and cash items (including
receivables), government securities, securities of other investment companies
and other securities. For purposes of this calculation, the company may not
count securities of a single issuer that account for more than 5% of the
company's assets or that constitute more than 10% of the issuer's voting
securities. The Capital Appreciation Portfolio is a nondiversified investment
company.
As a fundamental policy governing concentration, each of the Portfolios will not
invest more than 25% of assets in any one particular industry, other than U.S.
government securities.
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The Capital Appreciation Portfolio reserves the right to become a diversified
investment company (as defined by the 1940 Act). Currently, however, its
policies are as follows:
With respect to 50% of its assets, the Capital Appreciation Portfolio will not
buy the securities of any one issuer (other than cash items and U.S. government
securities) if, as a result, the Portfolio
/BULLET/ owns more than 10% of the outstanding voting securities of that issuer;
or
/BULLET/ the value of the Portfolio's holdings of that issuer exceeds 5% of the
value of the Portfolio's total assets.
The Capital Appreciation Portfolio may invest as much as 50% of its assets in
the securities of as few as two issuers. However, it does not expect to do so
unless its sub-adviser sees the potential for substantial capital appreciation
in such an investment. The Portfolio does intend to take advantage of the
flexibility of its nondiversification policy by investing more than 5% of total
assets in the securities of one issuer.
To the extent that the Portfolio makes such single large investments, it
increases its exposure to credit and/or market risks, and to the profit
potential, associated with a single issuer. Both profit potential and risk are
greater in a nondiversified portfolio than in a diversified portfolio.
See The Portfolios: A Summary of Their Objectives, Investment Practices and
Risks for discussion of the individual Portfolios' diversification styles.
PORTFOLIO TURNOVER
Although it is the policy of the Growth, Global, Flexible Income, Balanced,
Capital Appreciation, Aggressive Growth, Equity-Income, Tactical Asset
Allocation and C.A.S.E. Portfolios to buy and hold securities for their stated
investment objectives, changes in these holdings will be made whenever the
respective portfolio managers believe they are advisable. Such changes may
result from:
/BULLET/ liquidity needs;
/BULLET/ securities having reached a price or yield objective;
/BULLET/ anticipated changes in interest rates or the credit standing of an
issuer; or
/BULLET/ developments not foreseen at the time of the investment decision.
To a limited extent, these Portfolios may engage in a significant number of
short-term transactions if such investing serves their objectives. The rate of
portfolio turnover will not be a limiting factor when such short-term investing
is considered appropriate.
The estimated annual portfolio turnover rate of the Tactical Asset Allocation is
expected to be under 100%. The estimated portfolio turnover rate of the C.A.S.E.
Portfolio is expected to exceed 100%, but to be under 200% annually.
The investment policies of the Tax-Exempt and Income Plus Portfolios may lead to
frequent changes in investments, particularly when interest rates fluctuate
rapidly. Securities may be sold in anticipation of a decline in portfolio value
(a rise in interest rates) or bought in anticipation of an increase in portfolio
value (a fall in interest rates).
In addition, a security may be sold and another bought at approximately the same
time to take advantage of a temporary disparity, in the manager's judgment, in
the normal yield relationship between the two securities. These yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or to the general movement of interest rates; instead, this
disparity may come about because of changes in the overall demand for or supply
of various types of securities or because of changes in the objectives of
investors in such securities.
Turnover rate will not limit a manager's ability to buy or sell securities for
either of these Portfolios. Certain tax rules may restrict a Portfolio's ability
to sell securities when the security has been held for less than three months.
Increased turnover results in higher brokerage costs or mark-up charges for a
Portfolio; these charges are ultimately borne by the shareholders. Short-term
trading may also result in short-term capital gains, which are taxed as ordinary
income to the Portfolio's shareholders.
For historical Portfolio turnover rates, see Financial Highlights. For more
discussion of portfolio turnover, see the SAI.
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CASH POSITIONS AND DEBT INVESTING BY STOCK PORTFOLIOS
The portfolio managers of the Aggressive Growth, Capital Appreciation, Growth,
Global, Equity-Income, Tactical Asset Allocation and C.A.S.E. Portfolios may at
times choose to hold some portion of net assets in cash, or to invest that cash
in a variety of debt securities. This may be done as a defensive measure at
times when desirable risk/reward characteristics are not available in stocks or
to earn income from otherwise uninvested cash. When a Portfolio increases its
cash or debt investment position, its income may increase while its ability
decreases to participate in stock market declines or advances.
SHORT SALES
Each of the Portfolios may sell securities "short against the box." A short sale
is a sale of a security that the Portfolio does not own. A short sale is
"against the box" if, at all times when the short sale is open, the Portfolio
owns an equal amount of the securities sold short or convertible into those same
securities, or exchangeable without further consideration for, securities of the
same issue as the securities sold short.
BORROWING AND LENDING
Each Portfolio may borrow money from banks for temporary or emergency purposes.
The amount borrowed shall not exceed 25% of total assets for the Growth, Global,
Flexible Income, Balanced, Capital Appreciation, Equity-Income, Tactical Asset
Allocation and C.A.S.E. Portfolios, and 33 1/3% of total assets for 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 for the Growth, Global, Flexible
Income, Balanced, Capital Appreciation, Equity-Income, Tactical Asset Allocation
and C.A.S.E. Portfolios, and 10% of net assets for the Tax-Exempt and Income
Plus Portfolios.
The Tactical Asset Allocation Portfolio does not currently intend to borrow.
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 that are advised or sub-advised by Janus Capital Corporation
("Janus Capital"). The Portfolios must seek and obtain permission to do so from
the SEC. There is no assurance that such permission will be granted.
The Aggressive Growth Portfolio may borrow for investment purposes -- this is
called "leveraging." The Portfolio may borrow only from banks, not from other
investment companies.
The 1940 Act requires that a Portfolio maintain continuous asset coverage of
300% of the amount borrowed -- that is, total assets including borrowings, less
liabilities exclusive of borrowings, must be three times the amount borrowed.
There are risks associated with leveraging, which is a speculative technique:
/BULLET/ If the Portfolio's asset coverage drops below 300% of borrowings, the
Portfolio may be required to sell securities within three days to
reduce its debt and restore the 300% coverage, even though it may be
disadvantageous to do so.
/BULLET/ Leveraging may exaggerate the effect on net asset value of any increase
or decrease in the market value of the Portfolio's securities.
/BULLET/ Money borrowed for leveraging will be subject to interest costs. In
certain cases, interest costs may exceed the return received on the
securities purchased.
/BULLET/ The Portfolio may be required to maintain minimum average balances in
connection with 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.
State law and regulations may impose additional limits on the Portfolio's
borrowing.
To the extent that any Portfolio purchases securities when the amount that it
has borrowed, even for temporary or emergency purposes, exceeds 5% of its total
assets, the Portfolio is engaged in leveraging.
For more information about borrowing and lending, see the SAI.
LENDING PORTFOLIOS SECURITIES
Each of the Portfolios other than the Tax-Exempt and Income Plus Portfolios may
lend securities to broker-dealers and financial institutions to realize
additional income. As a fundamental policy, these Portfolios (except for the
Aggressive Growth Portfolio) will not lend securities or other assets if, as a
result, more than 25% of total assets would be lent to other parties. In
practice, at this time, none of these Portfolios intend to lend securities or
make any other loans valued at more than 5% of total assets.
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As a fundamental policy, the Aggressive Growth Portfolio may not make loans to
others, except through buying 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 loaned to other parties.
If the borrower of a security defaults, the Portfolio may be delayed or
prevented from recovering collateral, or may be otherwise required to cover a
transaction in the security loaned.
If portfolio securities are loaned, collateral values must be continuously
maintained at no less than 100% by pricing both the securities loaned and the
collateral 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 actions as may be
appropriate in order to vote its shares.
For more information about lending securities, see the SAI.
JOINT TRADING ACCOUNTS
Subject to approval by the Fund's Board of Trustees, the Growth, Global,
Flexible Income, Balanced and Capital Appreciation Portfolios may transfer
uninvested cash balances on a daily basis into certain joint trading accounts.
Assets in the joint trading accounts are invested in money market instruments.
All other participants in the joint trading accounts will be registered mutual
funds or other clients of Janus Capital or its affiliates. These Portfolios will
participate in the joint trading accounts only to the extent that the
investments of the joint trading accounts are consistent with each Portfolio's
investment policies and restrictions. Janus Capital anticipates that the
investments made by a Portfolio through the joint trading accounts will be at
least as advantageous to that Portfolio as if the Portfolio had made such
investment directly.
MASTER FUND/FEEDER FUND OPTION
The Fund may in the future seek to achieve the investment objective of the
Growth, Global, Flexible Income, Balanced, Capital Appreciation, Aggressive
Growth, Equity-Income, Tactical Asset Allocation or C.A.S.E. Portfolios by
investing all of a Portfolio's assets in another investment company having the
same objective and substantially the same investment policies and restrictions.
Such an investment would be made only if the Board of Trustees of the Fund
determines it would be in the best interests of the Portfolio and its
shareholders. In making this determination, the Board will consider benefits to
shareholders and the opportunities to reduce costs and increase efficiency,
among other things. Should such a determination be made, shareholders will be
given at least 30 days notice.
CHANGES IN INVESTMENT POLICIES AND RULES
Each Portfolio is subject to investment restrictions, certain of which are
fundamental policies of that Portfolio. As such, they may not be changed without
shareholder approval. 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 SAI.
NEW INVESTMENT INSTRUMENTS
The sub-advisers reserve the right to evaluate new financial instruments as they
are developed and become actively traded. Subject to any applicable investment
restriction, a Portfolio may invest in any such investment products that its
manager believes will further the Portfolio's investment objective.
ADDITIONAL RISK FACTORS
All investments involve risks. Some securities and some investment practices
involve taking special or additional risks. This section describes a number of
those risk factors.
FOREIGN SECURITIES
Investments in foreign securities involve risks that are different in some
respects from investments in securities of U.S. issuers. These risks include:
29
<PAGE>
CURRENCY VALUE. Changes in currency exchange rates 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. Currency exchange rates are
affected by numerous factors, including relative interest rates, balances of
trade, levels of foreign investment and manipulation by central banks. The
foreign currency market is essentially unregulated and can be subject to
speculative trading. From time to time, many countries impose exchange controls
which limit or prohibit trading in certain currencies.
CURRENCY TRADING COSTS. ADRs do not involve the same direct currency and
liquidity risks as securities denominated in foreign currencies. However, the
value of the currency in which the foreign security represented by the ADR is
denominated may affect the value of the ADR.
To the extent that a Portfolio invests in foreign securities denominated in
foreign currencies, its share price reflects the price movements both of its
securities and of the currencies in which they are denominated. The share price
of a Portfolio that invests in both U.S. and foreign securities may have a low
correlation with movements in the U.S. markets. If most of the securities in a
Portfolio are denominated in foreign currencies or depend on the value of
foreign currencies, the relative strength of the U.S. dollar against those
foreign currencies may be an important factor in that Portfolio's performance. A
Portfolio incurs costs in converting foreign currencies into U.S. dollars, and
vice versa.
DIFFERENT ACCOUNTING AND REPORTING PRACTICES. Foreign companies are generally
subject to tax laws and to accounting, auditing and financial reporting
standards, practices and requirements different from those that apply in the
U.S.
Less Information Available. There is generally less public information available
about foreign companies.
LESS REGULATION. Many foreign countries have less stringent securities
regulations than the U.S.
MORE DIFFICULT BUSINESS NEGOTIATIONS. A Portfolio may find it difficult to
enforce obligations in foreign countries or to negotiate favorable brokerage
commission rates.
REDUCED LIQUIDITY/INCREASED VOLATILITY. Some foreign securities are less liquid,
and their prices more volatile, than securities of comparable U.S. companies.
SETTLEMENT DELAYS. Settling foreign securities transactions may take longer than
settlements in the U.S.
HIGHER CUSTODY CHARGES. Custodianship of shares may cost more for foreign
securities than it does for U.S. securities.
ASSET VULNERABILITY. In some foreign countries, there is a risk of direct
seizure or appropriation through taxation of assets of a Portfolio. Certain
countries may also impose limits on the removal of securities or other assets of
a Portfolio. Interest, dividends and capital gains on foreign securities held by
a Portfolio may be subject to foreign withholding taxes.
POLITICAL INSTABILITY. In some countries, political instability, war or
diplomatic developments could affect investments.
These risks may be greater in developing countries or in 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 only a small number of securities. As a result,
securities of issuers located in developing countries may have limited
marketability and may be subject to abrupt or erratic price fluctuations.
At times, the Portfolios' foreign securities may be listed on exchanges or
traded in markets which are open on days (such as Saturday) when the Portfolios
do not compute a price or accept orders for purchase, sale 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.
HEDGING FOREIGN CURRENCY TRANSACTIONS. A Portfolio may hedge some or all of its
investments denominated in a foreign currency against a decline in the value of
that currency. For example, a Portfolio may buy or sell securities while using
forward currency contracts to fix a price in U.S. dollars for securities it has
agreed to buy or sell ("transaction hedge"). A Portfolio may enter into
contracts to sell a foreign currency for U.S. dollars (not exceeding the value
of a given Portfolio's assets denominated in that currency) or by participation
in options or futures contracts with respect to a currency ("position hedge").
A Portfolio could hedge a 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"). Or it may 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 a given currency, if the
portfolio manager believes there is a reasonable degree of correlation between
movements in the two currencies ("cross-hedge").
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<PAGE>
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 a Portfolio anticipates buying securities
denominated in a particular currency, it may enter into a forward contract to
purchase such currency in exchange for the U.S. 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 affect a Portfolio's performance if the manager's projection of
future exchange rates is wrong.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
Generally, options, futures contracts, forward contracts and swap-related
products ("derivative instruments") involve additional investment risks and
transaction costs, and draw upon skills and experience which are different from
those needed to pick the other securities or instruments in which a Portfolio
invests. Special risks of derivatives' use include:
INACCURATE MARKET PREDICTIONS. If interest rates, securities prices or currency
markets do not move in the directions expected by a portfolio manager who uses
derivatives based on those measures, these instruments may fail in their
intended purpose and result in losses to the Portfolio.
IMPERFECT CORRELATION. Derivatives' prices may be imperfectly correlated with
the prices of the securities, interest rates or currencies being hedged. When
this happens, the expected benefits may be diminished.
ILLIQUIDITY. A liquid secondary market may not be available for a particular
instrument at a particular time. A Portfolio may therefore be unable to control
losses by closing out a derivative position.
TAX CONSIDERATIONS. A Portfolio may have to delay closing out certain derivative
positions to avoid adverse tax consequences.
The risk of loss from investing in derivative instruments is potentially
unlimited. See the SAI for more information about derivatives.
FIXED INCOME INVESTING
Risk in the fixed income component of any Portfolio depends on (1) the term of
the securities; (2) the quality of the securities; and (3) changes in interest
rates.
When prevailing interest rates trend downward, the price of existing debt
securities tends to go up, because the coupon payments (or yield) of those
securities becomes more valuable in comparison to prevailing rates. When
interest rates trend upward, the price of existing securities tends to go down.
This effect usually becomes more pronounced with longer-term issues than with
shorter-term issues.
The effect of these fluctuations, in turn, on a Portfolio's share price and
yield depends on the extent to which a Portfolio is invested in debt securities.
HIGH-YIELD/HIGH-RISK BONDS
High-yield/high risk debt securities are also known as "junk bonds." These bonds
involve significant quality and liquidity concerns. Their yields fluctuate. They
are not suitable for short-term investing.
Higher yields are ordinarily available on fixed-income securities which are
unrated or are rated in the lower categories by services such as S&P or Moody's.
Unrated securities are not necessarily of lower quality than rated securities,
but the markets for lower rated and unrated securities are less liquid than
higher rated securities.
Lower rated debt securities (including convertibles) carry significant default
risk -- the risk that the issuer will not make interest or principal payments
when due. Because the coupon rates on these securities are high, the issuers
might experience great financial stress in an economic downturn or during
periods of rising interest rates. This stress might adversely affect their
ability to make interest or principal payments or to obtain additional credit. A
bond default within the Portfolio would cause losses to the Portfolio.
The performance of high-yield debt securities in an economic downturn cannot be
precisely predicted.
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<PAGE>
Appendix A of this Prospectus contains a description of bond rating categories
and includes a weighted average debt rating table for the Flexible Income and
Income Plus Portfolios.
SPECIAL SITUATIONS
Each Portfolio may invest in "special situations" from time to time. Special
situations arise when, in the opinion of a portfolio manager, a company's
securities may be recognized, then increase considerably in price, due to:
/BULLET/ a new product or process;
/BULLET/ a management change;
/BULLET/ a technological breakthrough;
/BULLET/ an extraordinary corporate event; or
/BULLET/ a temporary imbalance in the supply of, and demand for, the securities
of an issuer.
Investing in a special situation carries an additional risk of loss if the
expected development does not happen or does not attract the expected attention.
The impact of special situation investing to a Portfolio will depend on the size
of the Portfolio's investment in a situation.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund is run by a Board of Trustees. Subject to the supervision of the Board
of Trustees, the assets of each Portfolio are managed by investment advisers and
sub-advisers, and by portfolio managers. This section describes IDEX Series
Fund's ownership, organization and management.
TRUSTEES
The Board of Trustees is responsible for managing the business and affairs of
IDEX Series Fund. It oversees the operation of the Fund by its officers. It also
reviews the management of the Portfolios' assets by the investment advisers and
sub-advisers. Information about the Trustees and officers of the Fund is
contained in the SAI.
GROWTH, GLOBAL, FLEXIBLE INCOME, BALANCED AND CAPITAL APPRECIATION PORTFOLIOS
INVESTMENT ADVISER
These 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 33770-2597, to act as its
investment adviser. IMI has served as investment adviser to IDEX Series Fund
Growth, Global, Flexible Income (and its predecessor, IDEX Total Income Trust),
Balanced and Capital Appreciation Portfolios since the inception of each
Portfolio. IMI also served as the investment adviser to IDEX Fund and IDEX Fund
3, which were reorganized into IDEX Growth Portfolio Class T shares on September
20, 1996, since inception of each of those Funds.
ADVISORY FEES PAID BY THESE PORTFOLIOS
IMI is responsible for furnishing or causing to be furnished to each of these
Portfolios investment advice and recommendations, and for supervising the
purchase and sale of securities as directed by Fund officers. In addition, IMI
is responsible for the administration of each of these Portfolios.
The Portfolios pay IMI an annual fee, computed daily and paid monthly, based on
each Portfolio's average daily net assets, as shown in the Advisory Fee
Schedule.
The investment advisory fees paid by these Portfolios are higher than those paid
by most other funds.
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<PAGE>
ADVISORY FEE REIMBURSEMENT
IMI will reimburse a Portfolio or waive fees, or both, to the extent that the
Portfolio's normal net operating expenses, including 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, Flexible Income,
Balanced and Capital Appreciation Portfolios, 1.50% of that Portfolio's average
daily net assets.
TAX-EXEMPT, INCOME PLUS, AGGRESSIVE GROWTH, EQUITY-INCOME, TACTICAL ASSET
ALLOCATION AND C.A.S.E. PORTFOLIOS
INVESTMENT ADVISER
These Portfolios have each entered into an Advisory Agreement with
InterSecurities, Inc. ("ISI"), whose address is 201 Highland Avenue, Largo,
Florida 33770-2597, to act as its investment adviser. ISI has served as
investment adviser to the Tax-Exempt and Income Plus Portfolios since 1992, the
Aggressive Growth and Equity-Income Portfolios since their inception in December
of 1994, the Tactical Asset Allocation Portfolio since its inception in October,
1995 and the C.A.S.E. Portfolio since its inception in February, 1996. ISI is an
affiliate of IMI.
ADVISORY FEES PAID BY THESE PORTFOLIOS
ISI is responsible for furnishing or causing to be furnished to each of these
Portfolios investment advice and recommendations, and for supervising the
purchase and sale of securities as directed by appropriate Fund officers. In
addition, ISI is responsible for the administration of each of these Portfolios.
The Portfolios pay ISI an annual fee, computed daily and paid monthly, based on
each Portfolio's net assets, as shown in the Advisory Fee Schedule.
The investment advisory fees paid by these Portfolios are higher than those paid
by most other funds.
No investment advisory fees were paid for the fiscal year ended September 30,
1995 by the Tactical Asset Allocation and C.A.S.E. Portfolios since those
Portfolios had not begun operations as of that date.
ADVISORY FEE REIMBURSEMENT
Pursuant to an expense limitation voluntarily adopted by ISI, ISI will reimburse
a Portfolio or waive fees, or both, to the extent that the Portfolio's normal
net operating expenses, including 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 the following percentages of each Portfolio's average daily net
assets: Tax-Exempt Portfolio, .65%; Income Plus Portfolio, 1.25%; Aggressive
Growth and Equity-Income Portfolios, 1.50%; and Tactical Asset Allocation and
C.A.S.E. Portfolios, 2.50% for the first full fiscal year of the Portfolio, and
1.50% thereafter.
No expenses were paid for the fiscal year ended September 30, 1995 by the
Tactical Asset Allocation and C.A.S.E. Portfolios, since those Portfolios had
not begun operations as of that date.
<TABLE>
<CAPTION>
ACTUAL ADVISORY FEE RATIOS FOR TOTAL ACTUAL EXPENSE RATIOS FOR THE FISCAL
THE FISCAL YEAR ENDED YEAR ENDED SEPTEMBER 30, 1995,
SEPTEMBER 30, 1995 INCLUDING THE INVESTMENT ADVISORY FEE.
PERCENTAGE OF AVERAGE DAILY NET ASSETS PERCENTAGE OF AVERAGE DAILY NET ASSETS
CLASS A CLASS C
<S> <C> <C> <C> <C>
Growth 1.00% Growth 1.86% 2.41%
Global 1.00% Global 2.10% 2.65%
Flexible Income 0.82%* Flexible Income 1.87%* 2.42%*
Balanced 0.00%* Balanced 2.92%* 3.47%*
Capital Appreciation 0.00%* Capital Appreciation 2.90%* 3.45%*
<FN>
*Net of fees waived by IMI *Net of fees waived by IMI
(No expenses are shown for Class B shares since
that class of shares was not offered until October 1, 1995.)
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
ADVISORY FEE SCHEDULE
CAPITAL FLEXIBLE INCOME
AVERAGE DAILY NET ASSETS GROWTH GLOBAL BALANCED APPRECIATION
<S> <C> <C> <C> <C> <C>
First $750 million 1.00% 1.00% 1.00% 1.00%
the next $250 million 0.90% 0.90% 0.90% 0.90%
over $1 billion 0.85% 0.85% 0.85% 0.85%
First $100 million 0.90
the next $150 million 0.80%
over $250 million 0.70%
</TABLE>
<TABLE>
<CAPTION>
ACTUAL ADVISORY FEE RATIOS FOR TOTAL ACTUAL EXPENSE RATIOS FOR THE FISCAL
THE FISCAL YEAR ENDED YEAR ENDED SEPTEMBER 30, 1995,
SEPTEMBER 30, 1995 INCLUDING THE INVESTMENT ADVISORY FEE.
PERCENTAGE OF AVERAGE DAILY NET ASSETS PERCENTAGE OF AVERAGE DAILY NET ASSETS
CLASS A CLASS C
<S> <C> <C> <C> <C>
Tax-Exempt 0.28%* Tax-Exempt 1.02%* 1.27%*
Income Plus 0.60% Income Plus 1.29% 1.84%
Aggressive Growth 0.41%* Aggressive Growth 2.85%* 3.40%*
Equity-Income 0.00%* Equity-Income 2.99%* 3.54%*
<FN>
*Net of fees waived by ISI *Net of fees waived by ISI
(No expenses are shown for Class B shares since that class
of shares was not offered until October 1,1995.)
</FN>
</TABLE>
<TABLE>
<CAPTION>
ADVISORY FEE SCHEDULE
Aggressive Equity- Tactical Asset
AVERAGE DAILY NET ASSETS Tax-Exempt Income Plus Growth Income Allocation C.A.S.E.
<S> <C> <C> <C> <C> <C> <C>
First $750 million 0.60% 0.60% 1.00% 1.00% 1.00% 1.00%
the next $250 million 0.60% 0.60% 0.90% 0.90% 0.90% 0.90%
over $1 billion 0.60% 0.60% 0.85% 0.85% 0.85% 0.85%
</TABLE>
BUSINESS EXPENSES BORNE BY THE PORTFOLIOS
In addition to the investment advisory fee, under their Advisory Agreements, the
Portfolios pay most of their 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. The Portfolios also pay all
brokerage commissions in connection with portfolio transactions; brokerage of
the Portfolios may be placed with affiliates, and the sale of Fund shares by a
broker-dealer may be taken into account in placing brokerage.
OWNERSHIP OF IDEX MANAGEMENT, INC. AND INTERSECURITIES, INC.
Fifty percent (50%) of the outstanding stock of IMI and 100% of the outstanding
stock of ISI, 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, 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.
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<PAGE>
SUB-ADVISERS
Janus Capital, AEGON USA Investment Management, Inc. ("AEGON Management"), Fred
Alger Management, Inc. ("Alger Management"), Luther King Capital Management
Corporation ("Luther King"), Dean Investment Associates ("Dean Investment") and
C.A.S.E. Management, Inc. ("C.A.S.E."), whose functions in managing the
Portfolios are described below, are described in this Prospectus collectively as
the "sub-advisers" and individually as a "sub-adviser."
GROWTH, GLOBAL, FLEXIBLE INCOME, BALANCED, AND CAPITAL APPRECIATION PORTFOLIOS
IMI has entered into an Investment Counsel Agreement for each of these
Portfolios with Janus Capital, 100 Fillmore Street, 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
is also sub-adviser to certain Portfolios of the WRL Series Fund, Inc., an
affiliate of the Fund. Janus Capital also served as sub-adviser to IDEX Fund and
IDEX Fund 3 prior to their reorganization into the Growth Portfolio Class T
shares, since the inception of each of those Funds.
Janus Capital provides IMI with investment advice and recommendations for each
Portfolio consistent with that Portfolio's investment objective, policies and
restrictions, and supervises all security purchases and sales 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
NASD.
While Janus Capital provides portfolio management services, 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 circumstances
depending on the level of the aggregate net assets of IDEX Series Fund, as
described in the SAI.
PORTFOLIO MANAGERS:
Scott W. Schoelzel has served as portfolio manager of the Growth Portfolio since
January, 1996. He previously served as co-portfolio manager of the Growth
Portfolio from 1995 until becoming portfolio manager. Mr. Schoelzel also served
as portfolio manager of other mutual funds formerly in the IDEX group: IDEX Fund
and IDEX Fund 3. Mr. Schoelzel is Vice President of Janus Capital, where he has
been employed since 1994. From 1991 to 1993, Mr. Schoelzel was a portfolio
manager with Founders Asset Management, Denver, Colorado.
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 October, 1993, 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; he joined Janus Capital as a securities analyst and research
associate in 1986.
Blaine P. Rollins has assisted in the management of the Balanced Portfolio since
its inception, and has served as portfolio manager since February 1, 1996. Mr.
Rollins joined Janus Capital in 1990 and has gained experience as a trader and
research analyst prior to assuming management responsibility for the Balanced
Portfolio. He holds a Bachelor of Science in Finance from the University of
Colorado and is a Chartered Financial Analyst. He has also managed the Janus
Balanced Fund since January 1996.
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. He has
co-managed Janus Venture Fund since December, 1993.
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<PAGE>
TAX-EXEMPT AND INCOME PLUS PORTFOLIOS
AEGON Management, 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499, serves as
the investment sub-adviser to each of these 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 also serves as sub-adviser to
certain portfolios of the WRL Series Fund, 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
each Portfolio consistent with that Portfolio's investment objective, policies
and restrictions, and supervises all security purchases and sales on behalf of
the 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 NASD.
While AEGON Management provides portfolio management services, 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
Income Plus Portfolios' Advisory Agreements, less 50% of any amount reimbursed
to that Portfolio or waived by ISI pursuant to that Portfolio's expense
limitation.
PORTFOLIO MANAGERS:
Rachel A. Dennis has served as portfolio manager of the Tax-Exempt Portfolio
since its inception. Ms. Dennis is 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 also a Senior Vice President of AEGON
Management and has been employed by AEGON Management and its affiliates in
various positions since 1975.
AGGRESSIVE GROWTH PORTFOLIO
Alger Management, 75 Maiden Lane, New York, New York 10038, 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 and David D. Alger. As of June 30, 1996, Alger
Management had approximately $6.0 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.
Alger Management provides ISI with investment advice and recommendations for the
Aggressive Growth Portfolio consistent with that Portfolio's investment
objective, policies and restrictions, and supervises all security purchases and
sales on behalf of the Portfolio, including the negotiation of commissions and
the allocation of principal business and portfolio brokerage. In allocating such
portfolio transactions, Alger Management may consider research and other
services furnished to it. 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 Portfolio's transactions on securities
exchanges and will retain commissions in accordance with certain regulations of
the SEC. In placing portfolio business with all dealers, Alger Management seeks
the best execution of each transaction, and all brokerage placement must be
consistent with the Rules of Fair Practice of the NASD.
While Alger Management provides portfolio management services, ISI retains
responsibility for the performance of such functions. For its services, Alger
Management receives 40% of the fees received by ISI under the Aggressive Growth
Portfolio's Advisory Agreement, less 40% of any amount reimbursed to that
Portfolio or waived by ISI pursuant to that Portfolio's expense limitation.
36
<PAGE>
PORTFOLIO MANAGERS:
David D. Alger, Seilai Khoo and Ronald Tartaro are primarily responsible for the
day-to-day management of the Portfolio. Mr. Alger has been employed by Alger
Management as Executive Vice President and Director of Research since 1971 and
as President since 1995 and has served as a portfolio manager of the Aggressive
Growth Portfolio since its inception in December, 1994. Ms. Khoo has been
employed by Alger Management as a senior research analyst since 1989 and as a
Senior Vice President since 1995 and has served as a portfolio manager of the
Aggressive Growth Portfolio since October, 1995. Mr. Tartaro has been employed
by Alger Management as a senior research analyst since 1990 and as a Senior Vice
President since 1995 and has served as a portfolio manager of the Aggressive
Growth Portfolio since October, 1995. Mr. Alger, Ms. Khoo and Mr. Tartaro also
serve as portfolio managers for other mutual funds and investment accounts
managed by Alger Management.
EQUITY-INCOME PORTFOLIO
Luther King, 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 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.
Luther King provides ISI with investment advice and recommendations for the
Equity-Income Portfolio consistent with that Portfolio's investment objective,
policies and restrictions, and supervises all security purchases and sales
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, Luther King may consider research and
other services furnished to it and may place portfolio transactions with
broker-dealers that are affiliated with ISI or Luther King. In placing portfolio
business with all dealers, Luther King seeks the best execution of each
transaction, and all brokerage placement must be consistent with the Rules of
Fair Practice of the NASD.
While Luther King provides portfolio management services, ISI retains
responsibility for the performance of such functions. For its services, Luther
King receives 40% of the fees received by ISI under the Equity-Income
Portfolio's Advisory Agreement, less 40% of any amount reimbursed to that
Portfolio or waived by ISI pursuant to that Portfolio's expense limitation.
PORTFOLIO MANAGERS:
Luther King, Jr. and Scot C. Hollmann 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.
TACTICAL ASSET ALLOCATION PORTFOLIO
ISI has entered into an Investment Counsel Agreement for the Tactical Asset
Allocation Portfolio with Dean Investment, a division of C.H. Dean and
Associates, Inc., 2480 Kettering Tower, Dayton, Ohio 45423-2480. Founded in
1972, Dean Investment manages portfolios for individuals and institutional
clients world-wide and provides a full range of investment advisory services,
with more than $3.7 billion in assets under management as of June 30, 1996. Dean
Investment has served as the investment sub-adviser to the WRL Series Fund, Inc.
Tactical Asset Allocation Portfolio since its inception in January, 1995.
Dean Investment provides ISI with investment advice and recommendations for the
Tactical Asset Allocation Portfolio consistent with that Portfolio's investment
objective, policies and restrictions, and supervises all security purchases and
sales on behalf of the Portfolio, including the negotiation of commissions and
the allocation of principal business and portfolio brokerage. In allocating such
portfolio transactions, Dean Investment may consider research and other services
furnished to it and may place portfolio transactions with broker-dealers that
are affiliated with ISI or Dean Investment. In placing portfolio business with
all dealers, Dean Investment seeks the best execution of each transaction, and
all brokerage placement must be consistent with the Rules of Fair Practice of
the NASD.
While Dean Investment provides portfolio management services, ISI retains
responsibility for the performance of such functions. For its services, Dean
Investment receives 40% of the fees received by ISI under the Tactical Asset
Allocation Portfolio's Advisory Agreement, less 40% of any amount reimbursed to
that Portfolio or waived by ISI pursuant to that Portfolio's expense limitation.
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PORTFOLIO MANAGERS:
John C. Riazzi, CFA, is the Senior Portfolio Manager of the Tactical Asset
Allocation Portfolio. Mr. Riazzi joined Dean Investment in March of 1989. Before
being promoted to Vice President and Director of Consulting Services, Mr. Riazzi
was responsible for client servicing, portfolio execution and trading
operations. Mr. Riazzi has been a member of the Central Investment Committee of
Dean Investment and a Senior Institutional Portfolio Manager for the past five
years.
Arvind Sachdeva, CFA, is the Senior Equity Strategist of the Tactical Asset
Allocation Portfolio. Mr. Sachdeva joined Dean Investment in 1993. Before that,
he had been the Senior Security Analyst and Equity Portfolio Manager for
Carillon Advisers, Inc. from 1985 to 1993. Carillon Advisers, Inc. is an
investment subsidiary of the Union Central Life Insurance Company.
C.A.S.E. PORTFOLIO
C.A.S.E., located at 2255 Glades Road, Suite 221-A, Boca Raton, FL 33431, serves
as the investment sub-adviser to the C.A.S.E. Portfolio pursuant to an
Investment Counsel Agreement relating to the Portfolio. C.A.S.E. is a registered
investment advisory firm and a wholly-owned subsidiary of C.A.S.E., Inc.
C.A.S.E., Inc. is indirectly controlled by William Edward Lange, President and
Chief Executive Officer of the sub- adviser. C.A.S.E. provides investment
management services to financial institutions, high net worth individuals and
other professional money managers. C.A.S.E. has served as the investment
sub-adviser to the WRL Series Fund, Inc. C.A.S.E. Quality Growth, C.A.S.E.
Growth & Income and C.A.S.E. Growth Portfolios since their inception in 1995.
C.A.S.E. provides ISI with investment advice and recommendations for the
C.A.S.E. Portfolio consistent with that Portfolio's investment objective,
policies and restrictions, and supervises all security purchases and sales
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, C.A.S.E. may consider research and other
services furnished to it and may place portfolio transactions with
broker-dealers that are affiliated with ISI or C.A.S.E. In placing portfolio
business with all dealers, C.A.S.E. seeks the best execution of each
transaction, and all brokerage placement must be consistent with the Rules of
Fair Practice of the NASD.
While C.A.S.E. provides portfolio management services, ISI retains
responsibility for the performance of such functions. For its services, C.A.S.E.
receives 40% of the fees received by ISI under the C.A.S.E. Portfolio's Advisory
Agreement, less 40% of any amount reimbursed to the Portfolio or waived by ISI
pursuant to that Portfolio's expense limitation.
PORTFOLIO MANAGERS:
The C.A.S.E. Portfolio is managed by a team of investors called the Portfolio
Management Committee. William Edward Lange serves as the head portfolio manager
to the Portfolio Management Committee. Mr. Lange has been President of C.A.S.E.
since 1984.
ADMINISTRATOR
IMI has entered into separate Administrative Services Agreements
("Administrative Agreements") pursuant to which ISI serves as administrator to
the Growth, Global, Flexible Income, Balanced and Capital Appreciation
Portfolios.
Under these 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 record keeping.
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 SAI.
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DISTRIBUTOR AND DISTRIBUTION AND SERVICE PLANS
UNDERWRITING AGREEMENTS
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 is compensated by each Portfolio for services as distributor and principal
underwriter for Class A, Class B and Class C shares of each Portfolio, and Class
T shares of the Growth Portfolio.
DISTRIBUTION PLANS
ISI may use the fees payable under these plans as it deems appropriate to pay
for activities or expenses primarily intended to result in the sale of the
respective share classes or in personal service to and/or maintenance of
shareholder accounts of the respective share classes. Expense categories may
include, but are not limited to: compensation to employees of ISI; compensation
to and expenses of ISI, dealers or other financial institutions who sell shares
or 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. Payments made under the plans may
exceed distribution expenses actually incurred.
Of the distribution and service fees received by ISI for Class A and Class B
shares, ISI currently reallows an annual amount of 0.25% of the average daily
net assets of that Portfolio's Class A or Class B shares to brokers or dealers
that have sold such 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. Class T shares of the Growth Portfolio are
not subject to annual distribution and service fees. However, as compensation
for the expenses borne by ISI and the distribution services provided, ISI
receives the sales charges imposed on Class T shares and reallows a portion of
such charges to brokers or dealers that have sold such Class T shares.
CLASS A SHARE DISTRIBUTION PLAN
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.
ISI may also receive annual distribution and service 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 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 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 0.35%, on an annualized basis, of the average
daily net assets of that Portfolio's Class A shares.
CLASS B SHARE DISTRIBUTION PLAN
Under its Plan of Distribution for Class B shares ("Class B 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 B
shares.
CLASS C SHARE DISTRIBUTION PLAN
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.
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MISCELLANEOUS INFORMATION
ORGANIZATION OF THE PORTFOLIOS
Each Portfolio is a series of IDEX 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 the Declaration of
Trust is on file with the Secretary of the Commonwealth of Massachusetts. On
September 20, 1996, the Fund changed its name from IDEX II Series Fund to IDEX
Series Fund. Before its organization as a series company, the Fund was called
IDEX II.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Fund. 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 IDEX believes is remote.
On September 20, 1996, in a tax free reorganization, IDEX Growth Portfolio
acquired all of the assets and assumed all of the liabilities of each of IDEX
Fund and IDEX Fund 3 in exchange for Class T shares of IDEX Growth Portfolio,
which were then distributed on a pro rata basis to the respective shareholders
of IDEX Fund and IDEX Fund 3.
CLASS A, CLASS B, CLASS C AND CLASS T SHARES
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 currently divided into three classes:
Class A, Class B, and Class C shares. In addition, the shares of beneficial
interest of IDEX Growth Portfolio only include a fourth class of shares,
designated Class T shares. Each class represents interests in the same assets of
the Portfolio. The classes differ as follows:
/BULLET/ 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.
/BULLET/ Class A shares are subject to an initial sales charge, or front-end
load. Class A shares which are not subject to an initial sales charge
because of the size of the purchase are subject to a deferred sales
charge if redeemed during the first year.
/BULLET/ Class B shares are subject to a contingent deferred sales charge, or
back-end load, at a declining rate.
/BULLET/ Class C shares are subject to higher ongoing distribution and service
fees than Class A shares, and lower ongoing distribution and service
fees than Class B shares.
Class T shares of the Growth Portfolio are subject to an initial front-end load,
but no annual distribution and service fees. Class T shares are not available to
new investors; only existing Class T shareholders (who were shareholders of IDEX
Fund or IDEX Fund 3 on September 20, 1996) may purchase additional Class T
shares.
Each class may bear differing amounts of certain class-specific expenses. Each
class has a separate exchange privilege. 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 three classes, dividends and liquidation
proceeds of Class B and Class C shares are expected to be lower than for Class A
shares of the same Portfolio, and with respect to the Growth Portfolio, lower
than for Class T shares.
Class B shares convert automatically into Class A shares of the same Portfolio
eight years after the end of the calendar month in which the shareholder's order
to purchase the share was accepted. The conversion is based on net asset value,
without any sales charge, fee or other charge. The purpose of this conversion is
to relieve the holders of the Class B shares from the higher service and
distribution fees imposed on those shares, after ISI has been substantially
compensated for distribution expenses by those fees.
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The Fund does not expect that there will be any conflicts between the interests
of holders of the different classes of shares of the same Portfolio because of
the class structure. The Board of Trustees will consider, if necessary, whether
any such conflict exists; if it does, the Board will take appropriate action to
resolve it.
DISTRIBUTION SCHEDULE
PORTFOLIO INCOME DISTRIBUTIONS CAPITAL GAIN DISTRIBUTIONS*
Aggressive Growth Annually Annually
Capital Appreciation Annually Annually
Global Annually Annually
Growth Annually Annually
C.A.S.E. Annually Annually
Equity-Income Quarterly Annually
Tactical Asset Allocation Quarterly Annually
Balanced Quarterly Annually
Flexible Income Monthly Annually
Income Plus Monthly Annually
Tax-Exempt Monthly Annually
* Capital gain distributions realized during each fiscal year, ending
September 30, normally will be declared and paid in the following fiscal
year. To avoid a 4% excise tax on undistributed amounts of ordinary income
and capital gains, as described in the SAI, a Portfolio may, to the extent
permitted by the SEC, pay additional distributions of capital gain in any
year and make additional dividend distributions.
PERSONAL SECURITIES TRADING
The Fund permits "Access Persons" as defined by Rule 17j-1 under the 1940 Act to
engage in personal securities transactions, subject to the terms of the Code of
Ethics and Insider Trading Policy ("the Policy") that has been adopted by the
Board of Trustees of the Fund. Access Persons must use the guidelines
established by this Policy for all personal securities transactions and are
subject to certain prohibitions on personal trading. The Fund's sub-advisers,
pursuant to Rule 17j-1 and other applicable laws, and pursuant to the terms of
the Policy, must adopt and enforce their own Code of Ethics and Insider Trading
Policies appropriate to their particular business needs. Each sub-adviser must
report to the Board of Trustees on a quarterly basis with respect to the
administration and enforcement of such Policy, including any violations thereof
which may potentially affect the Fund.
SHAREHOLDER MEETINGS
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.
THE 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.
THE CUSTODIAN
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, is custodian of the Fund's assets and serves as custodian for qualified
retirement plans and individual retirement plan accounts investing in the Fund.
However, all correspondence about a shareholder's account should be sent to
IDEX.
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SHAREHOLDER INQUIRIES
Inquiries by shareholders about a Portfolio or the Fund or requests for forms
for opening or changing accounts or plans should be made by writing IDEX at P.O.
Box 9015, Clearwater, Florida 34618-9015 or calling IDEX Customer Service at
(800) 851-9777.
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, the Fund will send only one copy of certain mailings to a shareholder who
has more than one account (each with the same taxpayer ID number). Further, two
or more shareholders may elect to receive a consolidated statement and only one
copy of certain mailings for their accounts so long as they share the same
surname and address. Select this option on the New Account Application or by
written request to IDEX Customer Service.
Additional copies of shareholder reports and prospectuses may be obtained by
calling IDEX Customer Service.
DISTRIBUTIONS AND TAXES
This section discusses how and when the Portfolios make distributions to you
from their net earnings and profits, and some of your tax responsibilities
related to such distributions.
INCOME AND CAPITAL GAINS DISTRIBUTIONS
The Portfolios pay two kinds of distributions. Ordinary income distributions are
made from fund earnings from interest paid on taxable bonds, dividends paid on
stocks, and other kinds of securities income. Capital gains distributions are
made from gains realized when securities owned by a Portfolio for more than one
year are sold at an amount greater than their cost. Short-term capital gain
distributions (related to securities sold which have been owned one year or
less) are ordinary income, not capital gain, to shareholders.
NOTE: A Portfolio may also realize capital losses.
Income distributions are made at intervals throughout the year, depending on
which Portfolio you own (see the chart above). Capital gains distributions are
generally made once a year.
Dividends and other distributions paid by a Portfolio with respect to its Class
A, Class B, and Class C shares, and dividends and other distributions paid by
the Growth Portfolio with respect to its Class T shares, are calculated in the
same manner and declared and paid at the same time. For a complete discussion of
Class A, Class B, Class C and Class T share values and expenses, see Shareholder
Information and Instructions.
If you buy shares in a non-retirement account on or shortly before the record
date for a dividend or other taxable distribution, you will pay full price for
the shares, then receive some portion of what you paid as a taxable
distribution.
HOW YOU RECEIVE YOUR DISTRIBUTIONS
The Portfolios will automatically reinvest your dividend and capital gain
distributions in additional portfolio shares of the same class you already own,
unless you specify another payment method. See Shareholder Information and
Instructions for complete information about how to receive your distributions.
Requested cash distributions will be paid by direct deposit (via Automated
Clearing House electronic funds transfer ("ACH")), or by check, whichever you
choose on your New Account Application. Dividend checks are usually mailed,
along with a confirmation, on the payable date. The dividend checks will be made
out to the shareholder of record and sent to the address of record. You may
request a different payee or address on the New Account Application. To do so on
an existing account, send a signature guaranteed request to IDEX.
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Any checks which cannot be delivered and are returned to IDEX will be reinvested
in full or fractional shares in your account at the net asset value next
computed after the check has been received by IDEX. 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
IDEX. Cash distributions that total less than $5.00 will be reinvested into the
account.
The Flexible Income, Tax-Exempt and Income Plus Portfolios pay income
distributions monthly. If you own shares of one or more of these portfolios, and
you choose to have your dividends reinvested, this reinvestment will take place
every month. However, you will receive statements of these transactions each
quarter.
Shareholders may obtain further information or change their dividend or
distribution options any time before the record date of any dividend or
distribution by calling IDEX Customer Service at (800) 851-9777 or writing to
IDEX, P.O. Box 9015, Clearwater, FL 34618-9015.
TAX INFORMATION
Each Portfolio is treated as a separate entity for federal tax purposes. Each
Portfolio is a regulated investment company, as defined by Subchapter M of the
Internal Revenue Code of 1986 (the "Code"), as amended.
For each fiscal period, if a Portfolio meets certain requirements of the Code,
the Portfolio does not pay taxes on net income realized from investment
operations to the extent earnings and profits are distributed to shareholders.
Shareholders are responsible for any taxes related to distributions. (See The
Tax-Exempt Portfolio -- Special Considerations, below, for discussion of
tax-exempt distributions; see the SAI for a complete discussion of a mutual fund
as a regulated investment company.)
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 the first year, and the Portfolio will be treated
as having paid the distribution on that date.
"TAXABLE EVENTS" -- WHEN AND HOW YOU OWE TAX
RELATED TO YOUR PORTFOLIO INVESTMENT
SELLING OR EXCHANGING SHARES. When you sell shares, whether you take cash or
exchange the shares for shares in another Portfolio or Fund, it is a "taxable
event." For non-retirement plan accounts, you will owe tax if you realize a
taxable gain on the sale or exchange. On the other hand, if you realize a loss
based on your tax basis in the shares, you may be able to offset that capital
loss against capital gain income you have. If there were any capital gains
distributions on the shares, the loss that is allowed will be treated as a
long-term capital loss, to the extent of the capital gains distributions.
For tax purposes, the cost of a Class A or Class T share is generally the
per-share price you paid for your shares (which may include sales charges); the
cost of a Class B or Class C share is the per-share NAV. The reorganization of
IDEX Fund and IDEX Fund 3 into the IDEX Growth Portfolio on September 20, 1996,
was not a taxable event. As such, the former shareholders of IDEX Fund and IDEX
Fund 3 who received Class T shares of IDEX Growth Portfolio as a result of the
reorganization obtained a carryover basis and carryover holding period in their
Class T shares. As a general rule, your gain or loss on a sale or exchange 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.
Under current tax law, individuals are subject to a maximum federal tax rate of
28% on net capital gain.
For most accounts (other than retirement plan accounts which will receive Form
1099-R), IDEX will provide you with your "cost basis" when you sell shares. This
cost basis figure is important. It is figured on the single category average
cost method, and will allow you to determine whether you have gained or lost on
your sale.
You are not required to use this method; in fact, if you have previously sold
shares in a Portfolio and did not use this method to report gain or loss, it is
not available to you for sales of shares in that Portfolio. To determine which
method is most suitable for you, please consult your tax adviser.
NOTE: Please keep all regular account statements to use in conjunction with
average cost information (if received) in order to determine tax gain or
loss on the sale of Portfolio shares.
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INCOME TAX OWED ON INCOME DISTRIBUTIONS. Ordinary income distributions from all
Portfolios, whether received in cash or reinvested, are subject to ordinary
income tax rates. See the Tax-Exempt Portfolio - Special Considerations, below.
INCOME TAX OWED ON CAPITAL GAIN DISTRIBUTIONS. As explained above, the
Portfolios generally distribute net realized capital gains, to the extent
available, to shareholders once a year. These capital gains distributions,
whether paid in cash or reinvested, are subject to the maximum capital gains tax
rate of 28% -- the same tax rate as if you sell shares and realize a gain. If
you sell shares in a Portfolio, then buy shares again under the reinvestment
privilege described in Shareholder Information and Instructions, the cost of
shares sold may need to be reduced related to any front-end sales charges you
may have initially paid. See the SAI and consult your tax adviser about these
rules, as well as wash sale provisions of the Internal Revenue Code.
THE TAX-EXEMPT PORTFOLIO --
SPECIAL CONSIDERATIONS
The Tax-Exempt Portfolio intends to continue to qualify to pay "exempt-interest"
dividends. These are distributions from the Portfolio's investment income
attributable to interest on municipal obligations. Exempt-interest dividends are
generally excluded from the calculation of the gross income of recipients for
federal income tax purposes.
The Tax-Exempt Portfolio's principal business is tax-exempt investing. However,
some of its investments or activities may result in taxable income to its
shareholders, or other tax consequences. Possible tax effects include:
ALTERNATIVE MINIMUM TAX. Some securities held by the Tax-Exempt Portfolio may
pay interest which is a tax preference item for purposes of computing the
federal alternative minimum tax for both individuals and corporations. For a
complete discussion of the alternative minimum tax, see the SAI.
TAXABLE INCOME DIVIDENDS. Some securities held by the Tax-Exempt Portfolio may
pay interest that is taxable as ordinary income.
CAPITAL GAINS. Any capital gains distributions from the Tax-Exempt Portfolio are
taxable as capital gains.
SOCIAL SECURITY AND RAILROAD RETIREMENT BENEFITS. Exempt-interest dividends from
the Tax-Exempt Portfolio are included in the calculation of total income for
recipients of Social Security or railroad retirement benefits. As a result,
although the exempt-interest dividends from the Portfolio are still tax-exempt,
they may be figured into the calculation of how much of a recipient's Social
Security or railroad retirement income is taxed.
CAPITAL LOSS ALLOWANCE. If shares of a Portfolio that earned exempt-interest
dividends are redeemed at a loss after being held for six months or less, part
of the loss will be disallowed for income tax purposes, to the extent of
exempt-interest dividends that were earned on the shares. It is anticipated that
this situation could only occur for shareholders in the Tax-Exempt Portfolio.
SOME STATE TAX EXEMPTIONS
In some states, shareholders are not subject to state taxation on distributions
made by a registered investment company that were derived from interest on or
portions of their account value attributed to direct or indirect obligations of
the U.S. government. This exemption generally does not apply to dividends
derived from interest on obligations issued by agencies or instrumentalities of
the U.S. government, or interest earned on repurchase obligations secured by
such obligations or direct obligations of the U.S. government. See Securities in
Which the Portfolios Invest for an explanation of these securities and
transactions.
Since state and local tax rules vary, please consult your tax adviser.
TAX STATEMENTS
Tax forms related to dividends and other distributions paid by a Portfolio are
mailed annually. For most types of accounts, IDEX will report the proceeds of
redemptions to shareholders and the Internal Revenue Service ("IRS") annually.
Average cost basis information on non-retirement plan account redemptions is not
currently reported to the IRS.
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TAX WITHHOLDING
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 gains 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 income distributions and capital gain distributions also is
required for shareholders who otherwise are subject to backup withholding
according to the IRS.
NOTE: The foregoing is only a general summary of some of the important federal
tax considerations under current law generally affecting each Portfolio and its
shareholders; see the SAI 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.
SHAREHOLDER INFORMATION AND INSTRUCTIONS
This section discusses buying, selling, and exchanging shares of a Portfolio;
sales charges and possible waivers and discounts; and general shareholder
account information.
If you need help or additional forms, call IDEX Customer Service at (800)
851-9777 M-F, 8 a.m-7 p.m. ET, or contact your representative.
HOW TO BUY SHARES
1. OPEN AN ACCOUNT
Fill out the New Account Application form included with this prospectus and send
it to IDEX. IRAs and other retirement accounts require a different application.
To open an IRA, call or write your registered representative or IDEX for an IRA
application. If you already have an account in an IDEX Portfolio, you may open
an account in another IDEX Portfolio with the same account features by calling
or writing to IDEX.
NOTE: You must include your Social Security or other Taxpayer Identification
Number with your application, or your account may be subject to backup
withholding or to involuntary termination.
The Fund reserves the right to reject any purchase.
2. CHOOSE A, B, OR C SHARES
For a complete discussion of A, B, and C shares, and help in understanding which
choice may be best for you, see Which Class of Shares Should You Buy? below. Be
sure to specify which Class of shares you want to buy.
NOTE: Class T shares of the Growth Portfolio are not available to new investors;
only existing Class T shareholders (who were shareholders of IDEX Fund or IDEX
Fund 3 on September 20, 1996) may purchase additional Class T shares.
3. PAY FOR YOUR SHARES
You may buy shares in the following ways:
/BULLET/ By check, by mail
45
<PAGE>
Make your check payable to IDEX Mutual Funds and send it to
IDEX INVESTOR SERVICES, INC.
P.O. BOX 9015
CLEARWATER, FL 34618-9015 or
201 HIGHLAND AVENUE
LARGO, FL 33770-2597.
/BULLET/ By automatic investment plan
With an automatic investment plan, you choose to invest a regular dollar amount,
and have that amount deducted from a bank account on any day between the 3rd and
28th day of each month. Your moneys will be transferred via ACH. To set up,
change or discontinue an automatic investment plan, call or write IDEX Customer
Service.
/BULLET/ By telephone
Telephone purchases may be set up by calling or writing IDEX Customer Service,
or you may select telephone purchases on your New Account Application. Funds to
pay for telephone orders will be transferred electronically from your bank
account via ACH. See also Other Information, Telephone Transactions.
/BULLET/ Through authorized dealers.
Orders of at least $1,000 ("confirmed purchases") may be issued through
authorized dealers. If you open a new account through a dealer, the dealer is
responsible for opening your account and providing your taxpayer ID number. If
you already have an IDEX account, no additional documentation is needed. Dealers
may pay for share orders with Federal funds bank wires by instructing their
banks to wire Federal funds as follows:
NATIONSBANK OF FLORIDA, N.A.
TAMPA, FLORIDA
ABA #063100277
DDA #3601194554
ATTN: IDEX INVESTOR SERVICES, INC.
CONFIRMED PURCHASE ORDER NUMBER(S)
SHAREHOLDER'S ACCOUNT NAME(S)
The dealer's bank may charge for a wire transfer. IDEX currently does not charge
for this service.
The Fund generally will not accept initial purchases for less than $500 worth of
shares (including the sales charge in the case of Class A shares). Purchases
through certain plans for regular investment, like the automatic investment plan
described above, do not require a minimum initial investment. If you already own
Portfolio shares and are buying more, the minimum purchase amount is usually
$50.
Purchases of shares generally must be "settled" (payment received by the Fund
and shares credited to your account) within three business days from when the
Fund gets your purchase order. Therefore, the Fund must receive your payment
within that time.
PER-SHARE PUBLIC OFFERING PRICE AND NET ASSET VALUE
Public offering price and net asset value ("NAV") per share usually refer to the
purchase price and value of one share of a class of a Portfolio, Class A, Class
B, Class C, or Class T respectively. The public offering price of a Class A or
Class T share is its per share NAV plus the sales charge. With Class B or Class
C shares, there are no up-front sales charges, so the public offering price is
simply the NAV.
Net assets of an entire Portfolio are determined by adding the value of all
securities, receivables and other assets of the Portfolio, and subtracting
liabilities. However, for purposes of shareholder communication, public offering
price and NAV per share usually refer to the purchase price and value of one
share of one class of a Portfolio, respectively.
46
<PAGE>
The number of shares that you buy is determined by the next NAV per share
calculated after IDEX receives and accepts your order to purchase shares. NAV is
determined separately for each class of shares of a Portfolio. Example: If you
buy $1,000 worth of Class B shares of a Portfolio, and the Portfolio's Class B
per-share NAV is $10, you will receive 100 Class B shares of that Portfolio.
The NAV per share of each class of a Portfolio is determined by the Fund's
custodian on each day that the New York Stock Exchange (the "Exchange") is open,
as of the close of the regular session of business on the Exchange. The Exchange
currently closes at 4:00 p.m. Eastern time each day it is open.
Per share NAV for each share class is determined by dividing the net assets
allocable to that share class by the total number of shares outstanding of that
class.
In determining total net assets and thus, NAV per share, 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 NAVs
and dividends for each class. The NAV of Class B and Class C shares will
generally be lower than the Class A share NAV of a given Portfolio, or Class T
shares of the Growth Portfolio, because Class B and Class C shares carry higher
expenses.
CLASS A SHARES: SALES CHARGES, AVAILABLE DISCOUNTS
AND DEALER REALLOWANCES
When you buy Class A shares, you generally pay an up-front sales charge. When
you buy Class A shares you also pay service and distribution fees up to 0.35%
per year throughout your investment. You can reduce the up-front sales charge
percentage in four ways:
/BULLET/ By investing larger amounts;
/BULLET/ By investing under a "right of accumulation," which credits your
account for shares you already own in various IDEX Portfolios and helps
you earn discounts on new investments;
/BULLET/ By filing a "letter of intention" to buy enough shares within a 13
month period to qualify for a reduced sales charge; or
/BULLET/ By investing as part of a qualified group.
You generally pay no sales charge upon redemption of Class A shares. However, if
you pay no up-front sales charge because you are purchasing $1 million or more
of Class A shares, you will pay a deferred sales charge of 1% if you redeem any
of those shares within the first 12 months after buying them. The charge is
assessed on an amount equal to the lesser of the then current market value or
the original cost of the shares being redeemed. No sales charge is imposed on
increases in net asset value above the initial purchase price.
WHAT IS A "DEALER REALLOWANCE"?
IDEX sells shares of its Portfolios both directly and through authorized dealers
in the United States and its territories. Your Portfolio receives the entire NAV
of shares sold. ISI retains the sales charge, then reallows uniform discounts
from the applicable public offering price to all of its dealers -- this is how
dealers are compensated.
From time to time, ISI will create special promotions with dealers, in which
dealers earn larger reallowances in return for selling significant amounts of
shares or in return for certain training services. Sometimes, these dealers may
earn virtually the entire sales charge; at those times, they may be deemed
underwriters as described in the Securities Act of 1933.
Promotions may also involve non-cash incentives such as prizes or merchandise.
Non-cash compensation may also be in the form of attendance at seminars
conducted by ISI, including lodging and travel expenses.
Reallowances may also be given to banks or other financial institutions to
compensate them for their services in connection with Class A share sales and
servicing of shareholder accounts.
ISI may also pay dealers, banks or other institutions from its own funds for
administrative services in connection with larger accounts.
47
<PAGE>
DISCOUNTS THROUGH A RIGHT OF ACCUMULATION
If you already own Class A shares of certain IDEX Portfolios, or Class T shares
of the Growth Portfolio, you may be able to get a sales charge discount when you
buy new shares of Portfolios described in this Prospectus. The value of the
shares you already own may be "accumulated" --i.e., counted together with the
value of the new shares you plan to buy -- to achieve quantities eligible for
discount. Ask you sales representative for information, or call IDEX Customer
Service.
DISCOUNTS THROUGH A LETTER OF INTENTION
You may also earn a sales charge discount on Class A shares or Class T shares of
the Growth Portfolio by making a written commitment to invest, within a 13-month
period, an amount which qualifies for discount. This written commitment, called
a Letter of Intention ("LOI"), is not a binding legal obligation.
Shares purchased under the terms of an LOI will be sold at the public offering
price -- NAV plus discounted sales charge -- which applies to the total value of
the shares you commit to buy during the period of the LOI. During this period,
your share purchases are subject to the following rules:
/BULLET/ The first 5% of the amount that you agree to invest will be placed in
escrow until the LOI is fulfilled or 13 months has expired.
/BULLET/ Future changes in quantity discounts (breakpoints) will apply to
purchases under the LOI.
/BULLET/ Sales charge adjustments will be made if you actually buy more or less
than you commit to buy during the period of your LOI.
/BULLET/ Shares bought up to 90 days before an LOI may be included in your LOI.
The LOI, however, will start on the day of the first purchase that is
included under the LOI.
/BULLET/ Right of accumulation can apply to an LOI. That is, the current value
of all previous purchases into Class A shares that paid a sales charge
can be counted towards fulfillment of the LOI, but the sales charges on
these previous purchases will not be adjusted.
/BULLET/ Each LOI investment must be at least 5% of the total commitment.
/BULLET/ Dividends and capital gains must be reinvested in additional shares. No
cash distributions are allowed under an LOI.
You may elect to invest under an LOI on your New Account Application. For more
information about an LOI, consult your registered representative or call IDEX
Customer Service at (800) 851-9777.
DISCOUNTS AS A QUALIFIED GROUP
Members of a qualified group may purchase Class A shares at a reduced sales
charge applicable to the group within a specified period. IDEX takes into
account the anticipated aggregate amount of purchases by the group of Class A
shares and Class T shares of the Growth Portfolio. 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 and (iii)
satisfies uniform criteria that allows IDEX and other dealers offering Portfolio
shares to realize economies of scale. Pension or other employee benefit plan
participants may qualify for group purchases. The Fund reserves the right to
modify or terminate this privilege at any time. For information about qualifying
groups, call IDEX Customer Service.
WAIVER OF CLASS A SHARE SALES CHARGES FOR CERTAIN INDIVIDUALS
Class A shares of a Portfolio may be sold without sales charges to:
/BULLET/ 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, Dean
Investment, C.A.S.E., or any of their affiliates;
/BULLET/ Directors, officers, full-time employees and sales representatives of
any dealer having a sales agreement with ISI;
48
<PAGE>
/BULLET/ Any trust, pension, profit-sharing or other benefit plan for any of the
foregoing persons;
/BULLET/ Any members of the family of any of the foregoing persons; or
/BULLET/ "Wrap" accounts for the benefit of clients of certain broker-dealers,
financial institutions or financial planners, who have entered into
arrangements with the Fund or ISI.
Persons eligible to buy Class A shares at NAV may not impose a sales charge when
they re-sell those shares.
<TABLE>
<CAPTION>
CLASS A SHARE QUANTITY DISCOUNTS
AGGRESSIVE GROWTH PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
GLOBAL PORTFOLIO
GROWTH PORTFOLIO
C.A.S.E. PORTFOLIO
EQUITY-INCOME PORTFOLIO
TACTICAL ASSET ALLOCATION PORTFOLIO
BALANCED PORTFOLIO
SALES CHARGE REALLOWANCE SALES CHARGE
AS % OF TO DEALERS AS A % AS % OF
AMOUNT OF PURCHASE OFFERING PRICE OF OFFERING PRICE AMOUNT INVESTED
<S> <C> <C> <C>
Less than $50,000 5.50% 4.75% 5.82%
$50,000 but less than $100,000 4.75% 4.00% 4.99%
$100,000 but less than $250,000 3.50% 2.75% 3.63%
$250,000 but less than $500,000 2.75% 2.25% 2.83%
$500,000 but less than $1,000,000 2.00% 1.75% 2.04%
$1,000,000 or more 0.00% 1.00%* 0.00%
<FN>
* This amount is not a charge incurred by shareholders. ISI, at its own
expense, may make the following payments in accordance with its procedures
as may be in effect from time to time: 1.00% of the net asset value of
shares sold in amounts of $1,000,000 but less than $2,500,000; .75% of the
net asset value of shares sold in amounts of $2,500,000 but less than
$4,000,000; .50% of the net asset value of shares sold in amounts of
$4,000,000 but less than $5,000,000; and .25% of the net asset value of
shares sold in amounts of $5,000,000 or more. The privilege of purchasing
Class A shares at net asset value in amounts of $1,000,000 or more is not
available if another net asset value purchase privilege is also applicable.
</FN>
NOTE: If you redeem Class A shares on which no up-front sales charge was imposed
because you invested $1 million or more during the first 12 months after buying
them, you will pay a deferred sales charge equal to 1%. You do not pay any
deferred sales charge when you redeem any Class A shares if you paid an up-front
sales charge on those shares, regardless of how long you have owned them.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARE QUANTITY DISCOUNTS
FLEXIBLE INCOME PORTFOLIO
INCOME PLUS PORTFOLIO
TAX-EXEMPT PORTFOLIO
SALES CHARGE REALLOWANCE SALES CHARGE
AS % OF TO DEALERS AS A % AS % OF
AMOUNT OF PURCHASE OFFERING PRICE OF OFFERING PRICE AMOUNT INVESTED
<S> <C> <C> <C>
Less than $50,000 4.75% 4.00% 4.99%
$50,000 but less than $100,000 4.00% 3.25% 4.17%
$100,000 but less than $250,000 3.50% 2.75% 3.63%
$250,000 but less than $500,000 2.25% 1.75% 2.30%
$500,000 but less than $1,000,000 1.25% 1.00% 1.27%
$1,000,000 or more 0.00% 0.50%* 0.00%
<FN>
* This amount is not a charge incurred by shareholders. ISI, at its own
expense, may make the following payments in accordance with its procedures
as may be in effect from time to time: .50% of the net asset value of
shares sold in amounts of $1,000,000 but less than $2,500,000; .35% of the
net asset value of shares sold in amounts of $2,500,000 but less than
$4,000,000; .20% of the net asset value of shares sold in amounts of
$4,000,000 but less than $5,000,000; and .15% of the net asset value of
shares sold in amounts of $5,000,000 or more. The privilege of purchasing
Class A shares at net asset value in amounts of $1,000,000 or more is not
available if another net asset value purchase privilege is also applicable.
</FN>
NOTE: If you redeem Class A shares on which no up-front sales charge was imposed
because you invested $1 million or more during the first 12 months after buying
them, you will pay a deferred sales charge equal to 1%. You do not pay any
deferred sales charge when you redeem any Class A shares if you paid an up-front
sales charge on those shares, regardless of how long you have owned them.
</TABLE>
CLASS B SHARES: SALES CHARGES, DEALER REALLOWANCES AND POSSIBLE WAIVERS
When you buy Class B shares, you pay no up-front sales charge. You pay service
and distribution fees up to 1.00% per year throughout your investment. When you
redeem your shares, you may incur a sales charge. This charge decreases year by
year.
The amount subject to sales charge is determined as follows:
/BULLET/ Distributions (both dividends and capital gains) are not subject to the
sales charge;
/BULLET/ No sales charge is imposed on any increase in value of your shares;
/BULLET/ Shares acquired by reinvesting distributions are not subject to the
sales charge;
/BULLET/ If your shares are worth less than when you bought them, the charge
will be assessed on their current (or lower) value;
/BULLET/ When you issue a redemption order for Class B shares, IDEX always sells
the longest-held shares first, then the next-longest held, and so
forth, until your redemption request is fulfilled.
For the purpose of calculating the contingent deferred sales charge, your
holding period for Class B shares always begins on the first day of the first
month after you pay for them.
Class B shares may not be purchased in individual amounts of more than $500,000.
In addition to the reallowances at the time of sale, dealers begin to earn an
annual service fee of up to 0.25% of average daily net assets on Class B shares
in the thirteenth month after their sale.
50
<PAGE>
SALES CHARGE WAIVERS ON CLASS B SHARES
The sales charge on Class B shares may be waived in certain circumstances:
/BULLET/ Following the death of the shareholder;
/BULLET/ Following the total disability of the shareholder, as determined by the
Social Security Administration. The waiver applies only to shares held
at the time of the determination of the disability;
/BULLET/ On redemptions made under provisions of the Fund's systematic
withdrawal plan, but limited to 12% annually of the value of the
account on the date the systematic withdrawal plan is established; or
/BULLET/ After selling Class B shares of one Portfolio, if you decide to
reinvest those proceeds within 90 days in Class B shares of another
Portfolio, the sales charge on your initial redemption will be waived.
See the SAI for complete information about Class B share sales charge waivers.
CLASS B SHARES
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE*
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth and Sixth 1%
Seventh and Later 0%
*The charge is assessed on an amount equal to the lesser of the then current
market value or the original cost of the shares being redeemed. No sales charge
is imposed on increases in net asset value above the initial purchase price.
CLASS B SHARES DEALER REALLOWANCES
Growth Portfolio, Global Portfolio, Balanced Portfolio, Capital Appreciation
Portfolio, Aggressive Growth Portfolio, Equity-Income Portfolio, Tactical Asset
Allocation Portfolio, C.A.S.E. Portfolio
AMOUNT OF CLASS B SHARES PURCHASED DEALER REALLOWANCE %
Up to $250,000 4.00%
$250,000 to $500,000 2.50%
Flexible Income Portfolio, Tax-Exempt Portfolio, Income Plus Portfolio
AMOUNT OF CLASS B SHARES PURCHASED DEALER REALLOWANCE %
Up to $250,000 3.00%
$250,000 to $500,000 2.00%
NOTE: Class B shares are not sold in amounts over $500,000.
51
<PAGE>
CLASS C SHARES: SALES CHARGES AND DEALER REALLOWANCES
When you buy Class C shares, you pay no up-front sales charge. Throughout your
investment, you will be charged service and distribution fees of up to 0.90% per
year.
The Tax-Exempt Portfolio intends to limit these fees to no more than 0.60% of
average daily net assets of its Class C shares.
ISI currently pays dealers for sales of Class C shares a distribution fee not to
exceed 0.90% per year of average daily net assets of Class C shares sold by that
dealer.
NOTE: The purpose and function of the contingent deferred sales charge on Class
B shares, and of the annual service and distribution fees on Class B and Class C
shares, are the same as the purpose and function of the up-front commission and
annual service and distribution fees on Class A shares and on Class T shares of
the Growth Portfolio.
CLASS T SHARES: SALES CHARGES AND AVAILABLE DISCOUNTS
Class T shares are not available to new investors; only existing Class T
shareholders (former IDEX Fund and IDEX Fund 3 shareholders) may buy Class T
shares of the Growth Portfolio. Class T shares are not subject to annual service
and distribution fees. When you buy Class T shares of the Growth Portfolio, you
generally pay an up-front sales charge. You can reduce the up-front sales charge
percentage in the following four ways, which are described in more detail under
Class A Shares: Sales Charges, Available Discounts and Dealer Reallowances.
/BULLET/ By investing larger amounts;
/BULLET/ By investing under a "right of accumulation," which credits your
account for shares you already own in various IDEX Portfolios and helps
you earn discounts on new investments;
/BULLET/ By filing a "letter of intention" to buy enough shares within a 13
month period to qualify for a reduced sales charge; or
/BULLET/ By investing as part of a qualified group.
You generally pay no sales charge upon redemption of Class T shares. However, if
you pay no up-front sales charge because you are purchasing $1 million or more
of Class T shares, you will pay a deferred sales charge of 1% if you redeem any
of those shares within the first 12 months after buying them, unless they were
purchased pursuant to a qualified retirement plan. The charge is assessed on an
amount equal to the lesser of the then current market value or the original cost
of the shares being redeemed. No sales charge is imposed on increases in net
asset value above the initial purchase price.
WAIVER OF CLASS T SHARE SALES CHARGES FOR CERTAIN INDIVIDUALS
Class T shares of a Portfolio may be sold without sales charges to:
/BULLET/ 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, Dean
Investment, C.A.S.E., or any of their affiliates;
/BULLET/ Directors, officers, full-time employees and sales representatives of
any dealer having a sales agreement with ISI;
/BULLET/ Any trust, pension, profit-sharing or other benefit plan for any of the
foregoing persons;
/BULLET/ Any members of the family of any of the foregoing persons; or
/BULLET/ "Wrap" accounts for the benefit of clients of certain broker-dealers,
financial institutions or financial planners, who have entered into
arrangements with the Fund or ISI.
Persons eligible to buy Class T shares at NAV may not impose a sales charge when
they re-sell those shares.
52
<PAGE>
<TABLE>
<CAPTION>
CLASS T SHARE QUANTITY DISCOUNTS
GROWTH PORTFOLIO
SALES CHARGE REALLOWANCE SALES CHARGE
AS % OF TO DEALERS AS A % AS % OF
AMOUNT OF PURCHASE OFFERING PRICE OF OFFERING PRICE AMOUNT INVESTED
<S> <C> <C> <C>
Less than $10,000 8.50% 7.00% 9.29%
$10,000 but less than $25,000 7.75% 6.25% 8.40%
$25,000 but less than $50,000 6.25% 5.50% 6.67%
$50,000 but less than $75,000 5.75% 5.00% 6.10%
$75,000 but less than $100,000 5.00% 4.25% 5.26%
$100,000 but less than $250,000 4.25% 3.75% 4.44%
$250,000 but less than $500,000 3.00% 2.50% 3.10%
$500,000 but less than $1,000,000 1.25% 1.00% 1.27%
$1,000,000 or more 0.00% 1.00%* 0.00%
<FN>
* This amount is not a charge incurred by shareholders. ISI, at its own
expense, may make the following payments in accordance with its procedures
as may be in effect from time to time: 1.00% of the net asset value of
shares sold in amounts of $1,000,000 but less than $2,500,000; .75% of the
net asset value of shares sold in amounts of $2,500,000 but less than
$4,000,000; .50% of the net asset value of shares sold in amounts of
$4,000,000 but less than $5,000,000; and .25% of the net asset value of
shares sold in amounts of $5,000,000 or more. The privilege of purchasing
Class T shares at net asset value in amounts of $1,000,000 or more is not
available if another net asset value purchase privilege is also applicable.
</FN>
</TABLE>
WHICH CLASS OF SHARES SHOULD YOU BUY?
Class A, Class B, Class C and Class T share commissions, dealer reallowances,
discounts, and possible waivers have been explained in the sections above. Only
existing Class T shareholders (former IDEX Fund and IDEX Fund 3 shareholders)
may purchase Class T shares of the Growth Portfolio.
Please consult with your registered representative to decide which class of
shares is appropriate for you. Which class makes the most sense for you will
depend upon your particular circumstances and investment goals. The Fund
provides these classes of shares with differing charges so that you can choose
what makes sense in your situation. Some things you should think about:
/BULLET/ How much you intend to invest. For example, Class A and Class T shares
have an initial shares charge, but if you invest more you may get a
lower percentage sales charge or no sales charge at all on Class A or
Class T shares.
/BULLET/ How long you intend to keep shares. Class B shares charge a sales load
upon redemption during the first six years, but the amount declines
each year and goes to zero if you keep your shares more than six years.
However, Class A or Class T shares on which you pay an up-front sales
charge and Class C shares (that do not have any up-front sales charges)
are not subject to any sales charges when you redeem.
/BULLET/ Whether you think you will keep your shares long enough that the higher
annual distribution and services fees paid by Class B or Class C shares
will add up to more than the up-front sales charge on Class A shares or
Class T shares of the Growth Portfolio, based on the amount you are
investing. Remember that if you hold Class B shares for eight years
they automatically become Class A shares (which have a lower annual
distribution and service fee than Class B or Class C shares of the
Fund), even though you do not pay any up-front sales charge. Class C
shares have lower service and distribution charges than Class B shares,
but Class C shares do not convert to Class A shares free of the sales
charge. Class T shares of the Growth Portfolio have a higher up-front
sales charge, but are not subject to annual service and distribution
fees.
53
<PAGE>
NOTE: For a hypothetical comparison of the expenses which you might incur with a
$1,000 investment in Class A, Class B, Class C or Class T shares, see Examples
of Expenses under Summary of Expenses.
Class A, Class B, Class C and Class T shares of a Portfolio represent interests
in the same portfolio of investments. They generally have the same rights.
However, each class of shares bears separate expenses for service and
distribution and other expenses pertaining to that class. Each class of shares
has separate voting rights on its distribution plan, or on any other matters
involving only that class.
Dividends and other distributions are calculated in a similar fashion and paid
at the same time for each class of shares. The per share dividends from net
investment income on Class B and Class C shares are expected to be lower than
those from Class A or Class T shares because of Class B and Class C shares'
higher expenses.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
<S> <C> <C> <C> <C>
Up-front sales charge Yes No No Yes
Higher ongoing service and distribution fees No Yes Yes No
Sales charge on redemption No** Yes* No No**
Quantity sales charge discounts available Yes No No Yes
<FN>
* The redemption charge on Class B shares declines year by year and reaches
0% after six years. After eight years, Class B shares convert to A shares
which are subject to lower ongoing fees.
** A 1% deferred sales charge will be applied to any redemption within 12
months of a $1 million purchase on which no up-front sales charge was
imposed.
</FN>
</TABLE>
HOW TO REDEEM (SELL) SHARES
GENERAL INFORMATION. You may redeem (sell) your shares at any time at the next
determined NAV after IDEX receives your redemption request. For information
about how NAV is determined, see Per-Share Public Offering Price and Net Asset
Value under How to Buy Shares.
IDEX will normally pay you for your shares within three days of receiving a
valid redemption request. However, if you have purchased the shares by check or
ACH, IDEX must first be sure your payment has cleared. It will, therefore, not
pay for redemptions of this kind until such purchase(s) has cleared the bank,
which may take up to 15 days.
Your check will be sent by first-class mail. You can pay $20 (by check or
deduction from your account) for overnight delivery, if you wish, and if the
service is available to your account address.
Redemption and repurchase of shares may be suspended or payment postponed during
any period when the Exchange is closed (other then on weekends or customary
holidays) or trading on the Exchanges is restricted, or during a period of an
emergency or other periods during which the SEC permits such suspension.
This section describes selling shares for cash. For other circumstances, see
Redemption of Shares in the SAI.
As described under How to Buy Shares, Class B and certain Class A share sales
will be charged the appropriate contingent deferred sales charge applicable to
certain redemptions.
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TO REDEEM SHARES BY MAIL. Send your redemption request to:
IDEX INVESTOR SERVICES, INC.
ATTENTION: REDEMPTIONS
P.O. BOX 9015
CLEARWATER, FL 34618-9015.
Your redemption request must be signed by the owner(s) of the account, or by a
person authorized to act for the owner(s).
/BULLET/ Include the name of the Portfolio, the class of shares, the number of
shares or dollar amount of shares to be sold, the account number, and
the name(s) on the account.
/BULLET/ If you have previously requested share certificates, they must be
returned if you wish to redeem these shares.
/BULLET/ Your signature may have to be guaranteed. See Signature Guarantees
below.
Evidence of the authority of the person seeking a redemption is required for all
redemptions of shares held in the name of a corporation, a partnership, trust or
fiduciary.
SIGNATURE GUARANTEES. For your protection, a signature guarantee will be
required for the following transactions:
/BULLET/ redemption requests larger than $100,000 by check;
/BULLET/ redemption requests of any size made in an account where the
registration and/or address has been changed in the last 10 days;
/BULLET/ redemptions by check made payable to someone other than the name on the
account, and/or sent to an address other than the address of record;
/BULLET/ redemptions by Federal funds bank wire to a bank that is not
pre-designated on your account;
/BULLET/ certain requests to change the registered owners of an account; or
/BULLET/ to change certain arrangements in your systematic withdrawal plan or
cash dividend payment details.
This guarantee must be made by a national or state bank, a member firm or a
national stock exchange, or any other eligible guarantor as defined by the SEC.
Notarization is not an acceptable substitute. IDEX may require signature
guarantees for certain other circumstances from time to time.
TO REDEEM SHARES BY TELEPHONE AND RECEIVE YOUR MONEY BY CHECK. You may redeem
shares in amounts up to $50,000 by phone per day and receive your money by check
unless you have declined this privilege on the New Account Application. Call
(800) 851-9777 to order a phone redemption.
Telephone redemption with payment by check is not allowed:
/BULLET/ For shares purchased by check or ACH within the past 15 days;
/BULLET/ For retirement accounts (except IRAs, which will be subject to 10%
withholding);
/BULLET/ For shares represented by certificates;
/BULLET/ In amounts of $50,000 and over; or
/BULLET/ In accounts where the registration and/or address has been changed
within the past 10 days.
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<PAGE>
If the account is held in more than one name, IDEX may accept the telephone sale
order of any one account holder. Your registered representative may redeem
shares on your behalf by telephone unless you have declined this privilege on
your New Account Application.
The Fund reserves the right to alter or modify the telephone redemption
privilege. See Other Information -- Telephone Transactions for further
information.
TO REDEEM SHARES BY TELEPHONE AND RECEIVE YOUR MONEY ELECTRONICALLY BY ACH OR
BANK WIRE. You may sell up to $50,000 worth of shares by phone and receive your
money by ACH or Federal funds bank wire to a pre-authorized bank account. To
receive this privilege, complete the appropriate section of the New Account
Application. If you already have an account, and wish to add the electronic
payment privilege, mail a signature guaranteed letter and bank information
(usually a voided check) to IDEX. ACH transfers usually take three banking days.
No fee is currently charged for this service.
Funds sent via Federal funds bank wire usually arrive on the next banking day.
Each time you have money wired to your bank account via a Federal funds wire, a
$20 fee will be charged. This amount will be deducted from your account by the
sale of shares. The receiving bank may also charge you a fee. Federal funds wire
transfers require a minimum redemption of $1,000. If you do not have the wire
transfer privilege, and do not want to establish it as a standing privilege on
your account, you may still redeem shares and receive funds at a U.S. bank via
Federal funds wire by writing a letter of instruction to IDEX. A Federal funds
wire redemption generally requires a signature guarantee.
TO REDEEM SHARES THROUGH A REGISTERED DEALER. You may also place confirmed
redemption requests through registered securities dealers. Some of these dealers
use the National Securities Clearing Corporation ("NSCC") electronic order
system. It is the responsibility of such dealers to transmit your sell orders
promptly. Payment for these redemption requests will be made to the dealer
within three days after IDEX receives your order, properly signed, including
share certificates and appropriate signature guarantees where necessary. IDEX
reviews all such orders.
TO REDEEM SHARES AUTOMATICALLY, AT REGULAR INTERVALS. You may establish a
systematic withdrawal plan ("SWP") on your New Account Application or by calling
Customer Service and obtaining the forms to do so. To set up an SWP, you must:
/BULLET/ Have an account worth at least $10,000;
/BULLET/ Withdraw only up to 12% annually of the value of your account, if you
own B shares;
/BULLET/ Withdraw at least $50 with each redemption.
You may receive your money via ACH to your bank account or by check to your
address of record.
Withdrawals paid by check are normally made seven to ten days before the first
of the month, although the Fund cannot guarantee that you will receive your
money exactly by the date you select. You may make withdrawals monthly,
quarterly, or annually.
Special considerations in using an SWP:
/BULLET/ If an SWP is established on a new account, the initial disbursement
will not be made within 15 days of the date of your initial purchase.
/BULLET/ Dividends and capital gains distributions on accounts with an active
SWP are usually paid in additional shares of the Portfolio.
/BULLET/ If the requested payments under an SWP require sale of more shares than
have been credited through the payment of dividends and capital gains
distributions in additional shares, your original investment may
depleted and ultimately exhausted.
/BULLET/ Payments under an SWP probably will include some amount of your
original investment and are taxable events.
/BULLET/ An SWP may not be advantageous to maintain while you simultaneously buy
shares in the same portfolio; you'll pay more in sales charges than you
have to.
/BULLET/ You can change or cancel an SWP at any time by writing or calling IDEX.
An SWP will be terminated when all shares in an account have been
redeemed, or when IDEX receives notice of the account holder's death.
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<PAGE>
REINVESTMENT PRIVILEGE
If you sell Class A, Class B or Class T shares, you may repurchase Class A,
Class B or Class T shares in any Portfolio of the same class in an amount not
more than the amount you sold without incurring a new sales charge. To do this,
you must send a written request to IDEX within 90 days after you sell your
shares. IDEX reserves the right to modify or eliminate this reinvestment
privilege at any time. Exchanging shares is allowed any time, generally without
new sales charges. See How to Exchange Shares, below.
When you exercise this reinvestment privilege:
/BULLET/ You may reinvest the proceeds of a Class A or Class T share sale in
shares of the same class without paying the up-front commission;
/BULLET/ You may reinvest the proceeds of a Class B share sale in Class B
shares, and your new shares will be considered the same age as your old
shares -- i.e., if you sell three-year-old shares and buy new shares,
the new shares will be, effectively, three years old, and therefore
subject to a smaller contingent deferred sales charge;
/BULLET/ The contingent deferred sales charge you paid when you sold your
Class B shares will also be reinvested in new Class B shares;
/BULLET/ Alternatively, you may reinvest the proceeds of a Class B share sale
(less the contingent deferred sales charge paid) in Class A shares
without paying the up-front sales charge on these Class A shares.
NOTE: Certain distributions from qualified plans are not eligible for this
privilege.
HOW TO EXCHANGE SHARES
GENERAL INFORMATION. You may exchange shares of one Fund or Portfolio for shares
in the same class of another Portfolio. No sales charges are imposed at the time
of an exchange; exchanges must be made in amounts of $500 or more. You may
exchange Class A shares for Class A shares, Class B shares for Class B shares,
and Class C shares for Class C shares, among any of the Portfolios in this Fund.
Class A shares may be exchanged for shares in any Funds or Portfolios of the
IDEX group.
Class T Shares may be exchanged only for Class A shares of the IDEX Portfolios
other than the Growth Portfolio. There will be no sales charges imposed on such
exchanges; however Class A shares of all IDEX Portfolios are subject to 12b-1
distribution and service fees. Shareholders may not exchange other classes of
shares of the IDEX Portfolios for Class T Shares.
In the case of Class B share exchanges, the contingent deferred sales charge
will be calculated from the date you bought your original shares --i.e., your
new shares will be the same age as your old shares, so your sales charge will
not increase.
In addition, you may exchange Class A, Class C or Class T shares for any of the
three portfolios of the Cash Equivalent Fund or the California Tax-Exempt Money
Market Fund. Class B shares may be exchanged only for the Cash Equivalent Money
Market Portfolio. See Money Market Fund Exchange Privilege, below.
You automatically have the telephone exchange privilege unless you decline it on
your New Account Application.
Exchanges may be made by mail or by phone. Write or call IDEX Customer Service.
You may exchange all the shares in one account for shares in another account.
All special account features present in the old account, such as Automatic
Investment Plan, Letter of Intention, or Systematic Withdrawal/Exchange Plan,
will be transferred to the new account, unless IDEX is otherwise instructed.
You may exchange part of the shares in one account and open a new account for
new shares in another fund or portfolio. In partial exchanges, all special
account features except Automatic Investment Plan and Systematic
Withdrawal/Exchange Plan will be transferred to the new account, unless IDEX is
otherwise instructed.
Before making an exchange into a Fund or Portfolio which is new to you, read the
Prospectus carefully. Obtain Prospectuses by calling or writing IDEX Customer
Service.
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<PAGE>
The Fund reserves the right to limit exchanges or modify or terminate the
exchange privilege at any time.
TELEPHONE EXCHANGES. Call IDEX Customer Service at (800) 851-9777 to make a
telephone exchange. New shares acquired by phone exchange must be registered in
exactly the same name as the shares sold by phone exchange. No share
certificates are available for shares acquired through a phone exchange. See
Other Information -- Telephone Transactions for more information.
SYSTEMATIC EXCHANGES. You may choose, either on your New Account Application, or
by writing IDEX, to exchange shares of the same class automatically at regular
intervals from one Portfolio to another. All conditions described above under
General Information also apply to systematic exchanges.
New shares acquired by systematic exchange must be registered in exactly the
same name as the shares sold in a systematic exchange. No share certificates are
available for shares acquired through a systematic exchange.
MONEY MARKET FUND EXCHANGE PRIVILEGE. You may make sales charge-free exchanges
of at least $500 at NAV from Class A, Class C or Class T shares to any of the
three portfolios of the Cash Equivalent Fund or the California Tax-Exempt Money
Market Fund. Class B shares may be exchanged without sales charge, minimum $500
at NAV, only into the Cash Equivalent Money Market Portfolio.
You may also sell your shares of any of the Money Market Funds in minimum
amounts of $500 and invest the proceeds in the same class of shares of any of
the other Portfolios.
Sales charges will be made on exchanges from Money Market Funds when you have
originally invested in these Money Market Funds, then decided to exchange for
shares of a Portfolio in the Fund.
Systematic exchanges may also be made between the Money Market Funds and the
Portfolios of the Fund. See Systematic Exchanges, above,
for conditions.
These Funds (the "Money Market Funds"), which are separately managed by Zurich
Kemper Investments, Inc., are open-end, diversified money market mutual funds.
Sales of shares in connection with Money Market Fund exchanges will be effected
as of the end of the day when your exchange request is received, if it is
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 a Money Market Fund
exchange, you should consider the investment objective of the Money Market Fund
and read its current Prospectus.
You may request a Money Market Fund exchange by writing or calling IDEX Customer
Service.
CLASS B SHARES -- SALES CHARGE DETERMINATION IN MONEY MARKET FUND EXCHANGES.
When you exchange Class B shares of a Portfolio for Class B shares of the Cash
Equivalent Money Market Portfolio, you will not be charged a contingent deferred
sales charge. You will be charged the sales charge if you subsequently sell the
Class B shares of the Cash Equivalent Money Market Portfolio, but the time you
held the shares of the Cash Equivalent Money Market Portfolio will not count
toward figuring the sales charge.
Similarly, if you exchange Class B shares of the Cash Equivalent Money Market
Portfolio back for Class B shares of a Portfolio of the Fund, no sales charge
will be made. However, when you eventually sell the Class B shares of your
Portfolio, you will pay the deferred sales charge, which is determined only for
the time you hold Class B shares in the Fund. The time you held Class B shares
of the Cash Equivalent Money Market Portfolio does not count toward figuring
your ultimate sales charge.
OTHER INFORMATION
MINIMUM ACCOUNT BALANCE. The Fund may redeem any account in which the balance
has fallen below $500 due to redemptions and there are not share purchases
within the past 60 days, unless the account is less than 24 months old. If the
account holds Class B shares, a sales charge will be deducted from this sale.
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<PAGE>
The Fund will notify the holder of such an account 60 days before closing it.
After being notified, the account holder may make share purchases to bring the
account above the $500 minimum.
REPURCHASE ARRANGEMENTS. For the convenience of its shareholders, the Fund has
authorized ISI to act as its agent in the repurchase of Fund shares. This
procedure may be terminated at any time. If you sell your shares to ISI through
a dealer, your dealer may charge you an additional fee.
RETIREMENT PLANS. Class A, Class B, Class C and Class T shares may be purchased
in qualified retirement plans, including individual retirement accounts (IRAs),
401(k)s, Simplified Employee Pension Plans (SEP-IRAs), corporate and self-
employed pension and profit sharing plans (Keoghs) and 403(b)(7) programs.
Do not try to open a retirement plan with the application in this Prospectus.
These plans require a different application. Call or write IDEX Customer Service
to obtain the application.
Retirement plan accounts are ordinarily charged a $15 per year maintenance fee,
with a maximum of $30 a year per taxpayer ID number. However, if your retirement
plan is under custody of Investors Fiduciary Trust Company and your combined
retirement account balances per taxpayer ID number are more than $50,000, there
is generally no fee.
The SAI contains more information about retirement plans. Investors should
consult with their tax advisers about tax-deferral issues in such plans.
TELEPHONE TRANSACTIONS. The Fund, ISI and IDEX will not be liable for complying
with telephone instructions, and investors will bear the risk of loss. The Fund,
ISI and/or IDEX will employ reasonable procedures to make sure telephone
instructions are genuine. These procedures may include, among others, requiring
forms of personal identification, providing written confirmation of telephone
transactions and/or tape recording telephone orders. If the Fund, ISI and/or
IDEX do not employ such reasonable procedures, they may be held liable for loss
due to fraudulent or unauthorized telephone instructions.
HOW TRANSACTIONS ARE CONFIRMED. After most every account transaction, except
when shares are bought with reinvested dividends and capital gains distributions
and except for automatic redemptions or purchases via ACH, you will receive a
statement. This statement will show the details of the transaction, the number
of shares held in your account and the transactions since the beginning of the
year. You will receive a quarterly statement which details your dividend and
capital gain distribution reinvestments as well as your ACH transactions.
HISTORICAL STATEMENTS. You may order a historical statement covering years
before the current year.
SHARE CERTIFICATES. Account holders ordinarily do not want share certificates.
Shares are normally recorded on the Fund's books and no certificates are issued.
You may, however, obtain certificates for your shares, with these limitations:
/BULLET/ No certificates will be issued for fractional shares;
/BULLET/ No certificates will be issued for accounts holding less than 30
shares, except in connection with sales or transfers of shares from
other funds when you already hold certificates;
/BULLET/ Certificates are issued only in the same name as your account;
/BULLET/ Certificates are not issued for retirements plan accounts with IFTC as
custodian.
If you want certificates representing your shares, you may write or call IDEX to
request them. You may return share certificates to IDEX at any time. There may
be a charge for cancelling and replacing lost or stolen share certificates.
Notify IDEX immediately if your certificates are lost or stolen. Remember that
if you ask for a certificate for your shares, you will not be able to redeem or
exchange your shares by telephone. Also, you will have to send your share
certificate to us when you want to redeem or exchange those shares.
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<TABLE>
<CAPTION>
APPENDIX A
BRIEF EXPLANATION OF RATING CATEGORIES
BOND RATING EXPLANATION
<S> <C> <C>
STANDARD & POOR'S CORPORATION AAA Highest rating; extremely strong capacity to pay principal and interest.
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more susceptible to
the adverse effects of changing circumstances and economic conditions.
BBB Adequate capacity to pay principal and interest; normally exhibit adequate
protection parameters, but adverse economic conditions or changing
circumstances more likely to lead to a weakened capacity to pay principal
and interest than for higher rated bonds.
BB,B Predominantly speculative with respect to the issuer's capacity to meet
CCC, CC, C required interest and principal payments. BB - lowest degree of speculation;
C - the highest degree of speculation. Quality and protective characteristics
outweighed by large uncertainties or major risk exposure to adverse conditions.
D In default.
MOODY'S INVESTORS SERVICE, INC. Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the high-grade bond
group.
A Upper-medium grade obligations; many favorable investment attributes.
Baa Medium-grade obligations; neither highly protected nor poorly secured.
Interest and principal appear adequate for the present but certain protective
elements may be lacking or may be unreliable over any great length of time.
Ba More uncertain, with speculative elements. Protection of interest and
principal payments not well safeguarded during good and bad times.
B Lack characteristics of desirable potentially low assurance of timely interest
and principal payments or maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with respect to principal
or interest payments.
Ca Speculative in a high degree; could be in default or have other marked
shortcomings.
C Lowest-rated; extremely poor of ever attaining investment standing.
</TABLE>
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SECURITIES HOLDINGS BY RATING CATEGORY
During the period ended March 31, 1996, the percentage of securities holdings by
rating category based upon a weighted average was:
BONDS - S&P RATING FLEXIBLE INCOME PORTFOLIO INCOME PLUS PORTFOLIO
AAA 11.50 --
AA 3.50 2.80
A 15.72 9.40
BBB 20.30 41.68
BB 16.07 23.41
B 30.66 19.57
CCC -- --
CC -- --
C/NR -- .51
Preferred Stock/NR -- 3.61
Cash, Equivalents
and Assets Less 2.25 3.14
Liabilities
Total 100.00 100.00
No other Fund held 5% or more of its assets in bonds rated below investment
grade, including unrated bonds deemed to be the equivalent of noninvestment
grade securities, for the period ended March 31, 1996. Unrated securities and
securities that have received different ratings from more than one agency will
be treated as noninvestment grade securities unless the portfolio manager
determines that such securities are the equivalent of investment grade
securities.
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<PAGE>
APPENDIX B
GLOSSARY OF INVESTMENT TERMS
This glossary provides a more detailed description of the types of securities in
which the Portfolios may invest. The Portfolios may invest in these securities
to the extent permitted by their investment objectives and policies. The
Portfolios are not limited by this discussion and may invest in ANY type of
security unless precluded by the policies discussed elsewhere in this Prospectus
or in the SAI.
I. EQUITY AND DEBT SECURITIES
BONDS ARE DEBT SECURITIES issued by a company, municipality or government
agency. The issuer of a bond is required to pay the holder the amount of the
loan (or par value) at a specified maturity and to make scheduled interest
payments.
CERTIFICATES OF PARTICIPATION ("COPS") are certificates representing an interest
in a pool of securities. Holders are entitled to a proportionate interest in the
underlying securities. Municipal lease obligations are often sold in the form of
COPs. See "Municipal lease obligations" below.
COMMERCIAL PAPER is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. The Portfolios may purchase commercial paper issued
under Section 4(2) of the Securities Act of 1933. The Portfolios may determine
that such securities are liquid under guidelines established by the Trustees.
COMMON STOCK represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on common
stock are not fixed but are declared at the discretion of the issuer's board of
directors.
CONVERTIBLE SECURITIES are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio.
DEPOSITARY RECEIPTS are receipts for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts),
foreign banks (Global or European Depositary Receipts) and broker-dealers
(depositary shares).
FIXED-INCOME SECURITIES are securities that pay a fixed rate of return. The term
generally includes short- and long-term government, corporate and municipal
obligations that pay a fixed rate of interest or coupons for a specified period
of time and preferred stock, which pays fixed dividends. Coupon and dividend
rates may be fixed for the life of the issue or, in the case of adjustable and
floating rate securities, for a shorter period.
HIGH-YIELD/HIGH-RISK BONDS are securities that are rated below investment grade
by the primary rating agencies (BB or lower by Standard & Poor's and Ba or lower
by Moody's). Other terms commonly used to describe such securities include
"lower rated bonds," "non-investment grade bonds" and "junk bonds."
INDUSTRIAL DEVELOPMENT BONDS are revenue bonds that are issued by a public
authority but which may be backed only by the credit and security of a private
issuer and may involve greater credit risk. See "Municipal securities" below.
MORTGAGE- AND ASSET-BACKED SECURITIES are shares in an organized pool of
mortgages or other debt. These securities are generally pass-through securities,
which means that principal and interest payments on the underlying securities
(less servicing fees) are passed through to shareholders on a pro rata basis.
These securities involve prepayment risk, which is the risk that the underlying
mortgages or other debt may be refinanced or paid off prior to their maturities
during periods of declining interest rates. In that case, a portfolio manager
may have to reinvest the proceeds from the securities at a lower rate. Potential
market gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
MUNICIPAL LEASE OBLIGATIONS are revenue bonds backed by leases or installment
purchase contracts for property or equipment. Lease obligations may not be
backed by the issuing municipality's credit and may involve risks not normally
associated with general obligation bonds and other revenue bonds. For example,
their interest may become taxable if the lease is assigned and the holders may
incur losses if the issuer does not appropriate funds for the lease payments on
an annual basis, which may result in termination of the lease and possible
default.
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<PAGE>
MUNICIPAL SECURITIES are bonds or notes issued by a U.S. state or political
subdivision. A municipal security may be a general obligation backed by the full
faith and credit (i.e., the borrowing and taxing power) of a municipality or a
revenue obligation paid out of the revenues of a designated project, facility or
revenue source.
PASSIVE FOREIGN INVESTMENT COMPANIES (PFICS) are foreign investment funds or
trusts. In addition to bearing their proportionate share of a Portfolio's
expenses, shareholders may indirectly bear similar expenses of PFICs and similar
trusts.
PREFERRED STOCK is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights.
REPURCHASE AGREEMENTS involve the purchase of a security by a Portfolio and a
simultaneous agreement by a bank or dealer to repurchase the security from the
Portfolio at a specified date or upon demand. This technique offers a method of
earning income on idle cash. These securities involve the risk that the seller
will fail to repurchase the security, as agreed. In that case, a Portfolio will
bear the risk of market value fluctuations until the security can be sold and
may encounter delays and incur costs in liquidating the security.
REVERSE REPURCHASE AGREEMENTS involve the sale of a security by a Portfolio to
another party (generally a bank or dealer) in return for cash and an agreement
by the Portfolio to buy the security back at a specified price and time. This
technique may be used to provide cash to satisfy unusually high redemption
requests or for other temporary or emergency purposes.
STANDBY COMMITMENTS are obligations purchased by a Portfolio from a dealer that
give the Portfolio the option to sell a security to the dealer at a specified
price.
TENDER OPTION BONDS are generally long-term securities that have been coupled
with an option to tender the securities to a bank, broker-dealer or other
financial institution at periodic intervals and receive the face value of the
bond. This type of security is commonly used as a means of enhancing the
liquidity of municipal securities.
U.S. GOVERNMENT SECURITIES include direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. government securities also include
indirect obligations of the U.S. government that are issued by federal agencies
and government sponsored entities. Unlike Treasury securities, agency securities
generally are not backed by the full faith and credit of the U.S. government.
Some agency securities are supported by the right of the issuer to borrow from
the Treasury, others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations and others are supported only by
the credit of the sponsoring agency.
WARRANTS are securities, typically issued with preferred stock or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD TRANSACTIONS generally involve the
purchase of a security with payment and delivery due at some time in the future
(i.e., beyond normal settlement). The Portfolios do not earn interest on such
securities until settlement and bear the risk of market value fluctuations in
between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner.
ZERO COUPON BONDS are debt securities that do not pay regular interest at
regular intervals, but are issued at a significant discount from face value. The
discount approximates the total amount of interest the security will accrue from
the date of issuance to maturity. Strips are debt securities that are stripped
of their interest (usually by a financial intermediary) after the securities are
issued. The market value of these securities generally fluctuates more in
response to changes in interest rates than interest-paying securities of
comparable maturity.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
FUTURES CONTRACTS are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. The Portfolios may buy and sell futures contracts on foreign currencies,
securities and financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. An option on
a futures contract gives the buyer the right, but not the obligation, to buy or
sell a futures contract at a specified price on or before a specified date.
Futures contracts and options on futures are standardized and traded on
designated exchanges.
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<PAGE>
INDEXED/STRUCTURED SECURITIES are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, equity securities, indices or other financial indicators. Such
securities may be positively or negatively indexed (i.e. their value may
increase or decrease if the reference index or instrument appreciates).
Indexed/structured securities may have return characteristics similar to direct
investments in the underlying instruments and may be more volatile than the
underlying instruments. A Portfolio bears the market risk of an investment in
the underlying instruments, as well as the credit risk of the issuer.
INVERSE FLOATERS are debt instruments whose interest rate bears an inverse
relationship to the interest rate on another instrument.
OPTIONS are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Portfolios may purchase and write put and call options on securities,
securities indices and foreign currencies. A put option gives the holder the
right, upon payment of a premium, to deliver a specified amount of a security to
the writer of the option on or before a fixed date at a predetermined price. A
call option gives the holder the right, upon payment of a premium, to call upon
the writer to deliver a specified amount of a security on or before a fixed date
at a predetermined price.
FORWARD CONTRACTS are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis.
The Portfolios may enter into forward currency contracts to hedge against
declines in the value of non-dollar denominated securities or to reduce the
impact of currency appreciation on purchases of nondollar denominated
securities. They may also enter into forward contracts to purchase or sell
securities or other financial indices.
INTEREST RATE SWAPS involve the exchange by two parties of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments).
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IDEX AGGRESSIVE GROWTH PORTFOLIO
IDEX CAPITAL APPRECIATION PORTFOLIO
IDEX GLOBAL PORTFOLIO
IDEX GROWTH PORTFOLIO
IDEX C.A.S.E. PORTFOLIO
IDEX EQUITY-INCOME PORTFOLIO
IDEX TACTICAL ASSET ALLOCATION PORTFOLIO
IDEX BALANCED PORTFOLIO
IDEX FLEXIBLE INCOME PORTFOLIO
IDEX INCOME PLUS PORTFOLIO
IDEX TAX-EXEMPT PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 20, 1996
IDEX SERIES FUND
(FORMERLY IDEX II SERIES FUND)
201 Highland Avenue
Largo, Florida 33770-2957
Customer Service (800) 851-9777
IDEX Aggressive Growth Portfolio, IDEX Capital Appreciation Portfolio, IDEX
Global Portfolio, IDEX Growth Portfolio, IDEX C.A.S.E. Portfolio, IDEX
Equity-Income Portfolio, IDEX Tactical Asset Allocation Portfolio, IDEX Balanced
Portfolio, IDEX Flexible Income Portfolio, IDEX Income Plus Portfolio and IDEX
Tax-Exempt Portfolio (each a "Portfolio" and collectively, the "Portfolios") are
series of IDEX Series Fund (the "Fund"), an open-end management investment
company that offers a selection of investment portfolios. Each IDEX Portfolio
herein was formerly known as an IDEX II Portfolio. All Portfolios other than the
Capital Appreciation Portfolio are diversified, while the Capital Appreciation
Portfolio is nondiversified. IDEX Aggressive Growth Portfolio seeks long-term
capital appreciation. IDEX C.A.S.E. Portfolio seeks annual growth of capital
through investments in companies whose management, financial resources and
fundamentals appear attractive on a scale measured against each company's
present value. IDEX Capital Appreciation Portfolio seeks long-term growth of
capital in a manner consistent with the preservation of capital by emphasizing
investments in common stocks of companies by normally investing at least 50% of
its equity assets in securities issued by medium-sized companies as described in
the Prospectus. IDEX 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. IDEX Growth Portfolio seeks only
growth of capital. IDEX Equity-Income Portfolio seeks to provide current income,
long-term growth of income and capital appreciation. IDEX Tactical Asset
Allocation Portfolio seeks preservation of capital and competitive investment
returns. IDEX Balanced Portfolio seeks long-term capital growth, consistent with
preservation of capital and balanced by current income. IDEX 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. IDEX Income Plus Portfolio seeks to provide as high
a level of current income as is consistent with the avoidance of excessive risk.
IDEX Tax-Exempt Portfolio seeks to provide maximum current interest income
exempt from federal income tax in a manner consistent with preservation of
capital.
On September 20, 1996 in a tax-free reorganization, IDEX Growth Portfolio
(formerly IDEX II Growth Portfolio) acquired all of the assets and assumed all
of the liabilities of IDEX Fund and IDEX Fund 3 in exchange for Class T shares
of IDEX Growth Portfolio, which were then distributed on a pro rata basis to the
respective shareholders of IDEX Fund and IDEX Fund 3. Upon the closing of the
reorganization, IDEX II Series Fund changed its name to IDEX Series Fund.
This Statement of Additional Information is not a Prospectus, and should be
read in conjunction with the Prospectus dated September 20, 1996 which may be
obtained free of charge by writing or calling the Fund at the above address or
telephone number. This Statement of Additional Information contains additional
and more detailed information about each Portfolio's operations and activities
than that set forth in the Prospectus.
<PAGE>
IDEX SERIES FUND
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
INVESTMENT OBJECTIVES.........................................................1
INVESTMENT RESTRICTIONS, POLICIES AND PRACTICES...............................1
Investment Restrictions of IDEX Aggressive Growth Portfolio ..............1
Investment Restrictions of IDEX Capital Appreciation Portfolio
and IDEX Balanced Portfolio..............................................2
Investment Restrictions of IDEX Global Portfolio..........................4
Investment Restrictions of IDEX Growth Portfolio and
IDEX Flexible Income Portfolio...........................................5
Investment Restrictions of IDEX C.A.S.E. Portfolio........................7
Investment Restrictions of IDEX Equity-Income Portfolio...................9
Investment Restrictions of IDEX Tactical Asset Allocation Portfolio......10
Investment Restrictions of IDEX Income Plus Portfolio....................12
Investment Restrictions of IDEX Tax-Exempt Portfolio.....................13
OTHER POLICIES AND PRACTICES OF THE PORTFOLIOS...............................15
Futures, Options and Other Derivative Instruments........................15
Futures Contracts .......................................................15
Options on Futures Contracts.............................................17
Options on Securities....................................................18
Options on Foreign Currencies............................................21
Forward Contracts........................................................22
Swaps and Swap-Related Products..........................................23
Eurodollar Instruments...................................................24
Special Investment Considerations and Risks..............................24
Additional Risks of Options on Foreign Currencies, Forward
Contracts and Foreign Instruments.......................................24
Other Investment Companies...............................................25
Zero Coupon, Pay-In-Kind and Step Coupon Securities......................25
Income-Producing Securities..............................................26
Lending of Portfolio Securities..........................................27
Joint Accounts...........................................................27
Illiquid Securities......................................................27
Repurchase and Reverse Repurchase Agreements.............................28
Pass-through Securities..................................................28
High-Yield/High-Risk Bonds...............................................29
Warrants and Rights......................................................30
U.S. Government Securities...............................................30
Portfolio Turnover.......................................................30
INVESTMENT ADVISORY AND OTHER SERVICES.......................................31
Growth, Global, Flexible Income, Balanced and
Capital Appreciation Portfolios.........................................31
Tax-Exempt, Income Plus, Aggressive Growth, Equity-Income,
Tactical Asset Allocation and C.A.S.E. Portfolios.......................33
Additional Investment Advisory or Sub-Advisory Services
Provided by the Sub-Advisers............................................35
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DISTRIBUTOR..................................................................35
ADMINISTRATIVE SERVICES......................................................36
CUSTODIAN, TRANSFER AGENT AND OTHER AFFILIATES ..............................36
PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................37
TRUSTEES AND OFFICERS .......................................................39
PURCHASE OF SHARES ..........................................................43
DISTRIBUTION PLANS ..........................................................43
NET ASSET VALUE DETERMINATION................................................45
DIVIDENDS AND OTHER DISTRIBUTIONS ...........................................48
SHAREHOLDER ACCOUNTS.........................................................48
RETIREMENT PLANS.............................................................48
REDEMPTION OF SHARES ........................................................48
TAXES........................................................................49
PRINCIPAL SHAREHOLDERS.......................................................51
MISCELLANEOUS ...............................................................51
Organization ............................................................51
Shares of Beneficial Interest ...........................................51
Legal Counsel and Auditors ..............................................52
Registration Statement ..................................................52
PERFORMANCE INFORMATION .....................................................52
FINANCIAL STATEMENTS ........................................................56
CERTAIN SECURITIES IN WHICH THE PORTFOLIOS MAY INVEST ...............APPENDIX A
ii
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INVESTMENT OBJECTIVES
The Prospectus discusses the investment objective of each Portfolio, the
types of securities in which each Portfolio will invest and the policies and
practices of each Portfolio. The following discussion of Investment
Restrictions, Policies and Practices supplements that set forth in the
Prospectus.
There can be no assurance that a Portfolio will, in fact, achieve its
objective. A Portfolio's investment objective may be changed by the Board of
Trustees without shareholder approval. A change in the investment objective of a
Portfolio may result in the Portfolio having an investment objective different
from that which the shareholder deemed appropriate at the time of investment. A
Portfolio will not change its 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 the objective, the shareholder may realize a taxable gain or loss.
INVESTMENT RESTRICTIONS, POLICIES AND PRACTICES
As indicated in the Prospectus, each Portfolio is subject to certain
fundamental policies and restrictions which as such may not be changed without
shareholder approval. Shareholder approval would be the approval by the lesser
of (i) more than 50% of the outstanding voting securities of a Portfolio, or
(ii) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities of a Portfolio are present or
represented by proxy.
INVESTMENT RESTRICTIONS OF IDEX AGGRESSIVE GROWTH PORTFOLIO
IDEX Aggressive Growth Portfolio may not, as a matter of fundamental policy:
1. With respect to 75% of the Portfolio's total assets, purchase the
securities of any one issuer (other than government securities as defined in the
1940 Act) if immediately after and as a result of such purchase (a) the value of
the holdings of the Portfolio in the securities of such issuer exceeds 5% of the
value of the Portfolio's total assets, or (b) the Portfolio owns more than 10%
of the outstanding voting securities of any one class of securities of such
issuer;
2. Purchase any securities that would cause more than 25% of the value of
the Portfolio's total assets to be invested in the securities of issuers
conducting their principal business activities in the same industry; provided
that there shall be no limit on the purchase of U.S. government securities;
3. Purchase or sell real estate or real estate limited partnerships, except
that the Portfolio may purchase and sell securities secured by real estate,
mortgages or interests therein and securities that are issued by companies that
invest or deal in real estate;
4. Invest in commodities, except that the Portfolio may purchase or sell
stock index futures contracts and related options thereon if thereafter no more
than 5% of its total assets are invested in aggregate initial margin and
premiums;
5. Make loans to others, except through purchasing qualified debt
obligations, lending portfolio securities or entering into repurchase
agreements;
6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities;
7. Borrow money, except that the Portfolio may borrow from banks for
investment purposes as set forth in the Prospectus and may also engage in
reverse repurchase agreements. Immediately after any borrowing, including
reverse repurchase agreements, the Portfolio will maintain asset coverage of not
less than 300% with respect to all borrowings; and
8. Issue senior securities, except that the Portfolio may borrow from banks
for investment purposes so long as the Portfolio maintains the required
coverage.
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Furthermore, the Portfolio has adopted the following non-fundamental
investment restrictions which may be changed by the Board of Trustees of the
Fund without shareholder approval:
(A) The Portfolio may not invest in warrants, except that the Portfolio may
invest in warrants if, as a result, the investments (valued at the lower of cost
or market) would not exceed 5% of the value of the Portfolio's net assets, of
which not more than 2% of the Portfolio's net assets may be invested in warrants
not listed on a recognized domestic stock exchange. Warrants acquired by the
Portfolio as part of a unit or attached to securities at the time of acquisition
are not subject to this limitation;
(B) The Portfolio may not sell securities short or purchase securities on
margin, except that the Portfolio may obtain any short-term credit necessary for
the clearance of purchases and sales of securities. These restrictions shall not
apply to transactions involving selling securities "short against the box";
(C) The Portfolio may not pledge, hypothecate, mortgage or otherwise
encumber more than 15% of the value of the Portfolio's total assets except in
connection with borrowings described in H below. These restrictions shall not
apply to transactions involving reverse repurchase agreements or the purchase of
securities subject to firm commitment agreements or on a when-issued basis;
(D) The Portfolio may not purchase securities of any issuer (other than
U.S. government agencies and instrumentalities or instruments guaranteed by an
entity with a record of more than three years' continuous operation, including
that of predecessors) with a record of less than three years' continuous
operation (including that of predecessors) if such purchase would cause the cost
of the Portfolio's investments in all such issuers to exceed 5% of the
Portfolio's total assets taken at market value at the time of such purchase;
(E) The Portfolio may not invest directly in oil, gas, or other mineral
development or exploration programs or leases; however, the Portfolio may own
debt or equity securities of companies engaged in those businesses;
(F) The Portfolio may not invest in securities of other investment
companies, except as it may be acquired as part of a merger, consolidation,
reorganization, acquisition of assets or offer of exchange;
(G) The Portfolio may not purchase or retain the securities of any issuer
if any of the officers or directors of the Portfolio or investment adviser
individually owns more than 0.5% of the outstanding securities of the issuer and
together they own beneficially more than 5% of the securities;
(H) The Portfolio may not invest in companies for the purpose of exercising
control or management; and
(I) The Portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, or any successor to such
Rule, Section 4(2) commercial paper or any other securities as to which the
Board of Trustees has made a determination as to liquidity, as permitted under
the 1940 Act.
INVESTMENT RESTRICTIONS OF IDEX CAPITAL APPRECIATION PORTFOLIO AND IDEX BALANCED
PORTFOLIO
IDEX Capital Appreciation Portfolio and IDEX Balanced Portfolio may not, as a
matter of fundamental policy:
1. With respect to 75% of its total assets in the case of the Balanced
Portfolio and 50% of its total assets in the case of the Capital Appreciation
Portfolio, purchase the securities of any one issuer (except cash items and
"government securities" as defined under the Investment Company Act of 1940, as
amended (the "1940 Act")), if immediately after and as a result of such purchase
the value of the holdings of the Portfolio in the securities of such issuer
exceeds 5% of the value of such Portfolio's total assets or the Portfolio owns
more than 10% of the outstanding voting securities of such issuer. With respect
to the remaining 50% of the value of its total assets, IDEX Capital Appreciation
Portfolio may invest in the securities of as few as two issuers;
2
<PAGE>
2. Invest more than 25% of the value of its assets in any particular
industry (other than U.S. government securities);
3. Invest directly in real estate or interests in real estate; however, a
Portfolio may own debt or equity securities issued by companies engaged in those
businesses;
4. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this limitation
shall not prevent a Portfolio from purchasing or selling options, futures, swaps
and forward contracts or from investing in securities or other instruments
backed by physical commodities);
5. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or repurchase
agreements);
6. Act as underwriter of securities issued by others, except to the extent
that a Portfolio may be deemed an underwriter in connection with the disposition
of portfolio securities of that Portfolio; and
7. The Portfolio may borrow money for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 25% of the value of the
Portfolio's total assets (including the amount borrowed) less liabilities (other
than borrowings). If borrowings exceed 25% of the value of the Portfolio's total
assets by reason of a decline in net assets, the Portfolio will reduce its
borrowings within three business days to the extent necessary to comply with the
25% limitation. This policy shall not prohibit reverse repurchase agreements, or
deposits of assets to margin or guarantee positions in futures, options, swaps
or forward contracts, and the segregation of assets in connection with such
contracts.
Furthermore, the Capital Appreciation Portfolio and the Balanced Portfolio
have adopted the following non-fundamental investment restrictions which may be
changed by the Board of Trustees without shareholder approval:
(A) The Portfolio's investment in warrants, valued at the lower of cost or
market value may not exceed 5% of the value of its net assets. Included within
that amount, but not to exceed 2% of the value of its net assets, may be
warrants that are not listed on the New York or American Stock Exchange.
Warrants acquired by the Portfolio in units or attached to securities shall be
deemed to be without value for the purpose of monitoring this policy;
(B) The Portfolio may not: (i) enter into any futures contracts and related
options for purposes other than bona fide hedging transactions within the
meaning of Commodity Futures Trading Commission ("CFTC") regulations if the
aggregate initial margin and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions will exceed 5% of the fair market value of a
Portfolio's net assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into; and (ii) enter into
any futures contracts if the aggregate amount of such Portfolio's commitments
under outstanding futures contracts positions of that Portfolio would exceed the
market value of its total assets;
(C) The Portfolio may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short without the payment of any additional consideration therefore, and
provided that transactions in futures, options, swaps and forward contracts are
not deemed to constitute selling securities short;
(D) The Portfolio may not purchase securities on margin, except that the
Portfolio may obtain such short-term credits as are necessary for the clearance
of transactions, and provided that margin payments and other deposits in
connection with transactions in futures, options, contracts, swaps, and forward
contracts, shall not be deemed to constitute purchasing securities on margin;
(E) The Portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii), purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger. If the
Portfolio invests in a money market fund, the investment adviser will reduce its
advisory fees by the amount of any investment advisory and administrative
services fees paid to the investment manager of the money market fund;
(F) The Portfolio may not mortgage or pledge any securities owned or held
by the Portfolio in amounts that exceed, in the aggregate, 15% of that
Portfolio's net asset value, provided that this limitation does not apply to
reverse repurchase agreements,
3
<PAGE>
deposits of assets to margin, guarantee positions in futures, options, swaps or
forward contracts or segregation of assets in connection with such contracts;
(G) The Portfolio may not purchase securities of any issuer (other than
U.S. government agencies and instrumentalities or instruments guaranteed by an
entity with a record of more than three years' continuous operation, including
that of predecessors) with a record of less than three years' continuous
operation (including that of predecessors) if such purchase would cause the cost
of the Portfolio's investments in all such issuers to exceed 5% of the
Portfolio's total assets taken at market value at the time of such purchase;
(H) The Portfolio may not invest directly in oil, gas or other mineral
development or exploration programs or leases; however, the Portfolio may own
debt or equity securities of companies engaged in those businesses;
(I) The Portfolio may not purchase any security or enter into a repurchase
agreement, if as a result, more than 15% of its net assets would be invested in
repurchase agreements not entitling the holder to payment of principal and
interest within seven days and in securities that are illiquid by virtue of
legal or contractual restrictions on resale or the absence of a readily
available market. The Trustees, or the Portfolio's investment adviser or
sub-adviser acting pursuant to authority delegated by the Trustees, may
determine that a readily available market exists for securities eligible for
resale pursuant to Rule 144A under the Securities Act of 1933, or any successor
to such Rule, Section 4(2) commercial paper and municipal lease obligations.
Accordingly, such securities may not be subject to the foregoing limitation;
(J) The Portfolio may not invest in companies for the purpose of exercising
control or management;
(K) With respect to the Balanced Portfolio only, at least 25% of the assets
of that Portfolio will normally be invested in fixed-income senior securities,
which include corporate debt securities and preferred stock; and
(L) The Portfolio may not purchase or retain the securities of any issuer
if any of the officers or directors of the Portfolio or investment adviser
individually owns more than 0.5% of the outstanding securities of the issuer and
together they own beneficially more than 5% of the securities.
INVESTMENT RESTRICTIONS OF IDEX GLOBAL PORTFOLIO
IDEX Global Portfolio may not, as a matter of fundamental policy:
1. Own more than 10% of the outstanding voting securities of any one issuer
and, as to seventy-five percent (75%) of the value of its total assets, purchase
the securities of any one issuer (except cash items and "government securities"
as defined under the Investment Company Act of 1940, as amended (the "1940 Act")
), if immediately after and as a result of such purchase, the value of the
holdings of the Portfolio in the securities of such issuer exceeds 5% of the
value of the Portfolio's total assets;
2. Invest more than 25% of the value of its assets in any particular
industry (other than government securities);
3. Invest directly in real estate or interests in real estate; however, the
Portfolio may own debt or equity securities issued by companies engaged in those
businesses;
4. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this shall not
prevent the Portfolio from purchasing or selling options, futures, swaps and
forward contracts or from investing in securities or other instruments backed by
physical commodities);
5. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or to repurchase
agreements);
4
<PAGE>
6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities; and
7. The Portfolio may borrow money only for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 25% of the value
of the Portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 25% of the value of the
Portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 25%
limitation. This policy shall not prohibit reverse repurchase agreements or
deposits of assets to margin or guarantee positions in futures, options, swaps
or forward contracts, or the segregation of assets in connection with such
contacts.
Furthermore, the Global Portfolio has adopted the following non-fundamental
investment restrictions which may be changed by the Board of Trustees without
shareholder approval:
(A) The Portfolio's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included within that
amount, but not to exceed 2% of the value of the Portfolio's net assets, may be
warrants that are not listed on the New York or American Stock Exchange.
Warrants acquired by the Portfolio in units or attached to securities shall be
deemed to be without value;
(B) The Portfolio may not (i) enter into any futures contracts or options
on futures contracts for purposes other than bona fide hedging transactions
within the meaning of Commodity Futures Commission regulations if the aggregate
initial margin deposits and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions would exceed 5% of the fair market value of the
Portfolio's net assets, after taking into account unrealized profits and losses
on such contracts it has entered into; and (ii) enter into any futures contracts
or options on futures contracts if the aggregate amount of the Portfolio's
commitments under outstanding futures contracts positions and options on futures
contracts would exceed the market value of its total assets;
(C) The Portfolio may not sell securities short, unless it owns or has the
right, without the payment of any additional compensation, to obtain securities
equivalent in kind and amount to the securities sold short, and provided that
transactions in options, swaps and forward futures contracts are not deemed to
constitute selling securities short;
(D) The Portfolio may not purchase securities on margin, except that the
Portfolio may obtain such short-term credits as are necessary for the clearance
of transactions, and provided that margin payments and other deposits in
connection with transactions in options, futures, swaps and forward contracts
shall not be deemed to constitute purchasing securities on margin;
(E) The Portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of a consolidation, merger or other reorganization;
(F) The Portfolio may not mortgage or pledge any securities owned or held
by the Portfolio in amounts that exceed, in the aggregate, 15% of the
Portfolio's net assets, provided that this limitation does not apply to reverse
repurchase agreements or in the case of assets deposited to provide margin or
guarantee positions in options, futures contracts, swaps, forward contracts or
other derivative instruments or the segregation of assets in connection with
such transactions;
(G) The Portfolio may not purchase securities of any issuer (other than
U.S. government agencies and instrumentalities or instruments guaranteed by an
entity with a record of more than three years' continuous operation, including
that of predecessors) with a record of less than three years' continuous
operation (including that of predecessors) if such purchase would cause the cost
of the Portfolio's investments in all such issuers to exceed 5% of the
Portfolio's total assets taken at market value at the time of such purchase;
(H) The Portfolio may not invest directly in oil, gas or other mineral
development or exploration programs or leases; however, the Portfolio may own
debt or equity securities of companies engaged in those businesses;
(I) The Portfolio may not invest more than 15% of its assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, or any successor to such Rule,
Section 4(2) commercial paper
5
<PAGE>
or any other securities as to which the Board of Trustees have made a
determination as to liquidity, as permitted under the 1940 Act; and
(J) The Portfolio may not invest in companies for the purpose of exercising
control or management.
INVESTMENT RESTRICTIONS OF IDEX GROWTH PORTFOLIO AND IDEX FLEXIBLE INCOME
PORTFOLIO
IDEX Growth Portfolio and IDEX Flexible Income Portfolio may not, as a matter of
fundamental policy:
1. With respect to 75% of the Portfolio's total assets, purchase the
securities of any one issuer (other than cash items and "government securities"
as defined under the Investment Company Act of 1940, as amended (the "1940
Act")), if immediately after and as a result of such purchase (a) the value of
the holdings of the Portfolio in the securities of such issuer exceeds 5% of the
value of the Portfolio's total assets, or (b) the Portfolio owns more than 10%
of the outstanding voting securities of such issuer;
2. Invest more than 25% of the value of its assets in any particular
industry (other than government securities);
3. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this restriction
shall not prevent the Portfolio from purchasing or selling options, futures
contracts, caps, floors and other derivative instruments, engaging in swap
transactions or investing in securities or other instruments backed by physical
commodities);
4. Invest directly in real estate or interests in real estate, including
limited partnership interests; however, the Portfolio may own debt or equity
securities issued by companies engaged in those businesses;
5. Act as underwriter of securities issued by others, except to the extent
that it may be deemed an underwriter in connection with the disposition of
portfolio securities of the Portfolio;
6. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or to repurchase
agreements); and
7. The Portfolio may borrow money only for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 25% of the value
of the Portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 25% of the value of the
Portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 25%
limitation. This policy shall not prohibit reverse repurchase agreements or
deposits of assets to provide margin or guarantee positions in connection with
transactions in options, futures contracts, swaps, forward contracts, and other
derivative instruments or the segregation of assets in connection with such
transactions.
Furthermore, the Growth Portfolio and the Flexible Income Portfolio have
adopted the following non-fundamental investment restrictions which may be
changed by the Board of Trustees without shareholder approval:
(A) The Portfolio may not: (i) enter into any futures contracts or options
on futures contracts for purposes other than bona fide hedging transactions
within the meaning of Commodity Futures Commission regulations if the aggregate
initial margin deposits and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions would exceed 5% of the fair market value of the
Portfolio's net assets, after taking into account unrealized profits and losses
on such contracts it has entered into; and (ii) enter into any futures contracts
or options on futures contracts if the aggregate amount of the Portfolio's
commitments under outstanding futures contracts positions and options on futures
contracts would exceed the market value of its total assets;
(B) The Portfolio may not mortgage or pledge any securities owned or held
by the Portfolio in amounts that exceed, in the aggregate, 15% of the
Portfolio's net assets, provided that this limitation does not apply to reverse
repurchase agreements or in the case of assets deposited to provide margin or
guarantee positions in options, futures contracts, swaps, forward contracts or
other derivative instruments or the segregation of assets in connection with
such transactions;
6
<PAGE>
(C) The Portfolio may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that transactions in options, futures contracts, swaps,
forward contracts, and other derivative instruments are not deemed to constitute
selling securities short;
(D) The Portfolio may not purchase securities on margin, except that the
Portfolio may obtain such short-term credits as are necessary for the clearance
of transactions, and provided that margin payments and other deposits made in
connection with transactions in options, futures contracts, swaps, forward
contracts, and other derivative instruments shall not be deemed to constitute
purchasing securities on margin;
(E) The Portfolio may not invest more than 15% of its assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, or any successor to such Rule,
Section 4(2) commercial paper or any securities which the Board of Trustees or
the investment sub-adviser, as appropriate, has made a determination of
liquidity, as permitted under the 1940 Act;
(F) The Portfolio may not invest in companies for the purpose of exercising
control or management;
(G) The Portfolio may not (i) purchase securities of other investment
companies except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Restrictions (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers to
exchange, or as a result of reorganization, consolidation, or merger. If the
Portfolio invests in a money market fund, the investment advisers will reduce
their advisory fees by the amount of any investment advisory or administrative
service fees paid to the investment manager of the money market fund;
(H) The Portfolio may not invest directly in oil, gas or other mineral
development or exploration programs or leases; however, the Portfolio may own
debt or equity securities of companies engaged in those businesses;
(I) The Portfolio may not purchase the securities of any issuer (other than
U.S. government agencies and instrumentalities or instruments guaranteed by an
entity with a record of more than three years' continuous operation, including
that of predecessors) with a record of less than three years' continuous
operation (including that of predecessors) if such purchase would cause the
value of the Portfolio's investments in all such issuers to exceed 5% of the
Portfolio's total assets taken at market value at the time of such purchase; and
(J) The Portfolio may not invest in warrants valued at the lower of cost or
market value, if such value exceeds 5% of the Portfolio's net assets, provided
that no more than 2% of the Portfolio's net assets may be invested in warrants
which are not listed on the New York or American Stock Exchange. Warrants
acquired by the Portfolio in units or attached to securities may be deemed to be
without value.
In making all investments for the IDEX Flexible Income Portfolio, the
sub-adviser will emphasize economic or financial factors or circumstances of the
issuer, rather than opportunities for short-term arbitrage.
INVESTMENT RESTRICTIONS OF IDEX C.A.S.E. PORTFOLIO
IDEX C.A.S.E. Portfolio may not, as a matter of fundamental policy:
1. With respect to 75% of the Portfolio's total assets, purchase the
securities of any one issuer (other than cash items and "government securities"
as defined in the 1940 Act) if immediately after and as a result of such
purchase (a) the value of the holdings of the Portfolio in the securities of
such issuer exceeds 5% of the value of the Portfolio's total assets, or (b) the
Portfolio owns more than 10% of the outstanding voting securities of any one
class of securities of such issuer.
2. Invest 25% or more of the value of the Portfolio's assets in any
particular industry (other than government securities);
7
<PAGE>
3. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this restriction
shall not prevent the Portfolio from purchasing or selling options, futures
contracts, caps, floors and other derivative instruments, engaging in swap
transactions or investing in securities or other instruments backed by physical
commodities);
4. Invest directly in real estate or interests in real estate, including
limited partnership interests; however, the Portfolio may own debt or equity
securities issued by companies engaged in those businesses;
5. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of portfolio securities of the Portfolio;
6. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or to repurchase
agreements);
7. The Portfolio may borrow money only for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 25% of the value
of the Portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 25% of the value of the
Portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 25%
limitation. This policy shall not prohibit reverse repurchase agreements or
deposits of assets to provide margin or guarantee positions in connection with
transactions in options, futures contracts, swaps, forward contracts, or other
derivative instruments or the segregation of assets in connection with such
transactions; and
8. Issue senior securities, except as permitted by the 1940 Act.
Furthermore, the Portfolio has adopted the following non-fundamental
investment restrictions which may be changed by the Board of Trustees of the
Fund without shareholder approval:
(A) The Portfolio may not, as a matter of non-fundamental policy (i) enter
into any futures contracts or options on futures contracts for purposes other
than bona fide hedging transactions within the meaning of Commodity Futures
Commission regulations if the aggregate initial margin deposits and premiums
required to establish positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions would exceed 5%
of the fair market value of the Portfolio's net assets, after taking into
account unrealized profits and losses on such contracts it has entered into and
(ii) enter into any futures contracts or options on futures contracts if the
aggregate amount of the Portfolio's commitments under outstanding futures
contracts positions and options on futures contracts would exceed the market
value of its total assets;
(B) The Portfolio may not mortgage or pledge any securities owned or held
by the Portfolio in amounts that exceed, in the aggregate, 15% of the
Portfolio's net assets, provided that this limitation does not apply to reverse
repurchase agreements or in the case of assets deposited to provide margin or
guarantee positions in options, futures contracts, swaps, forward contracts or
other derivative instruments or the segregation of assets in connection with
such transactions;
(C) The Portfolio may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that transactions in options, futures contracts, swaps,
forward contracts and other derivative instruments are not deemed to constitute
selling securities short;
(D) The Portfolio may not purchase securities on margin, except that the
Portfolio may obtain such short-term credits as are necessary for the clearance
of transactions, and provided that margin payments and other deposits made in
connection with transactions in options, futures contracts, swaps, forward
contracts, and other derivative instruments shall not be deemed to constitute
purchasing securities on margin;
(E) The Portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, or any successor to such
Rule, Section 4(2) commercial paper or other securities for which the Board of
Trustees has made a determination of liquidity, as permitted under the 1940 Act;
(F) The Portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment
8
<PAGE>
companies. Restrictions (i) and (ii) do not apply to money market funds or to
securities received as dividends, through offers to exchange, or as a result of
reorganization, consolidation, or merger. If the Portfolio invests in a money
market fund, the investment adviser will reduce its advisory fee by the amount
of any investment advisory or administrative service fees paid to the investment
manager of the money market fund;
(G) The Portfolio may not invest directly in oil, gas or other mineral
development or exploration programs or leases; however, the Portfolio may own
debt or equity securities of companies engaged in those businesses;
(H) The Portfolio may not invest more than 25% of its net assets at the
time of purchase in the securities of foreign issuers and obligors;
(I) The Portfolio may not invest in companies for the purpose of exercising
control or management;
(J) The Portfolio's investment in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included within that
amount, but not to exceed 2% of the value of the Portfolio's net assets, may be
warrants that are not listed on the New York or American Stock Exchange.
Warrants acquired by the Portfolio in units or attached to securities shall be
deemed to be without value;
(K) The Portfolio may not purchase securities of any issuer (other than
U.S. government agencies and instrumentalities or instruments guaranteed by an
entity with a record of more than three years' continuous operation, including
that of predecessors) with a record of less than three years' continuous
operation (including that of predecessors) if such purchase would cause the cost
of the Portfolio's investments in all such issuers to exceed 5% of the
Portfolio's total assets taken at market value at the time of such purchase; and
(L) The Portfolio may not purchase or retain the securities of any issuer
if any of the officers or directors of the Portfolio or investment adviser
individually owns more than 0.5% of the outstanding securities of the issuer and
together they own beneficially more than 5% of the securities.
INVESTMENT RESTRICTIONS OF IDEX EQUITY-INCOME PORTFOLIO
IDEX Equity-Income Portfolio may not, as a matter of fundamental policy:
1. With respect to 75% of the Portfolio's total assets, purchase the
securities of any one issuer (other than government securities as defined in the
1940 Act) if immediately after and as a result of such purchase (a) the value of
the holdings of the Portfolio in the securities of such issuer exceeds 5% of the
value of the Portfolio's total assets, or (b) the Portfolio owns more than 10%
of the outstanding voting securities of such issuer;
2. Invest more than 25% of the Portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services, for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction. In addition, there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances;
3. Purchase or sell real estate (but this shall not prevent the Portfolio
from investing in securities or other instruments backed by real estate,
including mortgage-backed securities, or securities of companies engaged in the
real estate business);
4. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Portfolio from investing in securities or other instruments backed by physical
commodities);
5. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper or debt securities);
6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities;
9
<PAGE>
7. The Portfolio may borrow money only for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 25% of the value
of the Portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 25% of the value of the
Portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 25%
limitation; and
8. Issue senior securities, except as permitted by the 1940 Act.
Furthermore, the Equity-Income Portfolio has adopted the following
non-fundamental investment restrictions which may be changed by the Board of
Trustees of the Fund without shareholder approval:
(A) The Portfolio's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included within that
amount, but not to exceed 2% of the value of the Portfolio's net assets, may be
warrants that arenot listed on the New York or American Stock Exchange. Warrants
acquired by the Portfolio in units or attached to securities shall be deemed to
be without value;
(B) The Portfolio may not mortgage or pledge any securities owned or held
by the Portfolio in amounts that exceed, in the aggregate, 15% of the
Portfolio's net assets, provided that this limitation does not apply in the case
of assets deposited to margin or guarantee positions in options, futures
contracts and options on futures contracts or placed in a segregated account in
connection with such contracts;
(C) The Portfolio may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that margin payments and other deposits in connection with
transactions in options, swaps and forward futures contracts are not deemed to
constitute selling securities short;
(D) The Portfolio may not purchase securities on margin, except that the
Portfolio may obtain such short-term credits as are necessary for the clearance
of transactions, and provided that margin payments and other deposits in
connection with transactions in options, futures, swaps and forward contracts
shall not be deemed to constitute purchasing securities on margin;
(E) The Portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of a consolidation, merger or other reorganization;
(F) The Portfolio may not purchase securities, of any issuer (other than
U.S. government agencies and instrumentalities or instruments guaranteed by an
entity with a record of more than three years' continuous operation, including
that of predecessors) with a record of less than three years' continuous
operation (including that of predecessors) if such purchase would cause the cost
of the Portfolio's investments in all such issuers to exceed 5% of the
Portfolio's total assets taken at market value at the time of such purchase;
(G) The Portfolio may not invest directly in oil, gas, or other mineral
development or exploration programs or leases; however, the Portfolio may own
debt or equity securities of companies engaged in those businesses;
(H) The Portfolio may not invest more than 15% of its assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, or any successor to such Rule,
Section 4(2) commercial paper or any other securities as to which the Board of
Trustees has made a determination as to liquidity, as permitted under the 1940
Act;
(I) The Portfolio may not invest in companies for the purpose of exercising
control or management;
(J) The Portfolio may not invest in securities of foreign issuers
denominated in foreign currency and not publicly traded in the United States if
at the time of acquisition more than 10% of the Portfolio's total assets would
be invested in such securities; and
10
<PAGE>
(K) The Portfolio may not purchase or retain the securities of any issuer
if any of the officers or directors of the Portfolio or investment adviser
individually owns more than 0.5% of the outstanding securities of the issuer and
together they own beneficially more than 5% of the securities.
INVESTMENT RESTRICTIONS OF IDEX TACTICAL ASSET ALLOCATION PORTFOLIO
IDEX Tactical Asset Allocation Portfolio may not, as a matter of fundamental
policy:
1. With respect to 75% of the Portfolio's total assets, purchase the
securities of any one issuer (other than government securities as defined in the
1940 Act) if immediately after and as a result of such purchase (a) the value of
the holdings of the Portfolio in the securities of such issuer exceeds 5% of the
value of the Portfolio's total assets, or (b) the Portfolio owns more than 10%
of the outstanding voting securities of such issuer;
2. Invest more than 25% of the Portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services, for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction. In addition, there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, or of certificates of deposit and bankers acceptances;
3. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this limitation shall not
prevent the Portfolio from investing in securities or other instruments backed
by physical commodities);
4. Purchase or sell real estate (but this shall not prevent the Portfolio
from investing in securities or other instruments backed by real estate,
including mortgage-backed securities, or securities of companies engaged in the
real estate business);
5. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper or debt securities);
6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities;
7. The Portfolio may borrow money only for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 25% of the value
of the Portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 25% of the value of the
Portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 25%
limitation; and
8. Issue senior securities, except as permitted by the 1940 Act.
Furthermore, the Tactical Asset Allocation Portfolio has adopted the
following non-fundamental investment restrictions which may be changed by the
Board of Trustees of the Fund without shareholder approval:
(A) The Portfolio's investment in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included within that
amount, but not to exceed 2% of the value of the Portfolio's net assets, may be
warrants that are not listed on the New York or American Stock Exchange.
Warrants acquired by the Portfolio in units or attached to securities shall be
deemed to be without value;
(B) The Portfolio may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that margin payments and other deposits in connection with
transactions in options, swaps and forward and futures contracts are not deemed
to constitute selling securities short;
(C) The Portfolio may not purchase securities on margin, except that the
Portfolio may obtain such short-term credits as are necessary for the clearance
of transactions, and provided that margin payments and other deposits in
connection with transactions in options, futures, swaps and forward contracts
shall not be deemed to constitute purchasing securities on margin;
11
<PAGE>
(D) The Portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of a consolidation, merger or other reorganization;
(E) The Portfolio may not mortgage or pledge any securities owned or held
by the Portfolio in amounts that exceed, in the aggregate, 15% of the
Portfolio's net assets, provided that this limitation does not apply to reverse
repurchase agreements, deposits of assets to margin, guarantee positions in
futures, options, swaps or forward contracts or segregation of assets in
connection with such contracts;
(F) The Portfolio may not invest directly in oil, gas, or other mineral
development or exploration programs or leases; however, the Portfolio may own
debt or equity securities of companies engaged in those businesses;
(G) The Portfolio may not invest in companies for the purpose of exercising
control or management;
(H) The Portfolio may not purchase securities of any issuer (other than
U.S. government agencies and instrumentalities or instruments guaranteed by an
entity with a record of more than three years' continuous operation, including
that of predecessors) with a record of less than three years' continuous
operation (including that of predecessors) if such purchase would cause the cost
of the Portfolio's investments in all such issuers to exceed 5% of the
Portfolio's total assets taken at market value at the time of such purchase;
(I) The Portfolio may not purchase or retain the securities of any issuer
if any of the officers or directors of the Portfolio or investment adviser
individually owns more than 0.5% of the outstanding securities of the issuer and
together they own beneficially more than 5% of the securities; and
(J) The Portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, or any successor to such
Rule, Section 4(2) commercial paper or any other securities as to which the
Board of Trustees has made a determination as to liquidity, as permitted under
the 1940 Act.
INVESTMENT RESTRICTIONS OF IDEX INCOME PLUS PORTFOLIO
IDEX Income Plus Portfolio may not, as a matter of fundamental policy:
1. Borrow money, except from a bank for temporary or emergency purposes
(not for leveraging or investment) in an amount not to exceed 1/3 of the current
value of the Portfolio's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made. If at any time the Portfolio's borrowings exceed this limitation due to a
decline in net assets, such borrowings will be reduced within 3 business days to
the extent necessary to comply with the limitation. The Portfolio will borrow
only to facilitate redemptions requested by shareholders which might otherwise
require untimely disposition of portfolio securities and will not purchase
securities while borrowings are outstanding;
2. Pledge assets, except that the Portfolio may pledge not more than 1/3 of
its total assets (taken at current value) to secure borrowings made in
accordance with paragraph 1 above. Initial margin deposits under interest rate
futures contracts, which are made to guarantee the Portfolio's performance under
such contracts, shall not be deemed a pledging of Portfolio assets for the
purpose of this investment restriction. As a matter of non-fundamental operating
policy, in order to permit the sale of shares of the Portfolio under certain
state laws, the Portfolio will not pledge its assets in excess of an amount
equal to 10% of its net assets unless such state restrictions are changed;
3. Invest more than 25% of its assets, measured at the time of investment,
in a single industry (which term shall not include governments or their
political subdivisions), outside the industries of the Portfolio's public
utilities Portfolio concentration, except that the Portfolio may, for temporary
defensive purposes, invest more than 25% of its total assets in the obligations
of banks;
4. Purchase the securities (other than government securities) of any issuer
if, as a result, more than 5% of the Portfolio's total assets would be invested
in the securities of such issuer, provided that up to 25% of the Portfolio's
total net assets may be invested without regard to this 5% limitation and in the
case of certificates of deposit, time deposits and banker's acceptances,
12
<PAGE>
up to 25% of total Portfolio assets may be invested without regard to such 5%
limitation, but shall instead be subject to a 10% limitation;
5. Invest in mineral leases;
6. Invest in bank time deposits with maturities of over 7 calendar days, or
invest more than 10% of the Portfolio's total assets in bank time deposits with
maturities of from 2 business days through 7 calendar days;
7. Issue senior securities, except to the extent that senior securities may
be deemed to arise from bank borrowings and purchases of government securities
on a "when-issued" or "delayed delivery" basis, as described in the Prospectus;
8. Underwrite any issue of securities, except to the extent the Portfolio
may be deemed to be an underwriter in connection with the sale of its portfolio
securities, although the Portfolio may purchase securities directly from the
issuers thereof for investment in accordance with the Portfolio's investment
objective and policies;
9. Purchase or sell commodities or commodity contracts, except that the
Portfolio may purchase and sell interest rate futures contracts for hedging
purposes as set forth in the Prospectus;
10. Purchase securities on margin or sell "short", but the Portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities. (Initial and maintenance margin deposits and
payment with respect to interest rate futures contracts are not considered the
purchase of securities on margin);
11. Purchase or retain the securities of any issuer, if, to the Portfolio's
knowledge, those officers and directors of the manager and sub-adviser who
individually own beneficially more than 0.5% of the outstanding securities of
such issuer together own beneficially more than 5% of such outstanding
securities;
12. Invest in securities of other investment companies, except in the event
of merger or reorganization with another investment company;
13. Make loans, except to the extent the purchase of notes, bonds, bankers'
acceptances or other evidence of indebtedness or the entry into repurchase
agreements or deposits (including time deposits and certificates of deposit)
with banks may be considered loans;
14. Invest in companies for the purpose of exercising management for
control;
15. Invest in oil, gas or other mineral exploration or development
programs;
16. Purchase or hold any real estate or mortgage loans thereon, except that
the Portfolio may invest in securities secured by real estate or interests
therein or issued by persons (such as real estate investment trusts) which deal
in real estate or interests therein; and
17. Purchase the securities (other than government securities) of any
issuer if, as a result, the Portfolio would hold more than 10% of any class of
securities (including any class of voting securities) of such issuer; for this
purpose, all debt obligations of an issuer, and all shares of stock of an issuer
other than common stock, are treated as a single class of securities.
The Income Plus Portfolio has also adopted certain non-fundamental
investment restrictions which may be changed by the Board of Trustees without
shareholder approval. The Income Plus Portfolio may not:
(A) Write or purchase put, call, straddle or spread options, or
combinations thereof;
(B) Invest more than 10% of its assets in illiquid securities;
(C) Invest more than 5% of its net assets in securities (other than
government securities) of issuers which, together with their predecessors, have
been in business for less than 3 years;
(D) Invest in real estate limited partnerships;
13
<PAGE>
(E) Purchase or sell interest rate futures contracts (a) involving
aggregate delivery or purchase obligations in excess of 30% of the Portfolio's
net assets, or aggregate margin deposits made by the Portfolio in excess of 5%
of the Portfolio's net assets, (b) which are not for hedging purposes only, or
(c) which are executed under custodial, reserve and other arrangements
inconsistent with regulations and policies adopted or positions taken (i) by the
Securities and Exchange Commission for exemption from enforcement proceedings
under Section 17(f) or 18(f) of the 1940 Act, (ii) by the CFTC for exemption of
investment companies registered under the 1940 Act from registration as
"commodity pool operators" and from certain provisions of Subpart B of Part 4 of
the CFTC's regulations, or (iii) by state securities commissioners or
administrators in the states in which the Portfolio's shares have been qualified
for public offering; and
(F) Invest in warrants, valued at the lower of cost or market value, if
such value exceeds 5% of the Fund's net assets, provided that no more than 2% of
the Portfolio's net assets may be invested in warrants which are not listed on
the New York or American Stock Exchange. Warrants acquired by the Portfolio in
units or attached to securities may be deemed to be without value.
INVESTMENT RESTRICTIONS OF IDEX TAX-EXEMPT PORTFOLIO
IDEX Tax-Exempt Portfolio may not, as a matter of fundamental policy:
1. Underwrite any issue of securities, except to the extent the Portfolio
may be deemed to be an underwriter in connection with the sale of its portfolio
securities, although the Portfolio may purchase Municipal Obligations directly
from the issuers thereof for investment in accordance with the Portfolio's
investment objective and policies.
2. Purchase the securities (other than government securities) of any issuer
if, as a result, more than 5% of the Portfolio's total assets would be invested
in the securities of such issuer, provided that up to 25% of the Portfolio's
total net assets may be invested without regard to this 5% limitation;
3. Invest in any direct interest in an oil, gas or other mineral
exploration or development program;
4. Purchase securities on margin or sell "short", but the Portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities;
5. Purchase or hold any real estate or mortgage loans thereon, except that
the Portfolio may invest in securities secured by real estate or interests
therein or issued by persons (such as real estate investment trusts) which deal
in real estate or interests therein;
6. Purchase or retain the securities of any issuer, if, to the Portfolio's
knowledge, those officers and directors of the manager or sub-adviser who
individually own beneficially more than 0.5% of the outstanding securities of
such issuer together own beneficially more than 5% of such outstanding
securities;
7. Invest in securities of other investment companies, except in the event
of merger or reorganization with another investment company;
8. Make loans, except to the extent the purchase of notes, bonds, or other
evidences of indebtedness or the entry into repurchase agreements or deposits
with banks may be considered loans;
9. Invest in companies for the purpose of exercising management or control;
10. Write, purchase or sell put, call, straddle or spread options, except
for hedging purposes only, in accordance with such non-fundamental policies that
the Board may from time to time adopt;
11. Purchase or sell commodities or commodity contracts; and
12. The Portfolio may borrow money only for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 1/3 of the current
value of the Portfolio's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed at the time the borrowing is
made). For purposes of this limitation, reverse repurchases would not constitute
borrowings.
14
<PAGE>
The Tax-Exempt Portfolio has adopted the following non-fundamental
restrictions which may be changed by the Board of Trustees without shareholder
approval:
(A) The Portfolio may not invest more than 10% of its assets in illiquid
securities;
(B) The Portfolio may not invest in oil, gas or mineral leases;
(C) The Portfolio may not invest in real estate limited partnerships;
(D) The Portfolio may not invest more than 5% of its net assets in
securities of issuers which, together with their predecessors, have been in
business for less than 3 years; and
(E) For hedging purposes only, the Tax-Exempt Portfolio may adopt policies
permitting:
(1) the purchase and sale of interest rate futures contracts, the purchase
of put and call options thereon, and the writing of covered call or secured put
options thereon, not involving delivery or purchase obligations in excess of 30%
of the Portfolio's net assets, and
(2) the purchase of put and call options related to portfolio securities
and securities to be purchased for the Tax- Exempt Portfolio, the writing of
secured put and covered call options, and the entering into of closing purchase
transactions with respect to such options, where such transactions will not
involve futures contract margin deposits and premiums on option purchases which,
in the aggregate, exceed 5% of the Portfolio's net assets, in the judgment of
the sub-adviser are economically appropriate to the reduction of risks inherent
in the ongoing management of the Portfolio, and are executed under custodial,
reserve and other arrangements consistent with regulations and policies adopted
or positions taken (i) by the Securities and Exchange Commission for exemption
from enforcement proceedings under Section 17(f) or 18(f) of the Investment
Company Act of 1940, as amended (the "1940 Act"), (ii) by the Commodity Futures
Trading Commission (the "CFTC") for exemption of investment
companies registered under the 1940 Act from registration as "commodity pool
operators" and from certain provisions of Subpart B of Part 4 of the CFTC's
regulations, and (iii) by state securities commissioners or administrators in
the states in which the Portfolio's shares have been qualified for public
offering.
The Tax-Exempt Portfolio does not intend in the foreseeable future to adopt
the foregoing investment policies to permit trading in interest rate futures
contracts, options thereon, and options on portfolio securities.
Except with respect to borrowing money, if a percentage limitation set
forth above is complied with at the time of the investment, a subsequent change
in the percentage resulting from any change in value of the net assets of any of
the Portfolios will not result in a violation of such restriction. Additional
limitations on borrowing that are imposed by state law and regulations may
apply.
In addition to the above, as a fundamental policy, each of the Portfolios
other than the Tax-Exempt Portfolio and the Income Plus Portfolio, may,
notwithstanding any other investment policy or limitation (whether or not
fundamental), invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as such Portfolio.
OTHER POLICIES AND PRACTICES OF THE PORTFOLIOS
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS.
A. Futures Contracts. Each of the Portfolios other than the Tax-Exempt
Portfolio and the Income Plus Portfolio may enter into contracts
for the purchase or sale for future delivery of fixed-income
securities, foreign currencies or contracts based on financial
indices including indices of U.S. government securities, foreign
government securities, equity or fixed-income securities ("futures
contracts"). The Income Plus Portfolio may enter into contracts for
the
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purchase or sale of fixed-income securities ("interest rate
futures contracts") as described in the Prospectus. U.S. futures
contracts are traded on exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a futures commission merchant
("FCM"), or brokerage firm, which is a member of the relevant
contract market. Through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing
members of the exchange.
When a Portfolio buys or sells a futures contract it incurs a
contractual obligation to receive or deliver the underlying
instrument (or a cash payment based on the difference between the
underlying instrument's closing price and the price at which the
contract was entered into) at a specified price on a specified
date. Transactions in futures contracts may be made to attempt to
hedge against potential changes in interest or currency exchange
rates or the price of a security or a securities index which might
correlate with or otherwise adversely affect either the value of
the Portfolio's securities or the prices of securities which the
Portfolio is considering buying at a later date.
The buyer or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is
held until the delivery date. However, both the buyer and seller
are required to deposit "initial margin" for the benefit of the FCM
when the contract is entered into. Initial margin deposits are
equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in
cash or certain high-grade liquid assets by the Portfolio's
custodian for the benefit of the FCM. Initial margin payments are
similar to good faith deposits or performance bonds. Unlike margin
extended by a securities broker, initial margin payments do not
constitute purchasing securities on margin for purposes of a
Portfolio's investment limitations. If the value of either party's
position declines, that party will be required to make additional
"variation margin" payments with the FCM to settle the change in
value on a daily basis. The party that has a gain may be entitled
to receive all or a portion of this amount. In the event of the
bankruptcy of the FCM that holds margin on behalf of a Portfolio,
that Portfolio may be entitled to return of the margin owed to such
Portfolio only in proportion to the amount received by the FCM's
other customers. The portfolio manager will attempt to minimize the
risk by careful monitoring of the creditworthiness of the FCMs with
which a Portfolio does business and by segregating margin payments
with the custodian.
Although a Portfolio would segregate cash and liquid assets in
an amount sufficient to cover its open futures obligations, the
segregated assets would be available to that Portfolio immediately
upon closing out the futures position, while settlement of
securities transactions could take several days. However, because a
Portfolio's cash that may otherwise be invested would be held
uninvested or invested in high-grade liquid assets so long as the
futures position remains open, such Portfolio's return could be
diminished due to the opportunity losses of foregoing other
potential investments.
The acquisition or sale of a futures contract may occur, for
example, when a Portfolio holds or is considering purchasing equity
or debt securities and seeks to protect itself from fluctuations in
prices or interest rates without buying or selling those
securities. For example, if stock or debt prices were expected to
decrease, a Portfolio might sell equity index futures contracts,
thereby hoping to offset a potential decline in the value of equity
securities in the Portfolio by a corresponding increase in the
value of the futures contract position held by that Portfolio and
thereby preventing the Portfolio's net asset value from declining
as much as it otherwise would have. Similarly, if interest rates
were expected to rise, a Portfolio might sell bond index futures
contracts, thereby hoping to offset a potential decline in the
value of debt securities in the portfolio by a corresponding
increase in the value of the futures contract position held by the
Portfolio. A Portfolio also could seek to protect against potential
price declines by selling portfolio securities and investing in
money market instruments. However, since the futures market is more
liquid than the cash market, the use of futures contracts as an
investment technique allows a Portfolio to maintain a defensive
position without having to sell portfolio securities.
Similarly, when prices of equity securities are expected to
increase, or interest rates are expected to fall, futures contracts
may be bought to attempt to hedge against the possibility of having
to buy equity securities at higher prices. This technique is
sometimes known as an anticipatory hedge. Since the fluctuations in
the value of futures contracts should be similar to those of equity
securities, a Portfolio could take advantage of the potential rise
in the value of equity or debt securities without buying them until
the market has stabilized. At that time, the futures contracts
could be liquidated and such Portfolio could buy equity or debt
securities on the cash market. To the extent a Portfolio enters
into futures contracts for this purpose, the segregated assets
maintained to cover such Portfolio's obligations with respect to
futures contracts will consist of high-grade liquid assets from its
portfolio in an amount equal to the
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difference between the contract price and the aggregate value of
the initial and variation margin payments made by that Portfolio
with respect to the futures contracts.
The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets, are
subject to distortions. First, all participants in the futures
market are subject to initial margin and variation margin
requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal price
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery.
To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced and prices in the
futures market distorted. Third, from the point of view of
speculators, the margin deposit requirements in the futures market
are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures
market may cause temporary price distortions. Due to the
possibility of the foregoing distortions, a correct forecast of
general price trends by the portfolio manager still may not result
in a successful use of futures contracts.
Futures contracts entail risks. Although each of the Portfolios
that invests in such contracts believes that their use will benefit
the Portfolio, if the portfolio manager's investment judgment
proves incorrect, the Portfolio's overall performance could be
worse than if the Portfolio had not entered into futures contracts.
For example, if a Portfolio has hedged against the effects of a
possible decrease in prices of securities held in its portfolio and
prices increase instead, that Portfolio may lose part or all of the
benefit of the increased value of the securities because of
offsetting losses in the Portfolio's futures positions. In
addition, if a Portfolio has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin
requirements. Those sales may, but will not necessarily, be at
increased prices which reflect the rising market and may occur at a
time when the sales are disadvantageous to the Portfolio.
The prices of futures contracts depend primarily on the value of
their underlying instruments. Because there are a limited number of
types of futures contracts, it is possible that the standardized
futures contracts available to a Portfolio will not match exactly
such Portfolio's current or potential investments. A Portfolio may
buy and sell futures contracts based on underlying instruments with
different characteristics from the securities in which it typically
invests--for example, by hedging investments in portfolio
securities with a futures contract based on a broad index of
securities--which involves a risk that the futures position will
not correlate precisely with such performance of the Portfolio's
investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments correlate with a
Portfolio's investments. Futures prices are affected by factors
such as current and anticipated short-term interest rates, changes
in volatility of the underlying instruments, and the time remaining
until expiration of the contract. Those factors may affect
securities prices differently from futures prices. Imperfect
correlations between a Portfolio's investments and its futures
positions may also result from differing levels of demand in the
futures markets and the securities markets, from structural
differences in how futures and securities are traded, and from
imposition of daily price fluctuation limits for futures contracts.
A Portfolio may buy or sell futures contracts with a greater or
lesser value than the securities it wishes to hedge or is
considering purchasing in order to attempt to compensate for
differences in historical volatility between the futures contract
and the securities, although this may not be successful in all
cases. If price changes in a Portfolio's futures positions are
poorly correlated with its other investments, its futures positions
may fail to produce desired gains or may result in losses that are
not offset by the gains in that Portfolio's other investments.
Because futures contracts are generally settled within a day from
the date they are closed out, compared with a settlement period of
seven days for some types of securities, the futures markets can
provide superior liquidity to the securities markets. Nevertheless,
there is no assurance a liquid secondary market will exist for any
particular futures contract at any particular time. In addition,
futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves
upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached, it may be
impossible for a Portfolio to enter into new positions or close out
existing positions. If the secondary market for a futures contract
is not liquid because of price fluctuation limits or otherwise, the
Portfolio may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a
futures position until the delivery date, regardless of changes in
its value. As a result, such Portfolio's access to other assets
held to cover its futures positions also could be impaired.
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Although futures contracts by their terms call for the delivery or
acquisition of the underlying commodities or a cash payment based
on the value of the underlying commodities, in most cases the
contractual obligation is offset before the delivery date of the
contract by buying, in the case of a contractual obligation to
sell, or selling, in the case of a contractual obligation to buy,
an identical futures contract on a commodities exchange. Such a
transaction cancels the obligation to make or take delivery of the
commodities.
The Aggressive Growth, Capital Appreciation, Global, Growth,
C.A.S.E., Equity-Income, Tactical Asset Allocation, Balanced and
Flexible Income Portfolios each intend to comply with guidelines of
eligibility for exclusion from the definition of the term
"commodity pool operator" with the CFTC and the National Futures
Association, which regulate trading in the futures markets. The
Portfolios will use futures contracts and related options primarily
for bona fide hedging purposes within the meaning of CFTC
regulations; except that, in addition, the Portfolios may hold
positions in futures contracts and related options that do not fall
within the definition of bona fide hedging transactions, provided
that the aggregate initial margin and premiums required to
establish such positions will not exceed 5% of the fair market
value of a Portfolio's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it
has entered into.
The Aggressive Growth Portfolio may not enter in a futures contract
or related option (except for closing transactions) if, immediately
thereafter, the sum of the amount of its initial margin and
premiums on open futures contracts and options thereon would exceed
5% of the Aggressive Growth Portfolio's total assets (taken at
current value); however, in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount
may be excluded in calculating the 5% limitation.
B. Options on Futures Contracts. Each of the Portfolios other
than the Tax-Exempt and Income Plus Portfolios may buy and write
put and call options on futures contracts. An option on a future
gives a Portfolio the right (but not the obligation) to buy or sell
a futures contract at a specified price on or before a specified
date. Transactions in options on futures contracts may be made to
attempt to hedge against potential changes in interest rates or
currency exchange rates or the price of a security or a securities
index which might correlate with or otherwise adversely affect
either the value of the Portfolio's securities or the prices of
securities which the Portfolio is considering buying at a later
date. Transactions in options on future contracts will not be made
for speculation.
The purchase of a call option on a futures contract is similar in
some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the
price of the underlying instrument, ownership of the option may or
may not be less risky than ownership of the futures contract or the
underlying instrument. As with the purchase of futures contracts,
when a Portfolio is not fully invested it may buy a call option on
a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign
currency which is deliverable under, or of the index comprising,
the futures contract. If the futures price at the expiration of the
option is below the exercise price, a Portfolio will retain the
full amount of the option premium which provides a partial hedge
against any decline that may have occurred in such Portfolio's
holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the
security or foreign currency which is deliverable under, or of the
index comprising, the futures contract. If the futures price at
expiration of the option is higher than the exercise price, a
Portfolio will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of
securities which that Portfolio is considering buying. If a call or
put option a Portfolio has written is exercised, such Portfolio
will incur a loss which will be reduced by the amount of the
premium it received. Depending on the degree of correlation between
the change in the value of its portfolio securities and changes in
the value of the futures positions, that Portfolio's losses from
existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in
some respects to the purchase of protective put options on
portfolio securities. For example, a Portfolio may buy a put option
on a futures contract to hedge its portfolio securities against the
risk of falling prices or rising interest rates.
The amount of risk a Portfolio assumes when it buys an option on a
futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed
above, the purchase of an option also entails
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the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options
bought.
C. Options on Securities. In an effort to increase current
income and to reduce fluctuations in net asset value, each of the
Portfolios other than the Tax-Exempt Portfolio and the Income Plus
Portfolio may write covered put and call options and buy put and
call options on securities that are traded on United States and
foreign securities exchanges and over-the-counter. A Portfolio also
may write call options that are not covered for cross-hedging
purposes. A Portfolio may write and buy options on the same types
of securities that the Portfolio may purchase directly. There are
no specific limitations on the Portfolios' writing and buying of
options on securities.
A put option gives the holder the right, upon payment of a premium,
to deliver a specified amount of a security to the writer of the
option on or before a fixed date at a predetermined price. A call
option gives the holder the right, upon payment of a premium, to
call upon the writer to deliver a specified amount of a security on
or before a fixed date at a predetermined price.
A put option written by a Portfolio is "covered" if the Portfolio
(i) segregates cash not available for investment or high-grade
liquid assets with a value equal to the exercise price with its
custodian or (ii) holds a put on the same security and in the same
principal amount as the put written and the exercise price of the
put held is equal to or greater than the exercise price of the put
written. The premium paid by the buyer of an option will reflect,
among other things, the relationship of the exercise price to the
market price and the volatility of the underlying security, the
remaining term of the option, supply and demand and interest rates.
A call option written by a Portfolio is "covered" if the Portfolio
owns the underlying security covered by the call or has an absolute
and immediate right to acquire that security without additional
cash consideration (or has segregated additional cash with its
custodian) upon conversion or exchange of other securities held in
its portfolio. A call option written by a Portfolio is also deemed
to be covered if that Portfolio holds a call on the same security
and in the same principal amount as the call written and the
exercise price of the call held (i) is equal to or less than the
exercise price of the call written or (ii) is greater than the
exercise price of the call written if the difference is segregated
with its custodian.
A Portfolio may also write call options that are not covered for
cross hedging purposes. A Portfolio collateralizes its obligation
under a written call option for cross-hedging purposes by
segregating cash or high-grade liquid assets in an amount not less
than the market value of the underlying security, marked-to-market
daily. A Portfolio would write a call option for cross-hedging
purposes, instead of writing a covered call option, when the
premium to be received from the cross-hedge transaction would
exceed that which would be received from writing a covered call
option and the portfolio manager believes that writing the option
would achieve the desired hedge.
If a put or call option written by a Portfolio were exercised, the
Portfolio would be obligated to buy or sell the underlying security
at the exercise price. Writing a put option involves the risk of a
decrease in the market value of the underlying security, in which
case the option could be exercised and the underlying security
would then be sold by the option holder to the Portfolio at a
higher price than its current market value. Writing a call option
involves the risk of an increase in the market value of the
underlying security, in which case the option could be exercised
and the underlying security would then be sold by the Portfolio to
the option holder at a lower price than its current market value.
Those risks could be reduced by entering into an offsetting
transaction. A Portfolio retains the premium received from writing
a put or call option whether or not the option is exercised.
The writer of an option may have no control when the underlying
security must be sold, in the case of a call option, or bought, in
the case of a put option, since with regard to certain options, the
writer may be assigned an exercise notice at any time prior to the
termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This
amount, of course, may, in the case of a covered call option, be
offset by a decline in the market value of the underlying security
during the option period. If a call option is exercised, the writer
experiences a profit or loss from the sale of the underlying
security. If a put option is exercised, the writer must fulfill the
obligation to buy the underlying security at the exercise price,
which will usually exceed the then market value of the underlying
security.
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The writer of an option that wishes to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position
will be canceled by the clearing corporation. However, a writer may
not effect a closing purchase transaction after being notified of
the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing
sale transaction." This is accomplished by selling an option of the
same series as the option previously bought. There is no guarantee
that either a closing purchase or a closing sale transaction can be
effected.
In the case of a written call option, effecting a closing
transaction will permit a Portfolio to write another call option on
the underlying security with either a different exercise price or
expiration date or both. In the case of a written put option, such
transaction will permit the Portfolio to write another put option
to the extent that the exercise price thereof is secured by
deposited high-grade liquid assets. Effecting a closing transaction
also will permit the cash or proceeds from the concurrent sale of
any securities subject to the option to be used for other Portfolio
investments. If a Portfolio desires to sell a particular security
on which the Portfolio has written a call option, such Portfolio
will effect a closing transaction prior to or concurrent with the
sale of the security.
A Portfolio will realize a profit from a closing transaction if the
price of a purchase transaction is less than the premium received
from writing the option or the price received from a sale
transaction is more than the premium paid to buy the option. The
Portfolio will realize a loss from a closing transaction if the
price of the purchase transaction is more than the premium received
from writing the option or the price received from a sale
transaction is less than the premium paid to buy the option.
Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option
is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Portfolio.
An option position may be closed out only where a secondary market
for an option of the same series exists. If a secondary market does
not exist, a Portfolio may not be able to effect closing
transactions in particular options and that Portfolio would have to
exercise the options in order to realize any profit. If a Portfolio
is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market may
include the following: (i) there may be insufficient trading
interest in certain options, (ii) restrictions may be imposed by a
national securities exchange on which the option is traded
("Exchange") on opening or closing transactions or both, (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of options or
underlying securities, (iv) unusual or unforeseen circumstances may
interrupt normal operations on an Exchange, (v) the facilities of
an Exchange or the Options Clearing Corporation ("OCC") may not at
all times be adequate to handle current trading volume, or (vi) one
or more Exchanges could, for economic or other reasons, decide or
be compelled at some future date to discontinue the trading of
options (or a particular class or series of options), in which
event the secondary market on that Exchange (or in that class or
series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the OCC as a
result of trades on that Exchange would continue to be exercisable
in accordance with their terms.
Each of the Portfolios other than the Tax-Exempt Portfolio and the
Income Plus Portfolio may write options in connection with
buy-and-write transactions. In other words, the Portfolio may buy a
security and then write a call option against that security. The
exercise price of such call will depend upon the expected price
movement of the underlying security. The exercise price of a call
option may be below ("in-the-money"), equal to ("at-the-money") or
above ("out-of-the-money") the current value of the underlying
security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is
expected that the price of the underlying security will remain flat
or decline moderately during the option period. Buy-and-write
transactions using at-the-money call options may be used when it is
expected that the price of the underlying security will remain
fixed or advance moderately during the option period. Buy-and-write
transactions using out-of-the-money call options may be used when
it is expected that the premiums received from writing the call
option plus the appreciation in the market price of the underlying
security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the
call options are exercised in such transactions, the Portfolio's
maximum gain will be the premium received by it for writing the
option, adjusted upwards or downwards by the difference between
that Portfolio's purchase price of the security and the exercise
price. If the options are not exercised and the price of the
underlying security declines, the amount of such decline will be
offset by the amount of premium received.
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The writing of covered put options is similar in terms of risk and
return characteristics to buy-and-write transactions. If the market
price of the underlying security rises or otherwise is above the
exercise price, the put option will expire worthless and a
Portfolio's gain will be limited to the premium received. If the
market price of the underlying security declines or otherwise is
below the exercise price, a Portfolio may elect to close the
position or take delivery of the security at the exercise price and
that Portfolio's return will be the premium received from the put
options minus the amount by which the market price of the security
is below the exercise price.
A Portfolio may buy put options to hedge against a decline in the
value of its Portfolio. By using put options in this way, a
Portfolio will reduce any profit it might otherwise have realized
in the underlying security by the amount of the premium paid for
the put option and by transaction costs.
A Portfolio may buy call options to hedge against an increase in
the price of securities that it may buy in the future. The premium
paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by such Portfolio upon exercise of the
option, and, unless the price of the underlying security rises
sufficiently, the option may expire worthless to that Portfolio.
In purchasing an option, a Portfolio would be in a position to
realize a gain if, during the option period, the price of the
underlying security increased (in the case of a call) or decreased
(in the case of a put) by an amount in excess of the premium paid
and would realize a loss if the price of the underlying security
did not increase (in the case of a call) or decrease (in the case
of a put) during the period by more than the amount of the premium.
If a put or call option purchased by a Portfolio were permitted to
expire without being sold or exercised, the Portfolio would lose
the amount of the premium.
Although they entitle the holder to buy equity securities, warrants
on and options to purchase equity securities do not entitle the
holder to dividends or voting rights with respect to the underlying
securities, nor do they represent any rights in the assets of the
issuer of those securities.
In addition to options on securities, a Portfolio may also purchase
and sell call and put options on securities indexes. A stock index
reflects in a single number the market value of many different
stocks. Relative values are assigned to the stocks included in an
index and the index fluctuates with changes in the market values of
the stocks. The options give the holder the right to receive a cash
settlement during the term of the option based on the difference
between the exercise price and the value of the index. By writing a
put or call option on a securities index, the Portfolio is
obligated, in return for the premium received, to make delivery of
this amount. The Portfolio may offset its position in stock index
options prior to expiration by entering into a closing transaction
on an exchange or it may let the option expire unexercised.
Use of options on securities indexes entails the risk that trading
in the options may be interrupted if trading in certain securities
included in the index is interrupted. The Portfolio will not
purchase these options unless the sub-adviser is satisfied with the
development, depth and liquidity of the market and believes the
options can be closed out.
Price movements in the Portfolio's securities may not correlate
precisely with movements in the level of an index and, therefore,
the use of options on indexes cannot serve as a complete hedge and
will depend, in part, on the ability of its portfolio manager to
predict correctly movements in the direction of the stock market
generally or of a particular industry. Because options on
securities indexes require settlement in cash, the portfolio
manager may be forced to liquidate portfolio securities to meet
settlement obligations.
The amount of risk a Portfolio assumes when it buys an option on a
futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed
above, the purchase of an option also entails the risk that changes
in the value of the underlying futures contract will not be fully
reflected in the value of the options bought.
D. Options on Foreign Currencies. Each of the Portfolios other than
the Tax-Exempt Portfolio and the Income Plus Portfolio may buy and
write options on foreign currencies in a manner similar to that in
which futures contracts or forward contracts on foreign currencies
will be utilized. For example, a decline in the U.S. dollar value
of a foreign
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currency in which portfolio securities are denominated will reduce
the U.S. dollar value of such securities, even if their value in
the foreign currency remains constant. In order to protect against
such diminutions in the value of portfolio securities, a Portfolio
may buy put options on the foreign currency. If the value of the
currency declines, such Portfolio will have the right to sell such
currency for a fixed amount in U.S. dollars and will offset, in
whole or in part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in
which securities to be acquired are denominated is projected,
thereby increasing the cost of such securities, a Portfolio may buy
call options thereon. The purchase of such options could offset, at
least partially, the effects of the adverse movements in exchange
rates. As in the case of other types of options, however, the
benefit to a Portfolio from purchases of foreign currency options
will be reduced by the amount of the premium and related
transaction costs. In addition, if currency exchange rates do not
move in the direction or to the extent desired, a Portfolio could
sustain losses on transactions in foreign currency options that
would require such Portfolio to forego a portion or all of the
benefits of advantageous changes in those rates. In addition, in
the case of other types of options, the benefit to the Portfolio
from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs.
A Portfolio may also write options on foreign currencies. For
example, in attempting to hedge against a potential decline in the
U.S. dollar value of foreign currency denominated securities due to
adverse fluctuations in exchange rates, a Portfolio could, instead
of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most
likely not be exercised and the diminution in value of portfolio
securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to attempt to hedge
against a potential increase in the U.S. dollar cost of securities
to be acquired, a Portfolio could write a put option on the
relevant currency which, if rates move in the manner projected,
will expire unexercised and allow that Portfolio to hedge the
increased cost up to the amount of premium. As in the case of other
types of options, however, the writing of a foreign currency option
will constitute only a partial hedge up to the amount of the
premium. If exchange rates do not move in the expected direction,
the option may be exercised and a Portfolio would be required to
buy or sell the underlying currency at a loss which may not be
offset by the amount of the premium. Through the writing of options
on foreign currencies, a Portfolio also may lose all or a portion
of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.
A Portfolio may write covered call options on foreign currencies. A
call option written on a foreign currency by a Portfolio is
"covered" if that Portfolio owns the underlying foreign currency
covered by the call or has an absolute and immediate right to
acquire that foreign currency without additional cash consideration
(or for additional cash consideration that is segregated by its
custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if a Portfolio
has a call on the same foreign currency and in the same principal
amount as the call written if the exercise price of the call held
(i) is equal to or less than the exercise price of the call written
or (ii) is greater than the exercise price of the call written, if
the difference is maintained by such Portfolio in cash or
high-grade liquid assets that are segregated with the Fund's
custodian.
Each of the Portfolios other than the Tax-Exempt Portfolio and the
Income Plus Portfolio may write call options on foreign currencies
for cross-hedging purposes that would not be deemed to be covered.
A call option on a foreign currency is for cross-hedging purposes
if it is not covered but is designed to provide a hedge against a
decline due to an adverse change in the exchange rate in the U.S.
dollar value of a security which the Portfolio owns or has the
right to acquire and which is denominated in the currency
underlying the option. In such circumstances, a Portfolio
collateralizes the option by segregating cash or high-grade liquid
assets in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.
E. Forward Contracts. A forward contract is an agreement between two
parties in which one party is obligated to deliver a stated amount
of a stated asset at a specified time in the future and the other
party is obligated to pay a specified invoice amount for the assets
at the time of delivery. Each of the Portfolios other than the
Tax-Exempt Portfolio and Income Plus Portfolio may enter into
forward contracts to purchase and sell government securities,
foreign currencies or other financial instruments. Forward
contracts generally are traded in an interbank market conducted
directly between traders (usually large commercial banks) and their
customers. Unlike futures contracts, which are standardized
contracts, forward contracts can be specifically drawn to meet the
needs of the parties that enter into them. The parties
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to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and
complete the contemplated exchange.
The following discussion summarizes the Aggressive Growth,
C.A.S.E., Capital Appreciation, Global, Growth, Equity-Income,
Tactical Asset Allocation, Balanced and Flexible Income Portfolios'
principal uses of forward foreign currency exchange contracts
("forward currency contracts"). A Portfolio may enter into forward
currency contracts with stated contract values of up to the value
of that Portfolio's assets. A forward currency contract is an
obligation to buy or sell an amount of a specified currency for an
agreed price (which may be in U.S. dollars or another currency). A
Portfolio will exchange foreign currencies for U.S. Dollars and for
other foreign currencies in the normal course of business and may
buy and sell currencies through forward currency contracts in order
to fix a price for securities it has agreed to buy or sell
("transaction hedge"). A Portfolio also may hedge some or all of
its investments denominated in foreign currency against a decline
in the value of that currency relative to the U.S. dollar by
entering into forward currency contracts to sell an amount of that
currency (or a proxy currency whose performance is expected to
replicate or exceed the performance of that currency relative to
the U.S. dollar) approximating the value of some or all of its
portfolio securities denominated in that currency ("position
hedge") or by participating in options or futures contracts with
respect to the currency. A Portfolio also may enter into a forward
currency contract with respect to a currency where such Portfolio
is considering the purchase or sale of investments denominated in
that currency but has not yet selected the specific investments
("anticipatory hedge"). In any of these circumstances a Portfolio
may, alternatively, enter into a forward currency contract to
purchase or sell one foreign currency for a second currency that is
expected to perform more favorably 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").
These types of hedging seek to minimize the effect of currency
appreciation as well as depreciation, but do not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the
proceeds of or rates of return on a Portfolio's foreign currency
denominated portfolio securities. The matching of the increase in
value of a forward contract and the decline in the U.S. dollar
equivalent value of the foreign currency denominated asset that is
the subject of the hedge generally will not be precise. Shifting a
Portfolio's currency exposure from one foreign currency to another
removes that Portfolio's opportunity to profit from increases in
the value of the original currency and involves a risk of increased
losses to such Portfolio if its portfolio manager's position
projection of future exchange rates is inaccurate. Proxy hedges and
cross-hedges may result in losses if the currency used to hedge
does not perform similarly to the currency in which hedged
securities are denominated. Unforeseen changes in currency prices
may result in poorer overall performance for a Portfolio than if it
had not entered into such contracts.
A Portfolio will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in the currency
underlying the forward contract or the currency being hedged. To
the extent that a Portfolio is not able to cover its forward
currency positions with underlying portfolio securities, its
custodian will segregate cash or high-grade liquid assets having a
value equal to the aggregate amount of such Portfolio's commitments
under forward contracts entered into with respect to position
hedges, cross-hedges and anticipatory hedges. If the value of the
securities used to cover a position or the value of segregated
assets declines, the Portfolio will find alternative cover or
segregate additional cash or high-grade liquid assets on a daily
basis so that the value of the covered and segregated assets will
be equal to the amount of a Portfolio's commitments with respect to
such contracts. As an alternative to segregating assets, a
Portfolio may buy call options permitting such Portfolio to buy the
amount of foreign currency being hedged by a forward sale contract
or a Portfolio may buy put options permitting it to sell the amount
of foreign currency subject to a forward buy contact.
While forward contracts are not currently regulated by the CFTC,
the CFTC may in the future assert authority to regulate forward
contracts. In such event, a Portfolio's ability to utilize forward
contracts may be restricted. In addition, a Portfolio may not
always be able to enter into forward contracts at attractive prices
and may be limited in its ability to use these contracts to hedge
its assets.
F. Swaps and Swap-Related Products. In order to attempt to protect
the value of its investments from interest rate or currency
exchange rate fluctuations, each of the Portfolios other than the
Tax-Exempt Portfolio and the Income Plus Portfolio may enter into
interest rate and currency exchange rate swaps, and may buy or sell
interest rate and currency exchange rate caps and floors. The
portfolio manager expects to enter into these transactions
primarily to attempt to preserve a return or spread on a particular
investment or portion of its portfolio. A Portfolio also may enter
into these
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transactions to attempt to protect against any increase in the
price of securities the Portfolio may consider buying at a later
date.
Each Portfolio does not intend to use these transactions as a
speculative investment. Interest rate swaps involve the exchange by
a Portfolio with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The exchange commitments can
involve payments to be made in the same currency or in different
currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
contractually based principal amount from the party selling the
interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a
contractually based principal amount from the party selling the
interest rate floor.
Each of the Portfolios other than the Tax-Exempt and Income Plus
Portfolios may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending upon
whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis (i.e., the
two payment streams are netted out, with a Portfolio receiving or
paying, as the case may be, only the net amount of the two
payments). The net amount of the excess, if any, of a Portfolio's
obligations over its entitlements with respect to each interest
rate swap will be calculated on a daily basis and an amount of cash
or high-grade liquid assets having an aggregate net asset at least
equal to the accrued excess will be segregated by its custodian. If
a Portfolio enters into an interest rate swap on other than a net
basis, it will maintain a segregated account in the full amount
accrued on a daily basis of its obligations with respect to the
swap. A Portfolio will not enter into any interest rate swap, cap
or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in one of
the three highest rating categories of at least one nationally
recognized statistical rating organization at the time of entering
into such transaction. The portfolio manager will monitor the
creditworthiness of all counterparties on an ongoing basis. If
there is a default by the other party to such a transaction, the
Portfolio will have contractual remedies pursuant to the agreements
related to the transaction.
The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation.
The sub-advisers have determined that, as a result, the swap market
has become relatively liquid. Caps and floors are more recent
innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the
extent a Portfolio sells (i.e., writes) caps and floors, it will
segregate cash or high-grade liquid assets having an aggregate net
asset value at least equal to the full amount, accrued on a daily
basis, of its obligations with respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions
that may be entered into by the Aggressive Growth, Capital
Appreciation, Global, Growth, C.A.S.E., Equity-Income, Tactical
Asset Allocation, Balanced and Flexible Income Portfolios, although
none of the Portfolios presently intends to engage in such
transactions in excess of 5% of its total assets. These
transactions may in some instances involve the delivery of
securities or other underlying assets by a Portfolio or its
counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss
with respect to interest rate swaps is limited to the net amount of
the interest payments that a Portfolio is contractually obligated
to make. If the other party to an interest rate swap that is not
collateralized defaults, a Portfolio would risk the loss of the net
amount of the payments that it contractually is entitled to
receive. A Portfolio may buy and sell (i.e., write) caps and floors
without limitation, subject to the segregation requirement
described above.
In addition to the instruments, strategies and risks described in
this Statement of Additional Information and in the Prospectus,
there may be additional opportunities in connection with options,
futures contracts, forward currency contracts and other hedging
techniques, that become available as the portfolio managers develop
new techniques, as regulatory authorities broaden the range of
permitted transactions and as new instruments are developed. The
portfolio managers may use these opportunities to the extent they
are consistent with the Portfolio's investment objective and are
permitted by the Portfolio's investment limitations and applicable
regulatory requirements.
G. Eurodollar Instruments. The Portfolios may each make investments
in Eurodollar instruments. Eurodollar instruments are U.S.
dollar-denominated futures contracts or options thereon which are
linked to the London Interbank Offered Rate (the "LIBOR"), although
foreign currency-denominated instruments are available from time to
time. Eurodollar
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futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings.
A Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest
rate swaps and fixed income instruments are linked.
H. Special Investment Considerations and Risks. The successful use of
the investment practices described above with respect to futures
contracts, options on futures contracts, forward contracts, options
on securities and on foreign currencies, and swaps and swap-related
products draws upon skills and experience which are different from
those needed to select the other instruments in which a Portfolio
invests. Should interest or exchange rates or the prices of
securities or financial indices move in an unexpected manner, a
Portfolio may not achieve the desired benefits of the foregoing
instruments or may realize losses and thus be in a worse position
than if such strategies had not been used. Unlike many
exchange-traded futures contracts and options on futures contracts,
there are no 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. In
addition, the correlation between movements in the price of the
securities and currencies hedged or used for cover will not be
perfect and could produce unanticipated losses.
A Portfolio's ability to dispose of its positions in the foregoing
instruments will depend on the availability of liquid markets in
the instruments. Markets in a number of the instruments are
relatively new and still developing, and it is impossible to
predict the amount of trading interest that may exist in those
instruments in the future. Particular risks exist with respect to
the use of each of the foregoing instruments and could result in
such adverse consequences to a Portfolio as the possible loss of
the entire premium paid for an option bought by a Portfolio, the
inability of the Portfolio, as the writer of a covered call option,
to benefit from the appreciation of the underlying securities above
the exercise price of the option and the possible need to defer
closing out positions in certain instruments to avoid adverse tax
consequences. As a result, no assurance can be given that a
Portfolio will be able to use those instruments effectively for
their intended purposes.
In connection with certain of its hedging transactions, a Portfolio
must segregate assets with the Fund's custodian bank to ensure that
such Portfolio will be able to meet its obligations pursuant to
these instruments. Segregated assets generally may be not be
disposed of for so long as a Portfolio maintains the positions
giving rise to the segregation requirement. Segregation of a large
percentage of a Portfolio's assets could impede implementation of
that Portfolio's investment policies or its ability to meet
redemption requests or other current obligations.
I. Additional Risks of Options on Foreign Currencies, Forward
Contracts and Foreign Instruments. Unlike transactions entered into
by a Portfolio in futures contracts, options on foreign currencies
and forward contracts are not traded on contract markets regulated
by the CFTC or (with the exception of certain foreign currency
options) by the SEC. To
the contrary, such instruments are traded through financial
institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. Options on currencies
may be traded over-the- counter. In an over-the-counter trading
environment, many of the protections afforded to exchange
participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could
therefore continue to an unlimited extent over a period of time.
Although the buyer of an option cannot lose more than the amount of
the premium plus related transaction costs, this entire amount
could be lost. Moreover, an option writer and a buyer or seller of
futures or forward contracts could lose amounts substantially in
excess of any premium received or initial margin or collateral
posted due to the potential additional margin and collateral
requirements associated with such positions.
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other
securities traded on such exchanges. As a result, many of the
protections provided to traders on organized exchanges will be
available with respect to such transactions. In particular, all
foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the OCC, thereby
reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter
market, potentially permitting a Portfolio to liquidate open
positions at a profit prior to exercise or expiration, or to limit
losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid
secondary market described above, as well as the risks regarding
adverse market movements, margining
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of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition,
exchange-traded options on foreign currencies involve certain risks
not presented by the over-the-counter market. For example, exercise
and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it
determines that foreign government restrictions or taxes would
prevent the orderly settlement of foreign currency option
exercises, or would result in undue burdens on the OCC or its
clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of delivery
of currency, the fixing of dollar settlement prices or prohibitions
on exercise.
In addition, options on U.S. government securities, futures
contracts, options on futures contracts, forward contracts and
options on foreign currencies may be traded on foreign exchanges
and over-the-counter in foreign countries. Such transactions are
subject to the risk of governmental actions affecting trading in or
the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability
than in the United States of data on which to make trading
decisions, (iii) delays in a Portfolio's ability to act upon
economic events occurring in foreign markets during nonbusiness
hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) low trading volume.
OTHER INVESTMENT COMPANIES.
The Tactical Asset Allocation Portfolio may invest up to 10% of its total
assets, calculated at the time of purchase, in the securities of money market
funds, which are investment companies. The Portfolio may not invest (i) more
than 5% of its total assets in the securities of any one investment company or
(ii) in more than 3% of the total outstanding voting securities of any other
investment company. The Portfolio will indirectly bear its proportionate share
of any investment advisory fees and expenses paid by the funds in which it
invests, in addition to the investment advisory fee and expenses paid by the
Portfolio.
ZERO COUPON, PAY-IN-KIND AND STEP COUPON SECURITIES.
Although it is the policy of the Flexible Income, Income Plus and Tactical Asset
Allocation Portfolios to invest primarily 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, pay-in-kind and step-coupon securities.
Zero-coupon bonds are issued and traded at a discount from their face value.
They do not entitle the holder to any periodic payment of interest prior to
maturity. Step coupon bonds trade at a discount from their face value and pay
coupon interest. The coupon rate is low for an initial period and then increases
to a higher coupon rate thereafter. The discount from the face amount or par
value depends on the time remaining until cash payments begin, prevailing
interest rates, liquidity of the security and the perceived credit quality of
the issuer. Pay-in-kind bonds give the issuer an option to pay cash at a coupon
payment date or give the holder of the security a similar bond with the same
coupon rate and a face value equal to the amount of the coupon payment that
would have been made. 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.
Current federal income tax law requires holders of zero-coupon securities
and step-coupon securities to report the portion of the original issue discount
on such securities that accrues that year as interest income, even though the
holders receive no cash payments of interest during the year. In order to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986 ("Code"), a Portfolio must distribute its investment company taxable
income, including the original issue discount accrued on zero-coupon or
step-coupon bonds. Because it will not receive cash payments on a current basis
in respect of accrued original-issue discount on zero-coupon bonds or
step-coupon bonds during the period before interest payments begin, in some
years a Portfolio may have to distribute cash obtained from other sources in
order to satisfy the distribution requirements under the Code. A Portfolio might
obtain such cash from selling other portfolio holdings. These actions may reduce
the assets to which Portfolio expenses could be allocated and may reduce the
rate of return for such Portfolio. In some circumstances, such sales might be
necessary in order to satisfy cash distribution requirements even though
investment considerations might otherwise make it undesirable for a Portfolio to
sell the securities at the time.
Generally, the market prices of zero-coupon bonds and strip securities are
more volatile than the prices of securities that pay interest periodically and
in cash and are likely to respond to changes in interest rates to a greater
degree than other types of debt securities having similar maturities and credit
quality.
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INCOME-PRODUCING SECURITIES.
As a fundamental policy, the Flexible Income Portfolio may not purchase a
non-income-producing security if, after such purchase, less than 80% of the
Flexible Income Portfolio's total assets would be invested in income-producing
securities. Income-producing securities include securities that make periodic
income payments, as well as those that make interest payments on a deferred
basis, or pay interest at maturity (as in the case with treasury bills or
zero-coupon bonds).
The Flexible Income Portfolio will purchase defaulted securities only when
its portfolio manager believes, based upon his analysis of the financial
condition, results of operations and economic outlook of an issuer, that there
is potential for resumption of income payments and that the securities offer an
unusual opportunity for capital appreciation. Notwithstanding the portfolio
manager's belief as to the resumption of income payments, however, the purchase
of any security on which payment of interest or dividends is suspended involves
a high degree of risk. Such risk includes, among other things, the following:
A. Financial and Market Risks. Investments in securities that
are in default involve a high degree of financial and market risks
that can result in substantial or at times even total losses.
Issuers of defaulted securities may have substantial capital needs
and may become involved in bankruptcy or reorganization
proceedings. Among the problems involved in investments in such
issuers is the fact that it may be difficult to obtain information
about the condition of such issuers. The market prices of such
securities also are subject to abrupt and erratic movements and
above average price volatility, and the spread between the bid and
asked prices of such securities may be greater than normally
expected.
B. Disposition of Portfolio Securities. Although the Flexible Income
Portfolio generally intends to purchase securities for which its
portfolio manager expects an active market to be maintained,
defaulted securities may be less actively traded than other
securities and it may be difficult to dispose of substantial
holdings of such securities at prevailing market prices. The
Flexible Income Portfolio will limit its holdings of any such
securities to amounts that its portfolio manager believes could be
readily sold, and its holdings of such securities would, in any
event, be limited so as not to limit the Flexible Income
Portfolio's ability to readily dispose of its securities to meet
redemptions.
C. Other. Defaulted securities require active monitoring and may, at
times, require participation in bankruptcy or receivership
proceedings on behalf of the Flexible Income Portfolio.
Other types of income producing securities that the Portfolios may purchase
include, but are not limited to, the following types of securities:
Variable and Floating Rate Obligations. These types of securities are
relatively long-term instruments that often carry demand features permitting the
holder to demand payment of principal at any time or at specified intervals
prior to maturity.
Standby Commitments. These instruments, which are similar to a put, give
the Portfolios the option to obligate a broker, dealer or bank to repurchase a
security held by the Portfolios at a specified price.
Tender Option Bonds. Tender option bonds are relatively long-term bonds
that are coupled with the agreement of a third party (such as a broker, dealer
or bank) to grant the holders of such securities the option to tender the
securities to the institution at periodic intervals.
Inverse Floaters. Inverse floaters are instruments whose interest bears an
inverse relationship to the interest rate on another security. The Portfolios
will not invest more than 5% of their respective assets in inverse floaters.
The Portfolios will purchase instruments with demand features, standby
commitments and tender option bonds primarily for the purpose of increasing the
liquidity of their portfolios.
LENDING OF PORTFOLIO SECURITIES.
Subject to any applicable investment restriction relating to lending, each
of the Portfolios other than the Tax-Exempt Portfolio and the Income Plus
Portfolio may lend securities from its portfolio. Under applicable regulatory
requirements (which are subject to change), the following conditions apply to
securities loans: a) the loan must be continuously secured by liquid assets
maintained on a current basis in an amount at least equal to the market value of
the securities loaned; b) a Portfolio must receive any dividends or interest
paid by the issuer on such securities; c) a Portfolio must have the right to
call the loan and obtain the
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securities loaned at any time upon notice of not more than five business days,
including the right to call the loan to permit voting of the securities; and d)
a Portfolio must receive either interest from the investment of collateral or a
fixed fee from the borrower. Securities loaned by a Portfolio remain subject to
fluctuations in market value. A Portfolio may pay reasonable finders, custodian
and administrative fees in connection with a loan. Securities lending, as with
other extensions of credit, involves the risk that the borrower may default.
Although securities loans will be fully collateralized at all times, a Portfolio
may experience delays in, or be prevented from, recovering the collateral.
During a period that a Portfolio seeks to enforce its rights against the
borrower, the collateral and the securities loaned remain subject to
fluctuations in market value. A Portfolio may also incur expenses in enforcing
its rights. If a Portfolio has sold the loaned security, it may not be able to
settle the sale of the security and may incur potential liability to the buyer
of the security on loan for its costs to cover the purchase. The Portfolios will
not lend securities to any advisers or sub-advisers to the Fund or their
affiliates. By lending its securities, a Portfolio can increase its income by
continuing to receive interest or dividends on the loaned securities as well as
by either investing the cash collateral in short-term securities or by earning
income in the form of interest paid by the borrower when U.S. government
securities are used as collateral.
JOINT TRADING ACCOUNTS.
As described in the Prospectus, the Growth, Global, Flexible Income,
Balanced and Capital Appreciation Portfolios and other clients of Janus Capital
and its affiliates may place assets in joint trading accounts for the purpose of
making short-term investments in money market instruments. The Board of Trustees
of the Fund must approve the participation of each of these Portfolios in these
joint trading accounts and procedures pursuant to which the joint accounts will
operate. The joint trading accounts are to be operated pursuant to an exemptive
order issued to Janus Capital and certain of its affiliates by the SEC. All
joint account participants, including these Portfolios, will bear the expenses
of the joint trading accounts in proportion to their investments. Financial
difficulties of other participants in the joint accounts could cause delays or
other difficulties for the Portfolios in withdrawing their assets from joint
trading accounts.
ILLIQUID SECURITIES.
Each of the Aggressive Growth, C.A.S.E., Capital Appreciation, Global,
Growth, Equity-Income, Tactical Asset Allocation, Balanced and Flexible Income
Portfolios may invest up to 15%, and each of the Tax-Exempt and Income Plus
Portfolios may invest up to 10%, of its net assets in illiquid securities (i.e.,
securities that are not readily marketable). The Board of Trustees has
authorized the sub-advisers to make liquidity determinations with respect to its
securities, including Rule 144A securities, commercial paper and municipal lease
obligations in accordance with the guidelines established by the Board of
Trustees. Under the guidelines, the portfolio manager will consider the
following factors in determining whether a Rule 144A security or a municipal
lease obligation is liquid: 1) the frequency of trades and quoted prices for the
security; 2) the number of dealers willing to purchase or sell the security and
the number of other potential purchasers; 3) the willingness of dealers to
undertake to make a market in the security; and 4) the nature of the marketplace
trades, including the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer. With respect to
municipal lease obligations, the portfolio managers of the Tax-Exempt and
Flexible Income Portfolios will also consider factors unique to municipal lease
obligations including the general creditworthiness of the municipality, the
importance of the property covered by the lease obligation and the likelihood
that the marketability of the obligation will be maintained throughout the time
the obligation is held by the Portfolio. 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.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS.
Although each of the Portfolios may enter into repurchase and reverse
repurchase agreements, the Growth, C.A.S.E., Global, Flexible Income,
Tax-Exempt, Equity-Income and Income Plus Portfolios do not intend to invest
more than 5% of their assets, and the Balanced, Capital Appreciation, Aggressive
Growth and Tactical Asset Allocation Portfolios do not intend to invest more
than 15% of their assets, in either repurchase or reverse repurchase agreements.
In a repurchase agreement, a Portfolio purchases a security and simultaneously
commits to resell that security to the seller at an agreed upon price on an
agreed upon date within a number of days (usually not more than seven) from the
date of purchase. The resale price reflects the purchase price plus an agreed
upon incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price, which obligation is in effect secured
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by the value (at least equal to the amount of the agreed upon resale price and
marked-to-market daily) of the underlying security or "collateral". A Portfolio
may engage in a repurchase agreement with respect to any security in which it is
authorized to invest. While it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delays and costs to a
Portfolio in connection with bankruptcy proceedings), it is the policy of each
Portfolio to limit repurchase agreements to those parties whose creditworthiness
has been reviewed and found satisfactory by the investment sub-adviser for that
Portfolio and approved by the Board of Trustees of the Fund. In addition, the
Portfolios currently intend to invest primarily in repurchase agreements
collateralized by U.S. government securities whose value equals at least 100% of
the repurchase price, marked-to-market daily.
In a reverse repurchase agreement, a Portfolio sells a portfolio instrument
to another party, such as a bank or broker-dealer, in return for cash and agrees
to repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, a Portfolio will segregate cash and
appropriate liquid assets with the Fund's custodian to cover its obligation
under the agreement. The Portfolios will enter into reverse repurchase
agreements only with parties the investment sub-adviser for each Portfolio deems
creditworthy and that have been reviewed by the Board of Trustees of the Fund.
PASS-THROUGH SECURITIES.
Each of the Portfolios may, in varying degrees, invest in various types of
pass-through securities, such as mortgage-backed securities, asset-backed
securities and participation interests. A pass-through security is a share or
certificate of interest in a pool of debt obligations that have been repackaged
by an intermediary, such as a bank or broker-dealer. The purchaser receives an
undivided interest in the underlying pool of securities. The issuers of the
underlying securities make interest and principal payments to the intermediary
which are passed through to purchasers, such as the Portfolios. The most common
type of pass-through securities are mortgage-backed securities. Government
National Mortgage Association ("GNMA") Certificates are mortgage-backed
securities that evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from traditional bonds in that principal is paid back
monthly by the borrowers over the term of the loan rather than returned in a
lump sum at maturity. A Portfolio will generally purchase "modified
pass-through" GNMA Certificates, which entitle the holder to receive a share of
all interest and principal payments paid and owned on the mortgage pool, net of
fees paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment. GNMA Certificates are backed as to the timely
payment of principal and interest by the full faith and credit of the U.S.
government.
The Federal Home Loan Mortgage Corporation ("FHLMC") issues two types of
mortgage pass-through securities: mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. FHLMC guarantees timely payments of
interest on PCs and the full return of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay interest
semi-annually and return principal once a year in guaranteed minimum payments.
This type of security is guaranteed by FHLMC as to timely payment of principal
and interest, but is not backed by the full faith and credit of the U.S.
government.
The Federal National Mortgage Association ("FNMA") issues guaranteed
mortgage pass-through certificates ("FNMA Certificates"). FNMA Certificates
resemble GNMA Certificates in that each FNMA Certificate represents a pro rata
share of all interest and principal payments made and owned on the underlying
pool. This type of security is guaranteed by FNMA as to timely payment of
principal and interest, but it is not backed by the full faith and credit of the
U.S. government.
Each of the mortgage-backed securities described above is characterized by
monthly payments to the holder, reflecting the monthly payments made by the
borrowers who received the underlying mortgage loans. The payments to the
security holders (such as a Portfolio), like the payments on the underlying
loans, represent both principal and interest. Although the underlying mortgage
loans are for specified periods of time, such as 20 or 30 years, the borrowers
can, and typically do, pay them off sooner. Thus, the security holders
frequently receive prepayments of principal in addition to the principal that is
part of the regular monthly payments. A borrower is more likely to prepay a
mortgage that bears a relatively high rate of interest. This means that in times
of declining interest rates, some of a Portfolio's higher yielding
mortgage-backed securities might be converted to cash and that Portfolio will be
forced to accept lower interest rates when that cash is used to purchase
additional securities in the mortgage-backed securities sector or in other
investment sectors. Mortgage and asset-backed securities may have periodic
income payments or may pay interest at maturity (as is the case with Treasury
bills or zero-coupon bonds).
Asset-backed securities represent interests in pools of consumer loans and
are backed by paper or accounts receivables originated by banks, credit card
companies or other providers of credit. Generally, the originating bank or
credit provider is
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neither the obliger or guarantor of the security and interest and principal
payments ultimately depend upon payment of the underlying loans by individuals.
Tax-exempt asset-backed securities include units of beneficial interests in
pools of purchase contracts, financing leases, and sales agreements that may be
created when a municipality enters into an installment purchase contract or
lease with a vendor. Such securities may be secured by the assets purchased or
leased by the municipality; however, if the municipality stops making payments,
there generally will be no recourse against the vendor. The market for
tax-exempt asset-backed securities is still relatively new. These obligations
are likely to involve unscheduled prepayments of principal.
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. 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
Standard & Poor's. None of the Portfolios other than the Flexible Income
Portfolio and the Income Plus Portfolio may invest more than 5% of its net
assets in junk bonds. 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 areduction
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.
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 new 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.
WARRANTS AND RIGHTS.
Each of the Portfolios other than the Tax-Exempt Portfolio may invest in
warrants and rights. A warrant is a type of security that entitles the holder to
buy a proportionate amount of common stock at a specified price, usually higher
than the market price at the time of issuance, for a period of years or to
perpetuity. In contrast, rights, which also represent the right to buy common
shares, normally have a subscription price lower than the current market value
of the common stock and a life of two to four weeks. The Portfolios do not
intend to invest in warrants valued at the lower of cost or market value, if
such value exceeds 5% of a Portfolio's net assets, provided that no more than 2%
of a Portfolio's net assets may be invested in warrants which are not listed on
the New York or American Stock Exchange. Warrants acquired by a Portfolio in
units or attached to securities may be deemed to be without value.
U.S. GOVERNMENT SECURITIES.
Examples of the types of U.S. government securities that the Portfolios may
hold include, in addition to those described in the Prospectus and direct
obligations of the U.S. Treasury, the obligations of the Federal Housing
Administration, Farmers Home Administration, Small Business Administration,
General Services Administration, Central Bank for Cooperatives, Federal Farm
Credit Banks, Federal Home Loan Bank, Federal Intermediate Credit Banks, Federal
Land Banks and Maritime Administration. U.S. government securities may be
supported by the full faith and credit of the U.S. government (such as
securities of the
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Small Business Administration); by the right of the issuer to borrow from the
Treasury (such as securities of the Federal Home Loan Bank); by the
discretionary authority of the U.S. government to purchase the agency's
obligations (such as securities of the Federal National Mortgage Association);
or only by the credit of the issuing agency.
PORTFOLIO TURNOVER.
As stated in the Prospectus, each of the Growth, C.A.S.E., Global, Flexible
Income, Balanced, Capital Appreciation, Aggressive Growth, Equity-Income and
Tactical Asset Allocation Portfolios generally intend to purchase and sell
securities as deemed appropriate by its portfolio manager to further the
Portfolio's stated investment objective, and the rate of portfolio turnover is
not expected to be a limiting factor when changes are deemed to be appropriate.
The Growth Portfolio's portfolio turnover rate for the fiscal years ended
September 30, 1995, 1994 and 1993 were 123.26%, 63.73%, and 97.40%,
respectively. The Global Portfolio's portfolio turnover rate for the fiscal
years ended September 30, 1995, 1994 and 1993 were 161.48%, 148.01% and 116.98%,
respectively. The Flexible Income Portfolio's portfolio turnover rate for the
fiscal year ended September 30, 1995 and 1994 was 149.58% and 105.40%,
respectively. For the eleven month period ended September 30, 1993, the
portfolio turnover rate of IDEX Total Income Trust, predecessor to the Flexible
Income Portfolio, was 138.86%. For the fiscal year ended September 30, 1995, the
portfolio turnover rates for each of the Balanced, Aggressive Growth,
Equity-Income and Capital Appreciation Portfolios were 100.35%, 107.41%, 42.18%
and 319.95%, respectively. The estimated annual turnover rate for the Tactical
Asset Allocation Portfolio for the fiscal year ended September 30, 1996 is
expected to be less than 100%. The estimated annual turnover rate for the
C.A.S.E. Portfolio for the fiscal year ended September 30, 1996, is expected to
be between 100% and 200%.
These percentages are calculated by dividing the lesser of purchases or
sales of portfolio securities during the fiscal year by the monthly average of
the value of such securities (excluding from the computation all securities,
including options, with maturities at the time of acquisition of one year or
less). For example, a portfolio turnover rate of 100% would mean that all of the
Portfolio's securities (except those excluded from the calculation) were
replaced once in a period of one year. A high rate of portfolio turnover
generally involves correspondingly greater brokerage commission expenses.
Turnover rates may vary greatly from year to year as well as within a particular
year and may also be affected by cash requirements for redemptions of the
Portfolio's shares and by requirements, the satisfaction of which enable the
Portfolio to receive favorable tax treatment. Because the rate of portfolio
turnover is not a limiting factor, particular holdings may be sold at any time,
if investment judgement or portfolio operations make a sale advisable. As a
result, the annual portfolio turnover rate in future years may exceed the
percentage shown above.
Portfolio transactions for the Tax-Exempt Portfolio and the Income Plus
Portfolio are ordinarily undertaken to achieve each Portfolio's investment
objective in light of anticipated movements in the level of interest rates. The
investment policies of the Tax-Exempt Portfolio and the Income Plus Portfolio
may lead to frequent changes in investments, particularly in periods of rapidly
fluctuating interest rates. The portfolio turnover rate of each Portfolio
normally is anticipated to be less than 100%, although this rate will not be a
limiting factor when either Portfolio deems it desirable to sell or purchase
securities. For the fiscal years ended September 30, 1995, 1994 and 1993, the
portfolio turnover rates of the Tax-Exempt Portfolio were 126.48%, 59.84% and
91.03%, respectively. For the fiscal years ended September 30, 1995, 1994 and
1993, the portfolio turnover rates of the Income Plus Portfolio were 25.07%,
48.12% and 54.51%, respectively.
INVESTMENT ADVISORY AND OTHER SERVICES
GROWTH, GLOBAL, FLEXIBLE INCOME, BALANCED AND CAPITAL APPRECIATION PORTFOLIOS
The Fund has entered into a Management and Investment Advisory Agreement
(collectively, the "Advisory Agreements") applicable to the Growth, Global,
Flexible Income, Balanced and Capital Appreciation Portfolios with Idex
Management, Inc. ("IMI"), 201 Highland Avenue, Largo, Florida 33770-2957. IMI
supervises each Portfolio's investments and conducts its investment program.
Each Advisory Agreement provides that IMI will perform the following services or
cause them to be performed by others: (i) furnish to the Portfolio investment
advice and recommendations, (ii) supervise the purchase and sale of securities
as directed by appropriate Fund officers, and (iii) be responsible for the
administration of the Portfolio. For its services to each of those Portfolios,
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 0.8% of the
average daily net assets of that Portfolio in excess of $1 billion. The Growth
Portfolio incurred investment advisory fees of $4,292,430, $4,949,754 and
$4,960,323 for the fiscal years ended September 30, 1995, 1994 and 1993,
respectively. For the fiscal year ended September 30, 1995, 1994 and 1993, the
Global Portfolio incurred investment advisory fees of $873,921, $558,189 and
$64,951 (net of fees waived by IMI of $52,462 pursuant to the Global Portfolio's
expense
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limitation of 2.5% for 1993). For the fiscal year ended September 30, 1995 and
1994, the Flexible Income Portfolio incurred investment advisory fees of
$185,824 and $136,806 (net of fee waivers by IMI of $16,128 and $98,496 pursuant
to the Flexible Income Portfolio's expense limitation of 1.5%). For the eleven
month period ended September 30, 1993, IDEX Total Income Trust, predecessor to
the Flexible Income Portfolios, incurred investment advisory fees of $186,653
(net of fees waived by IMI of $53,337 pursuant to IDEX Total Income Trust's
voluntary expense limitation of 1.5%). For the fiscal year ended September 30,
1995, the Balanced and Capital Appreciation Portfolios incurred investment
advisory fees of $31,512 and $43,610, respectively (net of fees waived by IMI of
$49,201 and $55,475, respectively, pursuant to each Portfolio's expense
limitation of 2.5%.)
The duties and responsibilities of the investment adviser are specified in
the Advisory Agreements. The Agreements were approved by the board of Trustees
of the Fund (including a majority of trustees who are not parties to the
Agreement or interested persons, as defined by the 1940 Act, of any such party.)
The Agreements are not assignable and may be terminated without penalty upon 60
days written notice at the option of either the Fund or IMI or by a vote of
shareholders of each Portfolio. Each provides that it can be continued from year
to year so long as such continuance is specifically approved annually (a) by the
Boardof Trustees of the Fund or by a majority of the outstanding shares of the
Portfolio and (b) by a majority vote of the Trustees who are not parties to the
Agreement or interested persons of any such party cast in person at a meeting.
The Agreements also provide that IMI shall not be liable to the Fund or to
any shareholder for any error of judgment or mistake of law or for any loss
suffered by the Fund or by any shareholder in connection with matters to which
the Agreements relate, except for a breach of fiduciary duty or a loss resulting
from willful misfeasance, bad faith, gross negligence, or reckless disregard on
the part of IMI in the performance of its duties thereunder.
The Growth Portfolio's Advisory Agreement became effective April 22, 1991.
The Global Portfolio's Advisory Agreement became effective April 22, 1992. The
Flexible Income Portfolio's Advisory Agreement was entered into as of August 5,
1993. The Balanced and Capital Appreciation Portfolio's Advisory Agreements were
entered into as of September 30, 1994.
IMI supervises all of the administrative functions of these Portfolios,
provides office space, and pays its allocable portion of the salaries, fees and
expenses of all Fund officers and of those trustees who are affiliated with IMI.
The costs and expenses, including legal and accounting fees, filing fees and
printing costs in connection with the formation of the Fund and the preparation
and filing of the Fund's initial registration statements under the Securities
Act of 1933 and 1940 Act are paid by IMI.
The Growth, Global, Flexible Income, Balanced and Capital Appreciation
Portfolios each pay its allocable share of the fees and expenses of the Fund's
non-interested trustees, custodian and transfer agent fees, brokerage
commissions and all other expenses in connection with the execution of its
portfolio transactions, administrative, clerical, recordkeeping, bookkeeping,
legal, auditing and accounting expenses, interest and taxes, expenses of
preparing tax returns, expenses of shareholders' meetings and preparing,
printing and mailing proxy statements (unless otherwise agreed to by the Fund
and IMI), expenses of preparing and typesetting periodic reports to shareholders
(except for those reports the Portfolio permits to be used as sales literature),
and the costs, including filing fees, of renewing or maintaining registration of
Portfolio shares under federal and state law. Whenever, in any fiscal year, the
total cost to a Portfolio of normal operating expenses chargeable to its income
account, including the investment advisory fee but excluding brokerage
commissions, interest, taxes and 12b-1 fees, exceeds 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 and Flexible Income
Portfolios, 1.5% of each Portfolio's average daily net assets, and with respect
to the Balanced and Capital Appreciation Portfolios, 2.5% of each Portfolio's
daily net assets for the first fiscal year, and 1.5% thereafter, IMI will
reimburse that Portfolio, or waive fees in an amount equal to that excess.
IMI has entered into an Investment Counsel Agreement applicable to each of
the Growth, Global, Flexible Income, Balanced and Capital Appreciation
Portfolios, respectively, with Janus Capital Corporation ("Janus Capital").
These Agreements are referred to collectively as the Investment Counsel
Agreements. The Investment Counsel Agreement for the Growth Portfolio became
effective April 22, 1991, the Global Portfolio's Investment Counsel Agreement
became effective April 22, 1992, the Flexible Income Portfolio's Investment
Counsel Agreement became effective August 5, 1993, and the Balanced and Capital
Appreciation Portfolios' respective Investment Counsel Agreements were entered
into as of September 30, 1994. Further discussions of the basic fee arrangements
and allocation of responsibilities are set forth in the Prospectus. The Growth
Portfolio incurred investment sub-advisory fees of $2,146,215, $2,474,877 and
$2,480,162 for the fiscal years ended September 30, 1995, 1994 and 1993,
respectively. For the fiscal years ended September 30, 1995, 1994 and 1993, the
Global Portfolio incurred investment sub-advisory fees of $436,960, $279,095 and
$32,476, respectively. For the fiscal year ended September 30, 1995 and 1994,
the Flexible Income Portfolio incurred investment sub-advisory fees of $92,912
and $68,403, respectively. For the
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eleven month period ended September 30, 1993, IDEX Total Income Trust,
predecessor to the Flexible Income Portfolio, incurred investment sub-advisory
fees of $93,327. For the fiscal year ended September 30, 1995, the Balanced and
Capital Appreciation Portfolios incurred investment sub-advisory fees of $15,756
and $21,805, respectively.
The Investment Counsel Agreements provide for additional compensation to be
paid by IMI to Janus Capital as follows: If on December 31 of 1995, and December
31 of each year thereafter ("Target Date") the aggregate actual net assets on
that date of the Fund and any other registered investment company sponsored by
IMI, containing the name IDEX or with respect to which IMI acts as investment
adviser or administrator, and to which Janus Capital provides investment advice
(the "Advised Funds") are less than the applicable Target Net Assets specified
in Table 1 below, then IMI shall pay to Janus Capital a percentage, as specified
in Table 2 below, of the Net Fee otherwise payable to InterSecurities, Inc., or
any other affiliate of IMI serving as administrator to the Fund for the calendar
year following such date (the "Administrator").
TABLE 1
TARGET DATE ADVISED FUNDS TARGET NET ASSETS
December 31, 1995 (and December 31 of each $950 million
year thereafter)
The Net Fee of the Administrator shall be the fee received by the
Administrator from IMI less any reimbursement from the Administrator in
connection with any applicable expense limitation. The percentage of the Net Fee
so payable to Janus Capital shall be determined by the percentage that on the
applicable Target Date the aggregate actual net assets of the Advised Funds are
less than the applicable Target Net Assets of the Advised Funds ("Shortfall of
Target") in accordance with Table 2 below:
TABLE 2
SHORTFALL OF TARGET PERCENTAGE OF NET FEE
5% - 10% ...................................................10%
Over 10% - 20% .............................................20%
Over 20% - 30% .............................................30%
Over 30% ...................................................40%
No additional fees shall be payable to Janus Capital for any year if, for the
five-year period ending December 31 of the preceding year, the respective total
returns of a majority of the Advised Funds that have the objective of investing
primarily in equity securities with such a five-year record (and with respect to
which Janus Capital shall have provided investment advice for all of such five
years and for the then current year), which in 1995 were IDEX Fund, IDEX Growth,
Global, Flexible Income, Balanced and Capital Appreciation Portfolios and IDEX
Fund 3, are not in the top one-third of their respective fund categories as
determined by Lipper Analytical Services, Inc. or its successor (or if no
successor exists, by a mutually agreed upon statistical service). No additional
fees were payable by IMI to Janus Capital for 1995 because Advised Funds Target
Net Assets exceeded $950 million on December 31, 1995.
IMI and Janus Capital also served as investment adviser and sub-adviser,
respectively, to certain other funds in the IDEX Group, IDEX Fund and IDEX Fund
3, which were reorganized into Class T shares of IDEX Growth Portfolio (formerly
IDEX II Growth Portfolio) on September 20, 1996. Janus Capital also serves as
sub-adviser to certain portfolios of WRL Series Fund, Inc., a registered
investment company. Janus Capital has served as investment adviser to Janus Fund
since 1970 and currently serves as investment adviser to each portfolio of the
Janus Investment Fund and Janus Aspen Series as well as sub-adviser to other
mutual funds. Janus Capital also serves as investment adviser to individual,
corporate, charitable and retirement accounts. Janus Capital managed
approximately $39 billion in assets as of June 30, 1996.
Janus Capital and AUSA Holding Company ("AUSA") each own 50% of the
outstanding stock of IMI. AUSA also owns 100% of the outstanding shares of the
Fund's distributor and transfer agent. AUSA is wholly-owned by AEGON USA, Inc.,
a financial services holding company located at 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499. AEGON USA, Inc. is a wholly-owned indirect subsidiary of
AEGON nv, a Netherlands corporation and publicly traded international insurance
group. Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83% of
Janus Capital, most of which it acquired in 1984. Thomas H. Bailey, President
and Chairman of the Boards of Janus Capital and IMI, owns approximately 12% of
Janus Capital's voting stock and, by agreement with KCSI, selects a majority of
Janus Capital's Board. KCSI, whose address is 114 West 11th Street, Kansas City,
Missouri 64105-1804, is a publicly traded holding company whose primary
subsidiaries are engaged in transportation and financial services.
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TAX-EXEMPT, INCOME PLUS, AGGRESSIVE GROWTH, EQUITY-INCOME, TACTICAL ASSET
ALLOCATION AND C.A.S.E. PORTFOLIOS
The Fund has entered into a Management and Investment Advisory Agreement
(collectively, the "Advisory Agreements") applicable to each of the Tax-Exempt,
Income Plus, Aggressive Growth, Equity-Income, Tactical Asset Allocation and
C.A.S.E. Portfolios with InterSecurities, Inc. ("ISI"), whose address is 201
Highland Avenue, Largo, Florida 33770-2957. ISI supervises each of these
Portfolios' investments and conducts its investment program. Each of these
Portfolios' Advisory Agreement provides that ISI will perform the following
services or cause them to be performed by others: (i) furnish to the Portfolio
investment advice and recommendations, (ii) supervise the purchase and sale of
securities as directed by appropriate Fund officers, and (iii) be responsible
for the administration of the Portfolio. ISI carries out and supervises all of
the administrative functions of the Portfolios, provides office space and pays
its allocable portion of the salaries, fees and expenses of all Fund officers
and of those trustees who are affiliated with ISI. For its services to the
Tax-Exempt and Income Plus Portfolios, ISI receives an annual fee of .60% of
that Portfolio's average daily net assets computed and paid on a monthly basis.
For its services to the Aggressive Growth, Equity-Income, Tactical Asset
Allocation and C.A.S.E. Portfolios, 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, 0.9% of the next $250 million of that Portfolio's
average daily net assets, and 0.8% of the average daily net assets of the
Portfolio in excess of $1 billion. For the fiscal years ended September 30,
1995, 1994 and 1993, the Tax-Exempt Portfolio incurred investment advisory fees
of $169,325, $65,782 and $48,680, respectively (net of fee waivers by ISI of
$91,270 for the year ended 1995, $115,553 for the year ended 1994 and $125,292
for the year ended 1993 pursuant to the Tax-Exempt Portfolio's expense
limitation). The Income Plus Portfolio incurred investment advisory fees of
$402,031, $421,791 and $378,875 for the fiscal years ended September 30, 1995,
1994 and 1993, respectively. The Aggressive Growth and Equity-Income Portfolios
incurred investment advisory fees of $62,031 and $25,137, respectively for the
fiscal year ended September 30, 1995 (net of fees waived by ISI of $31,402 and
$39,831, respectively, pursuant to each Portfolio's expense limitation of 2.5%).
No investment advisory fees were paid by the IDEX Tactical Asset Allocation
and C.A.S.E. Portfolios for the fiscal year ended September 30, 1995, as those
Portfolios had not commenced operations as of that date.
The duties and responsibilities of the investment adviser are specified in
the Advisory Agreements. The Agreements were approved by the Board of Trustees
of the Fund (including a majority of trustees who are not parties to the
Agreement or interested persons, as defined by the 1940 Act, of any such party).
The Agreements are not assignable and may be terminated without penalty upon 60
days written notice at the option of either the Fund or ISI or by a vote of
shareholders of each Portfolio. Each provides that it can be continued from year
to year so long as such continuance is specifically approved annually (a) by the
Board of Trustees of the Fund or by a majority of the outstanding shares of the
Portfolio and (b) by a majority vote of the Trustees who are not parties to the
Agreement or interested persons of any such party cast in person at a meeting.
The Agreements also provide that ISI shall not be liable to the Fund or to
any shareholder for any error of judgment or mistake of law or for any loss
suffered by the Fund or by any shareholder in connection with matters to which
the Agreements relate, except for a breach of fiduciary duty or a loss resulting
from willful misfeasance, bad faith, gross negligence, or reckless disregard on
the part of ISI in the performance of its duties thereunder.
The Advisory Agreement for each of the Tax-Exempt and Income Plus
Portfolios became effective April 22, 1992. The Advisory Agreement for each of
the Aggressive Growth and Equity Income Portfolios was entered into as of
September 30, 1994. The Advisory Agreement for the Tactical Asset Allocation
Portfolio was entered into as of June 1, 1995. The Advisory Agreement for the
C.A.S.E. Portfolio was entered into as of November 15, 1995.
Each of the Tax-Exempt, Income Plus, Aggressive Growth, Equity-Income,
Tactical Asset Allocation and C.A.S.E. Portfolios pays custodian and transfer
agent fees, brokerage commissions and all other expenses in connection with the
execution of portfolio transactions, administrative, clerical, recordkeeping,
bookkeeping, legal, auditing and accounting expenses, interest and taxes,
expenses of preparing tax returns, expenses of shareholders' meetings and
preparing, printing and mailing proxy statements (unless otherwise agreed to by
the Fund and ISI), expenses of preparing and typesetting periodic reports to its
shareholders (except for those reports the Fund permits to be used as sales
literature), its allocable share of the fees and expenses of the Fund's
non-interested Trustees, and the costs, including filing fees, of registering
and renewing or maintaining registration of its shares under federal and state
law. ISI will reimburse a Portfolio, or waive fees, or both, whenever, in any
fiscal year, the total cost to a Portfolio of normal operating expenses
chargeable to its income account, including the investment advisory fee
34
<PAGE>
but excluding brokerage commissions, interest, taxes and 12b-1 fees, exceeds the
strictest applicable expense limitation imposed by state law. Further, pursuant
to an expense limitation voluntarily adopted by ISI, ISI plans to reimburse a
Portfolio, or waive fees, or both, whenever, in any fiscal year, in the case of
the Tax-Exempt and Income Plus Portfolios, the total costs to a Portfolio of
such normal operating expenses exceeds 0.65% and 1.25% of the average daily net
assets of the Tax-Exempt Portfolio and Income Plus Portfolio, respectively, and
in the case of the Aggressive Growth, Equity Income, Tactical Asset Allocation
and C.A.S.E. Portfolios, the total cost to a Portfolio of such normal operating
expenses exceeds 2.5% of the average daily net assets for the first fiscal year,
and 1.5% thereafter, if such limitations are less than the strictest applicable
expense limitation imposed by state law.
AEGON USA Investment Management, Inc. ("AEGON Management"), 4333 Edgewood
Road, N.E., Cedar Rapids, Iowa 52499, serves as the investment sub-adviser to
the Tax-Exempt Portfolio and the Income Plus Portfolio pursuant to an Investment
Counsel Agreement relating to each Portfolio. Each Investment Counsel Agreement
was entered into between ISI and AEGON Securities which assigned each Agreement
to AEGON Management, the parent of AEGON Securities, on September 30, 1992.
AEGON Management is a wholly-owned indirect subsidiary of AEGON USA and thus is
an affiliate of ISI and IMI.
The Tax-Exempt Portfolio incurred investment sub-advisory fees of $84,662,
$32,891 and $24,340 for the fiscal years ended September 30, 1995, 1994 and
1993, respectively. For the fiscal years ended September 30, 1995, 1994 and
1993, the Income Plus Portfolio incurred investment sub-advisory fees of
$201,015, $210,896 and $189,438, respectively.
Fred Alger Management, Inc. ("Alger Management"), 75 Maiden Lane, New York,
NY 10038, serves as the investment sub-adviser to the Aggressive Growth
Portfolio pursuant to an Investment Counsel Agreement dated as of September 30,
1994 relating to that Portfolio. Luther King Capital Management Corporation
("Luther King"), 301 Commerce Street, Suite 1600, Fort Worth, TX 76102, serves
as the investment sub-adviser to the Equity-Income Portfolio pursuant to an
Investment Counsel Agreement dated as of September 30, 1994 relating to that
Portfolio. Dean Investment Associates ("Dean Investment"), a Division of C.H.
Dean and Associates, Inc., 2480 Kettering Tower, Dayton, Ohio 45423-2480 serves
as the investment sub-adviser to the Tactical Asset Allocation Portfolio
pursuant to an Investment Counsel Agreement dated as of June 30, 1995 relating
to that Portfolio. C.A.S.E. Management, Inc. ("C.A.S.E."), 2255 Glades Road,
Suite 221-A, Boca Raton, FL 33431, serves as the investment sub-adviser to the
C.A.S.E. Portfolio pursuant to an Investment Counsel Agreement dated November
15, 1995 relating to that Portfolio. Discussions of the fee arrangements and
allocation of responsibilities are set forth in the Prospectus.
The Aggressive Growth and Equity-Income Portfolios incurred investment
sub-advisory fees of $31,015 and $12,568, respectively, for the fiscal year
ended September 30, 1995.
No investment sub-advisory fees were assessed for the IDEX Tactical Asset
Allocation and C.A.S.E. Portfolios for the fiscal year ended September 30, 1995,
as those Portfolios had not commenced operations at that time.
Janus Capital, AEGON Management, Alger Management, Luther King, Dean
Investment and C.A.S.E. also serve as sub- advisers to certain portfolios of WRL
Series Fund, Inc., a registered investment company. Janus Capital, AEGON
Management, Alger Management, Luther King, Dean Investment and C.A.S.E. may be
referred to herein collectively as the "sub-advisers" and individually as a
"sub-adviser."
ADDITIONAL INVESTMENT ADVISORY OR SUB-ADVISORY SERVICES PROVIDED BY THE
SUB-ADVISERS
Janus Capital provides investment advisory services to IMI for the Growth,
Global, Flexible Income, Balanced and Capital Appreciation Portfolios. AEGON
Management provides investment advisory services to ISI for the Tax-Exempt and
Income Plus Portfolios. Alger Management provides investment advisory services
to ISI for the Aggressive Growth Portfolio. Luther King provides investment
advisory services to ISI for the Equity-Income Portfolio. Dean Investment
provides investment advisory services to ISI for the Tactical Asset Allocation
Portfolio. C.A.S.E. provides investment advisory services to ISI for the
C.A.S.E. Portfolio. Each of the sub-advisers also serves as investment adviser
or sub-adviser to other funds and/or private accounts which may have investment
objectives identical or similar to that of the Portfolios. Securities frequently
meet the investment objectives of one or all of these Portfolios, the other
funds and the private accounts. In such cases, a sub-adviser's decision to
recommend a purchase to one fund or account rather than another is based on a
number of factors. The determining factors in most cases are the amounts
available for investment by each fund or account, the amount of securities of
the issuer then outstanding, the value of those securities and the market for
them. Another factor considered in the investment recommendations is other
investments which each fund or account presently has in a particular industry.
35
<PAGE>
It is possible that at times identical securities will be held by more than
one fund or account. However, positions in the same issue may vary and the
length of time that any fund or account may choose to hold its investment in the
same issue may likewise vary. To the extent that more than one of the funds or
private accounts served by a sub-adviser seeks to acquire or sell the same
security at about the same time, either the price obtained by the Portfolios or
the amount of securities that may be purchased or sold by a Portfolio at one
time may be adversely affected. On the other hand, if the same securities are
bought or sold at the same time by more than one fund or account, the resulting
participation in volume transactions could produce better executions for the
Portfolios. In the event more than one fund or account purchases or sells the
same security on a given date, the purchase and sale transactions are allocated
among the Portfolio(s), the other funds and the private accounts in a manner
believed by the sub-advisers to be equitable to each.
DISTRIBUTOR
The Fund has entered into an Underwriting Agreement with ISI to act as the
principal underwriter of Fund shares. The Underwriting Agreement will continue
from year to year so long as its continuance is approved at least annually in
the same manner as the Investment Advisory Agreements discussed above. A
discussion of ISI's responsibilities and charges as principal underwriter of
Fund shares is set forth in the Prospectus.
For the fiscal years ended September 30, 1995, 1994 and 1993, ISI received
$1,155,639, $2,389,332 and $4,372,620, respectively, and retained $167,446,
$346,753 and $602,394, respectively, in underwriting commissions on the sale of
Growth Portfolio shares. For the fiscal years ended September 30, 1995, 1994 and
1993, ISI received $491,761, $1,202,555 and $131,986, respectively, and retained
$73,278, $102,320 and $13,201, respectively, in underwriting commissions on the
sale of Global Portfolio shares. For the fiscal year ended September 30, 1995
and 1994, ISI received $28,794 and $66,672, respectively, and retained $5,736
and $12,453, respectively, in underwriting commissions on the sale of Flexible
Income Portfolio shares. On the sale of shares of IDEX Total Income Trust,
predecessor to the Flexible Income Portfolio, ISI received $213,601 and retained
$28,977 in underwriting commissions for the eleven month period ended September
30, 1993.
For the fiscal years ended September 30, 1995, 1994 and 1993, ISI received
$22,502, $73,000 and $80,394, respectively, and retained $4,491, $14,193 and
$6,931, respectively, in underwriting commissions on the sale of Tax-Exempt
Portfolio shares. For the fiscal years ended September 30, 1995, 1994 and 1993,
ISI received $142,265, $285,345 and $376,367, respectively, and retained
$26,821, $52,998 and $32,200, respectively, in underwriting commissions on the
sale of Income Plus Portfolio shares. For the fiscal year ended September 30,
1995, ISI received $61,824, $73,332, $228,229 and $90,604, respectively, and
retained $10,074, $10,921, $33,478 and $14,667, respectively, in underwriting
commissions on the sale of Balanced, Capital Appreciation, Aggressive Growth and
Equity-Income Portfolios.
No underwriting commissions were received or retained on the sale of
Tactical Asset Allocation or C.A.S.E. Portfolio shares for the fiscal year ended
September 30, 1995, as those Portfolios had not commenced operations at that
time.
ADMINISTRATIVE SERVICES
ISI also serves as administrator to each Portfolio. This is in addition to
ISI's responsibilities as principal underwriter and distributor of Portfolio
shares. IMI has entered into an Administrative Services Agreement
("Administrative Agreement") with ISI applicable to each of the Growth, Global,
Flexible Income, Balanced and Capital Appreciation Portfolios. Under each
Administrative Agreement, ISI carries out and supervises all of the
administrative functions of the Portfolio and incurs IMI's expenses related to
such functions. The basic fee arrangement and allocation of responsibilities is
set forth in the Prospectus. The amount payable to ISI under the Administrative
Agreement will be reduced to the extent that additional compensation is paid by
IMI to Janus Capital, as described above under "Investment Advisory and Other
Services--Growth, Global, Flexible Income, Balanced and Capital Appreciation
Portfolios".
The administrative duties of ISI with respect to each Portfolio include:
providing the Portfolio with office space, telephones, office equipment and
supplies; paying the compensation of the Fund's officers for services rendered
as such; supervising and assisting in preparation of annual and semi-annual
reports to shareholders, notices of dividends, capital gain distributions and
tax information; supervising compliance by the Fund with the recordkeeping
requirements under the 1940 Act and regulations thereunder and with the state
regulatory requirements; maintaining books and records of the Portfolio (other
than those maintained by the Fund's custodian and transfer agent); preparing and
filing tax returns and reports; monitoring and supervising relationships with
the Fund's custodian and transfer agent; monitoring the qualifications of tax
deferred retirement plans providing for investment in shares of the Portfolio;
authorizing expenditures and approving bills for payment on behalf of the
Portfolio; and providing executive, clerical and secretarial help needed to
carry out its duties.
36
<PAGE>
CUSTODIAN, TRANSFER AGENT AND OTHER AFFILIATES
Investors Fiduciary Trust Company ("IFTC"), 127 West 10th Street, Kansas
City, Missouri 64105, is Custodian for the Fund. The Custodian is in no way
responsible for any of the investment policies or decisions of a Portfolio, but
holds its assets in safekeeping and collects and remits the income thereon
subject to the instructions of the Fund. For the fiscal years ended September
30, 1995, 1994 and 1993, the Growth Portfolio incurred custodian fees and
expenses of $35,050, $69,012 and $76,802, respectively, net of earnings credits
of $121,069, $78,696 and $36,334, respectively. For the fiscal years ended
September 30, 1995, 1994 and 1993, the Global Portfolio incurred custodian fees
and expenses of $92,608, $254,474 and $27,632, respectively, net of earnings
credits of $110,004, $42,370 and $5,809, respectively. For the fiscal year ended
September 30, 1995 and 1994, the Flexible Income Portfolio incurred custodian
fees and expenses of $18,545 and $17,912, respectively, net of earnings credits
of $3,308 and $10,676, respectively. For the eleven month period ended September
30, 1993, IDEX Total Income Trust, predecessor to the Flexible Income Portfolio,
incurred custodian fees and expenses of $28,632, net of earnings credits of
$5,171. For the fiscal years ended September 30, 1995, 1994 and 1993, the
Tax-Exempt Portfolio incurred custodian fees and expenses of $6,484, $6,192 and
$7,822, respectively, net of earnings of $6,647, $11,082 and $9,263. For the
fiscal years ended September 30, 1995, 1994 and 1993, the Income Plus Portfolio
incurred custodian fees and expenses of $11,389, $17,039 and $12,391,
respectively, net of earnings credits of $14,555, $8,914 and $7,005. For the
fiscal year ended September 30, 1995, the Aggressive Growth, Capital
Appreciation, Balanced and Equity-Income Portfolios incurred custodian fees and
expenses of $27,772, $32,264, $21,302 and $3,886, respectively, net of earnings
of $0, $2,040, $2,317 and $4,176.
Idex Investor Services, Inc., P. O. Box 9015, Clearwater, Florida 34618-9015, is
the Fund's transfer agent, withholding agent and dividend disbursing agent. Idex
Investor Services, Inc. is a wholly-owned subsidiary of AUSA Holding Company and
thus is an affiliate of IMI, ISI and AEGON Management. Each Portfolio pays the
transfer agent a monthly per-account charge of $1.185 for each of its
shareholder accounts in existence during the prior month, plus $2.48 for each
new account opened in the prior month. For the fiscal years ended September 30,
1995, 1994 and 1993, the Growth Portfolio incurred transfer agency fees and
expenses of $1,741,068, $1,523,083 and $1,160,335, respectively, net of
brokerage credits of $0, $12,039 and $26,696. For the fiscal years ended
September 30, 1995, 1994 and 1993, the Global Portfolio incurred transfer agency
fees and expenses of $341,591, $34,294 and $27,632, respectively, net of
brokerage credits of $323, $222 and $1,319, respectively. For the fiscal year
ended September 30, 1995 and 1994, the Flexible Income Portfolio incurred
transfer agency fees and expenses of $53,822 and $60,995, respectively. For the
eleven month period ended September 30, 1993, IDEX Total Income Trust,
predecessor to the Flexible Income Portfolio, incurred transfer agency fees and
expenses of $57,258. For the fiscal years ended September 30, 1995, 1994 and
1993, the Tax-Exempt Portfolio incurred transfer agency fees and expenses of
$35,084, $40,702 and $31,420, respectively. For the fiscal years ended September
30, 1995, 1994 and 1993, the Income Plus Portfolio incurred transfer agency fees
and expenses of $118,821, $152,834 and $93,313, respectively. For the fiscal
year ended September 30, 1995, the Balanced, Capital Appreciation, Aggressive
Growth and Equity-Income Portfolios incurred transfer agency fees and expenses
of $9,905, $22,570, $27,772 and $10,668, respectively, net of brokerage credits
of $0, $0, $8 and $0, respectively.
No custodian or transfer agency fees and expenses were incurred by the IDEX
Tactical Asset Allocation and C.A.S.E. Portfolios for the fiscal year ended
September 30, 1995, as those Portfolios had not commenced operations as of that
date.
DST, provider of data processing and recordkeeping services for the Fund's
transfer agent, is a wholly-owned subsidiary of KCSI and, thus, is an affiliate
of IMI and Janus Capital. Each Portfolio may use another affiliate of DST as
introducing broker for certain portfolio transactions as a means to reduce
expenses through a credit against transfer agency fees with regard to
commissions earned by such affiliate. (See "Portfolio Transactions and
Brokerage.")
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions as to the assignment of portfolio business for each of the
Portfolios and negotiation of its commission rates are made by its sub-adviser,
whose policy is to obtain the "best execution" (prompt and reliable execution at
the most favorable security price) of all portfolio transactions. The Advisory
Agreement and Investment Counsel Agreement of each Portfolio specifically
provide that in placing portfolio transactions for each of the Portfolios, the
sub-adviser may agree to pay brokerage commissions for effecting a securities
transaction in an amount higher than another broker or dealer would have charged
for effecting that transaction as authorized, under certain circumstances, by
the Securities Exchange Act of 1934.
In selecting brokers and dealers and in negotiating commissions, a
sub-adviser considers a number of factors, including but not limited to: the
sub-adviser's knowledge of currently available negotiated commission rates or
prices of securities and other current transaction costs; the nature of the
security being traded; the size and type of the transaction; the nature and
character of
37
<PAGE>
the markets for the security to be purchased or sold; the desired timing of the
trade; the activity existing and expected in the market for the particular
security; the quality of the execution, clearance and settlement services;
financial stability; the existence of actual or apparent operational problems of
any broker or dealer; and research products and services provided. In
recognition of the value of the foregoing factors, the sub-adviser may place
portfolio transactions with a broker with whom it has negotiated a commission
that is in excess of the commission another broker would have charged for
effecting that transaction if the sub-adviser determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research provided by such broker viewed in terms of either that particular
transaction or of the overall responsibilities of the sub-adviser. Research
provided may include: furnishing advice, either directly or through publications
or writings, as to the value of securities, the advisability of purchasing or
selling specific securities and the availability of securities or purchasers or
sellers of securities; furnishing seminars, information, analyses and reports
concerning issuers, industries, securities, trading markets and methods,
legislative developments, changes in accounting practices, economic factors and
trends and portfolio strategy; access to research analysts, corporate management
personnel, industry experts, economists and government officials; comparative
performance evaluation and technical measurement services and quotation
services, and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver process or otherwise utilize information, including
the research described above) that assist the sub-adviser in carrying out its
responsibilities. Most brokers and dealers used by the sub-advisers provide
research and other services described above.
The sub-adviser may use research products and services in servicing other
accounts in addition to the Portfolio. If the sub-adviser determines that any
research product or service has a mixed use, such that it also serves functions
that do not assist in the investment decision-making process, the sub-adviser
may allocate the costs of such service or product accordingly. The portion of
the product or service that the sub-adviser determines will assist it in the
investment decision-making process may be paid for in brokerage commission
dollars. Such allocation may be a conflict of interest for the sub-adviser.
When a Portfolio purchases or sells a security in the over-the-counter
market, the transaction takes place directly with a principal market-maker,
without the use of a broker, except in those circumstances where better prices
and executions will be achieved through the use of a broker.
The sub-adviser may also consider the sale or recommendation of a
Portfolio's shares by a broker or dealer to its customers as a factor in the
selection of brokers or dealers to execute portfolio transactions. In placing
portfolio business with broker or dealers, the sub-adviser will seek the best
execution of each transaction and all such brokerage placement must be
consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
The sub-adviser may place transactions for the purchase or sale of
portfolio securities with affiliates of IMI, ISI or the sub-adviser, including
DST Securities, Inc., ISI or Fred Alger & Company, Incorporated. It is
anticipated that Fred Alger & Company, Incorporated, 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. The sub-adviser may place
transactions if it reasonably believes that the quality of the transaction and
the associated commission are fair and reasonable and if, overall, the
associated transaction costs, net of any credits described above under
"Custodian, Transfer Agent and Other Affiliates," are lower than those that
would otherwise be incurred. Under rules adopted by the Securities and Exchange
Commission, the Fund's Board of Trustees will conduct periodic compliance
reviews of such brokerage allocations and review certain procedures adopted by
the Board of Trustees to ensure compliance with these rules as often as
necessary to determine their continued appropriateness. For the fiscal year
ended September 30, 1995 the Global and Capital Appreciation Portfolios paid the
following commissions to DST Securities, Inc. and the Aggressive Growth
Portfolio paid the following commissions to Fred Alger & Company, Incorporated:
Commissions Paid: FRED ALGER
DST SECURITIES, INC. & COMPANY, INCORPORATED
Fiscal 1995......................$4.42.........................$18,944
Fiscal 1995 Percentages:
Commissions with
affiliates to total
commissions..................0.3%..........................96.8%
Value of brokerage
transactions with
affiliates to total
brokerage transactions ......0.2%..........................38.5%
38
<PAGE>
As of September 30, 1995, the Growth Portfolio owned $17,428,125 of the
common stock of Merrill Lynch and Company, Inc. ("Merrill Lynch"). Merrill Lynch
is one of the ten brokers or dealers that received the greatest dollar amount of
brokerage commissions from the Growth Portfolio during the fiscal year ended
September 30, 1995.
As of September 30, 1995, the Aggressive Growth Portfolio owned a total of
$62,938 of the common stocks of Merrill Lynch and Lehman Brothers Holdings,
Inc., which are two of the ten brokers or dealers that received the greatest
dollar amount of brokerage commissions from the Aggressive Growth Portfolio
during the fiscal year ended September 30, 1995.
During the fiscal years ended September 30, 1995, 1994 and 1993, brokerage
commissions in the amount of $0, $16,052 and $35,594, respectively, were paid to
affiliated brokers by the Growth Portfolio. The Growth Portfolio received
transfer agency fee credits of $0, $12,309 and $26,696 for the fiscal years
ended September 30, 1995, 1994 and 1993, respectively, as a result of such
affiliated brokerage. For the fiscal years ended September 30, 1995, 1994 and
1993, brokerage commissions in the amount of $431, $296 and $1,758,
respectively, were paid to affiliated brokers by the Global Portfolio. As a
result of such affiliated brokerage, the Global Portfolio received transfer
agency fee credits of $323, $222 and $1,319 for the fiscal years ended September
30, 1995, 1994 and 1993, respectively. No brokerage commissions were paid by the
Flexible Income Portfolio to broker-dealers affiliated with IMI or Janus Capital
during the fiscal year ended September 30, 1995 or 1994 or to IDEX Total Income
Trust, predecessor to the Flexible Income Portfolio, during the eleven month
period ended September 30, 1993. For the fiscal year ended September 30, 1995,
brokerage commissions in the amount of $0, $11, $18,944 and $0, respectively,
were paid to affiliated brokers by the Balanced, Capital Appreciation,
Aggressive Growth and Equity-Income Portfolios, respectively. As a result of
such affiliated brokerage, the Balanced, Capital Appreciation, Aggressive Growth
and Equity-Income Portfolios received transfer agency fee credits of $0, $8, $0
and $0, respectively for the fiscal year ended September 30, 1995.
For the fiscal years ended September 30, 1995, 1994 and 1993, the total
amount of brokerage commissions including affiliated brokerage commissions paid
by the Growth Portfolio were $930,417, $607,482 and $676,415, respectively. For
the fiscal years ended September 30, 1995, 1994 and 1993, the total amount of
brokerage commissions including affiliated brokerage commissions paid by the
Global Portfolio were $124,068, $61,311 and $23,248, respectively. The total
amount of brokerage commissions including affiliated brokerage commissions paid
by the Flexible Income Portfolio for the fiscal year ended September 30, 1995
and 1994 were $1,853 and $2,936. The total amount of brokerage commissions paid
by IDEX Total Income Trust, predecessor to the Flexible Income Portfolio, for
the eleven month period ended September 30, 1993 was $5,018. During the fiscal
years ended September 30, 1995, 1994 and 1993, the Tax-Exempt and Income Plus
Portfolios paid no brokerage commissions on the purchase or sale of portfolio
securities. For the fiscal year ended September 30, 1995, the total amount of
brokerage commissions including affiliated brokerage commissions paid by the
Balanced, Capital Appreciation, Aggressive Growth and Equity-Income Portfolios
were $9,193, $41,182, $19,568 and $9,661.
No brokerage commissions were paid on the purchase or sale of Tactical
Asset Allocation or C.A.S.E. Portfolio shares for the fiscal year ended
September 30, 1995, as those Portfolios had not commenced operations at that
time.
During the fiscal year ended September 30, 1995, Growth, Global, Flexible
Income, Balanced, Capital Appreciation and Equity-Income Portfolios had
transactions in the amounts of $22,679,117, $2,936,843, $0, $263,886, $202,956
and $2,406,385, respectively, which resulted in brokerage commission of $48,522,
$9,690, $0, $705, $963 and $4,904, respectively, that were directed to brokers
for brokerage and research services provided.
39
<PAGE>
TRUSTEES AND OFFICERS
Peter R. Brown
1475 Belcher Road South
Largo, FL 34640
05/10/28
Trustee of IDEX Series Fund (formerly IDEX II Series Fund), IDEX Fund and IDEX
Fund 3; Director of WRL Series Fund, Inc. (investment company); Chairman of the
Board of Peter Brown Construction Co., Largo, FL (construction, contractors and
engineers); Rear Admiral (Retired), U.S. Navy Reserve, Civil Engineer Corps.
- ----------
Daniel Calabria
7120 S. Shore Drive
South Pasadena, FL 33707
03/05/36
Trustee (1996-present) of IDEX Series Fund (formerly IDEX II Series Fund), IDEX
Fund and IDEX Fund 3; Trustee (1993 present) and President (1993 - 1995) of The
Florida Tax Free Funds (mutual funds); Director (1996-present) of ASM Fund
(mutual fund); currently retired; formerly President and Director (1995) of Sun
Chiropractic Clinics, Inc. (medical services); Executive Vice President (1993 -
1995) of William R. Hough & Co. (investment adviser, municipal bond and
underwriting firm); President/CEO (1986-1992) of Templeton Fund Management, Inc.
(investment advisers); and Vice President (1986-1992) of all U.S. Templeton
Funds (mutual funds).
- ----------
James L. Churchill
12 Lavington Road
Long Cove
Hilton Head, SC 29928
05/07/30
Trustee of IDEX Series Fund (formerly IDEX II Series Fund), IDEX Fund and IDEX
Fund 3; currently retired; formerly, President (1981 - 1990) and Executive Vice
President (1979 - 1981) of the Avionics Group of Rockwell International
Corporation, Cedar Rapids, Iowa (supplier of aviation electronics).
- ----------
Becky A. Ferrell(2)
12/10/60
Vice President (September 1995 - present), Assistant Vice President (March 1994
- - September 1995), Counsel and Secretary (March 1994 - present) of IDEX Series
Fund (formerly IDEX II Series Fund), IDEX Fund and IDEX Fund 3; Vice President
(September 1995 - present), Assistant Vice President (March 1994 - September
1995), and Secretary (March 1994 - present) WRL Series Fund, Inc. (investment
company); Assistant Vice President, Counsel and Assistant Secretary of
InterSecurities, Inc. (March 1994 - present) (broker-dealer); Attorney (August
1993 - present), Western Reserve Life Assurance Co. of Ohio (life insurance);
Attorney, Hearne, Graziano, Nader & Buhr, P.A. (September 1992 - August 1993)
(law firm); Legal Writing Instructor, Florida State University College of Law
(August 1991 - June 1992) (law school); Teaching Assistant, English, University
of South Florida (August 1990 - July 1991) (university); Associate Attorney,
Johnson, Blakely, Pope, Bokor, Ruppel Burns, P.A. (August 1989 - July 1990) (law
firm); Attorney, Schifino, Fleischer & Neal, P.A. (August 1986 - August 1989)
(law firm); Attorney, Trenam, Simmons, Kemker, Scharf, Barkin, Frye & O'Neill,
P.A. (August 1984 - August 1986) (law firm).
40
<PAGE>
Richard B. Franz, II(2)
07/12/50
Treasurer (May 1988 to present) of IDEX Series Fund (formerly IDEX II Series
Fund), IDEX Fund and IDEX Fund 3); Treasurer (May 1988 to present) of WRL Series
Fund, Inc. (investment company); Treasurer (May 1988 to present)of
InterSecurities, Inc. (broker-dealer); Treasurer (September 1992 to present) of
ISI Insurance Agency, Inc.; Treasurer (May 1988 to present) of Idex Management,
Inc. (investment adviser); Treasurer (May 1988 to present) of Idex Investor
Services, Inc. (transfer agent); Senior Vice President and Treasurer (May 1988
to February 1991) of Pioneer Western Corporation and Treasurer of its
subsidiaries; Senior Vice President, Treasurer and Chief Financial Officer
(November 1987 to present) of Western Reserve Life Assurance Co. of Ohio.
- ----------
William H. Geiger(2)
06/01/47
Vice President (November 1990 to present), Secretary (June 1990 to March 1994)
and Assistant Secretary (March 1994 to present) of IDEX Series Fund (formerly
IDEX II Series Fund), IDEX Fund and IDEX Fund 3; Secretary (June 1990 to March
1994) and Assistant Secretary (March 1994 to present) of WRL Series Fund, Inc.
(investment company); Senior Vice President, Secretary and General Counsel (July
1990 to present) of Western Reserve Life Assurance Co. of Ohio (life insurance);
Secretary (November 1990 to present) of Idex Management, Inc. (investment
adviser); Secretary (May 1990 to present) and Director (April 1991 to present)
of InterSecurities, Inc. (broker-dealer); Secretary (September 1992 to present)
of ISI Insurance Agency, Inc.; Secretary (May 1990 to present) of Idex Investor
Services, Inc. (transfer agent); Vice President, Secretary and General Counsel
(May 1990 to February 1991) of Pioneer Western Corporation and Secretary of its
subsidiaries (financial services); Secretary and General Counsel (March 1980 to
April 1990) of Orange State Life and Health Insurance Company and its affiliates
(life and health insurance).
- ---------
Charles C. Harris
35 Winston Drive
Belleair, FL 34616
07/15/30
Trustee of IDEX Series Fund (formerly IDEX II Series Fund), IDEX Fund and IDEX
Fund 3; Director (March 1994 - present) of WRL Series Fund, Inc. (investment
company); currently retired (1988 - present); Senior Vice President, Treasurer
(1966 - 1988), Western Reserve Life Assurance Co. of Ohio (life insurance); Vice
President, Treasurer (1968 - 1988), Director (1968 -1987), Pioneer Western
Corporation (financial services); Vice President of WRL Series Fund, Inc. (1986
- - December 1990) (investment company).
- ---------
G. John Hurley(2)
09/12/48
President and Chief Executive Officer (September 1990 to present), Trustee (June
1990 to present) and Executive Vice President (June 1988 to September 1990) of
IDEX Series Fund (formerly IDEX II Series Fund), IDEX Fund and IDEX Fund 3;
Executive Vice President (June 1993 to present) and Director (March 1994 to
present) of WRL Series Fund, Inc. (investment company); President, Chief
Executive Officer and Director (May 1988 to present) of InterSecurities, Inc.
(broker-dealer); President (September 1992 to present) of ISI Insurance Agency,
Inc.; Executive Vice President (April 1993 to present) of Western Reserve Life
Assurance Co. of Ohio (life insurance); President, Chief Executive Officer and
Director (1983 to November 1990) of PW Securities, Inc. (broker-dealer);
President, Chief Executive Officer and Director (September 1990 to present) and
Executive Vice President and Director (May 1988 to September 1990) of Idex
Management, Inc. (investment adviser); President and Director (May 1988 to
present) of Idex Investor Services, Inc. (transfer agent); Assistant Vice
President (September 1991 to September 1992) of AEGON USA Managed Portfolios,
Inc. (financial services); Vice President (May 1988 to February 1991) of Pioneer
Western Corporation (financial services). Mr. Hurley was employed by Pioneer
Western Corporation in various executive positions from 1972 until February
1991.
41
<PAGE>
- ----------
John R. Kenney(2)
02/08/38
Trustee (1987 to present), Chairman (December 1989 to present) and President and
Chief Executive Officer (1987 to September 1990) of IDEX Series Fund (formerly
IDEX II Series Fund), IDEX Fund and IDEX Fund 3; Chairman of the Board (1986 to
present) of WRL Series Fund, Inc. (investment company); President and Director
(1985 to September 1990) and Director (December 1990 to present) of Idex
Management, Inc. (investment adviser); Chairman (1988 to present) and Director
(1985 to present) of InterSecurities, Inc. (broker-dealer); Director (October
1992 to present) of ISI Insurance Agency, Inc.; President and Chief Executive
Officer, (1978 to 1987), Chairman and Chief Executive Officer (1987 to 1992) and
Chairman, President and Chief Executive Officer (1992 to present) of Western
Reserve Life Assurance Co. of Ohio (life insurance); Senior Vice President (May
1992 to present) of AEGON USA, Inc. (financial services holding company);
Chairman and Chief Executive Officer (1988 to February 1991), President and
Chief Executive Officer (1988 to 1989), Executive Vice President (1972 to 1988)
and Director (1976 to February 1991) of Pioneer Western Corporation (financial
services). Mr. Kenney is also the brother-in-law of Jack Zimmerman, a trustee of
the Fund.
- ---------
Julian A. Lerner
One Spurling Plaza, Suite 208
12850 Spurling Road
Dallas, TX 75230
11/12/24
Trustee (1996-present) of IDEX Series Fund (formerly IDEX II Series Fund), IDEX
Fund and IDEX Fund 3; currently semi-retired; Advisor to the Board of Associated
Financial Group (financial services organization); formerly Investment
Consultant (1995-1996) and Sr. Vice President (1987-1995) of Aim Capital
Management (investment adviser).
- ---------
Leslie E. Martin(2)
09/19/55
Vice President and National Marketing Manager (January 1993 to present) of IDEX
Series Fund (formerly IDEX II Series Fund), IDEX Fund and IDEX Fund 3; Vice
President of Marketing (January 1993 to present) of InterSecurities, Inc.
(broker-dealer); and Vice President of Marketing (April 1991 to January 1992) of
Social Responsibility Investment Group (investment company); and Vice President
of Regional Marketing (June 1988 to January 1991) of Calvert Group (investment
company).
- ---------
Thomas R. Moriarty(2)
05/03/51
Senior Vice President (March 1995 to present), Vice President and Principal
Accounting Officer (November 1990 to March 1995) and Principal Accounting
Officer (1988 to September 1990) of IDEX Series Fund (formerly IDEX II Series
Fund), IDEX Fund and IDEX Fund 3; Senior Vice President (June 1991 to present)
and Vice President (1988 to June 1991) of InterSecurities, Inc. (broker-dealer);
Senior Vice President (September 1992 to present) of ISI Insurance Agency, Inc.;
President (November 1990 to present) and Vice President (1988 to November 1990)
of PW Securities, Inc. (broker-dealer); Senior Vice President (June 1991 to
present) and Vice President (1988 to June 1991) of Idex Investor Services, Inc.
(transfer agent); Vice President (November 1990 to present) and Assistant Vice
President (1988 to September 1990) of Idex Management, Inc. (investment
adviser); Vice President (June 1993 to present) of Western Reserve Life
Assurance Co. of Ohio (life insurance); Assistant Vice President (September 1991
to September 1992) of AEGON USA Managed Portfolios, Inc. (financial services);
President (November 1990 to December 1992) and Vice President (1988 to November
1990) of PW Securities, Inc. (broker-dealer). Mr. Moriarty was employed by
Pioneer Western Corporation in various executive positions from 1984 to February
1991.
42
<PAGE>
Christopher G. Roetzer(2)
01/11/63
Principal Accounting Officer (March 1995 to present) and Assistant Vice
President (November 1990 to present) of IDEX Series Fund (formerly IDEX II
Series Fund), IDEX Fund and IDEX Fund 3; Assistant Vice President and Controller
(May 1988 to present) of InterSecurities, Inc. (broker-dealer); Assistant Vice
President (September 1992 to present) of ISI Insurance Agency, Inc.; Assistant
Vice President and Controller (May 1988 to present) of Idex Investor Services,
Inc. (transfer agent); Assistant Vice President (November 1990 to present) of
Idex Management, Inc. (investment adviser); Assistant Vice President and
Assistant Controller (April 1988 to May 1988) and Accounting Manager (June 1986
to April 1988) of Western Reserve Life Assurance Co. of Ohio (life insurance);
and Auditor (September 1984 to June 1986) of Peat, Marwick, Mitchell & Co. (CPA
firm).
- ---------
William W. Short, Jr.
12420 73rd Court
Largo, FL 34623
02/25/36
Trustee of IDEX Series Fund (formerly IDEX II Series Fund), IDEX Fund and IDEX
Fund 3; President and sole shareholder of Shorts, Inc. (men's retail apparel);
Chairman of Southern Apparel Corporation and S.A.C. Apparel Corporation and
S.A.C. Distributors (nationwide wholesale apparel distributors), Largo, Florida;
Director of Barnett Banks of Pinellas County; Trustee of Morton Plant Hospital
Foundation; former Chairman of Advisory Board of First Florida Bank, Pinellas
County, Florida.
- ---------
Jack E. Zimmerman
507 Saint Michel Circle
Kettering, OH 45429
02/03/28
Trustee of IDEX Series Fund (formerly IDEX II Series Fund), IDEX Fund and IDEX
Fund 3; Director (1987 to present), Western Reserve Life Assurance Co. of Ohio
(life insurance); currently retired; formerly, Director, Regional Marketing,
Ohio (September 1986 to January 1993) Martin Marietta Corporation, Dayton
(aerospace industry); Director of Strategic Planning (January 1986 to September
1986) of Martin Marietta Baltimore Aerospace. Mr. Zimmerman is also the
brother-in-law of John Kenney, Trustee and Chairman of the Fund.
- ---------------------------------------------------------------
(1) The principal business address of each person listed, unless otherwise
indicated, is P.O. Box 5068, Clearwater, FL 34618-5068.
(2) Interested Person (as defined in the Investment Company Act of 1940) of the
Fund.
The Fund pays no salaries or compensation to any of its officers, all of
whom are officers or employees of either ISI or its affiliates. Disinterested
Trustees (i.e., Trustees who are not affiliated with IMI, Janus Capital, ISI,
AEGON Management, Alger Management or Luther King) receive: (a) a total annual
retainer fee of $13,000 from IDEX Series Fund, of which the Fund pays a pro rata
share allocable to each Portfolio based on the relative assets of the Portfolio;
plus (b) $1,250 and incidental expenses per meeting attended. Any fees and
expenses paid to Trustees who are affiliates of IMI or ISI are paid by IMI
and/or ISI and not by the Fund or the Fund Complex. The Fund did not offer its
Trustees or officers any pension or retirement benefits during or prior to the
fiscal year ended September 30, 1995. The following table provides compensation
amounts paid to Disinterested Trustees of the Fund for the fiscal year ended
September 30, 1995.
43
<PAGE>
COMPENSATION TABLE
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM PAID TO TRUSTEES FROM
NAME OF PERSON, POSITION IDEX SERIES FUND FUND COMPLEX*
Peter R. Brown, Trustee............$15,016....................$29,750
Daniel Calabria**....................$-0-.......................$-0-
James L. Churchill, Trustee .......$14,652....................$21,750
Charles C. Harris, Trustee ........$14,652....................$29,250
Julian A. Lerner, Trustee**..........$-0-.......................$-0-
William W. Short, Jr., Trustee ....$15,016....................$22,250
Jack E. Zimmerman, Trustee ........$14,652....................$21,750
- ------------------------------------------------------
* The Fund Complex includes IDEX Series Fund and WRL Series Fund, Inc.
** Appointed as Trustee in March 1996
The Board of Trustees has adopted a policy whereby any Disinterested
Trustee of the Fund in office on September 1, 1990 who has served at least three
years as a trustee may, subject to certain limitations, elect upon his
resignation to serve as a trustee emeritus for a period of two years. A trustee
emeritus has no authority, power or responsibility with respect to any Fund
matter. While serving as such, a trustee emeritus is entitled to receive from
the Fund an annual fee equal to one-half the fee then payable per annum to
Disinterested Trustees of the Fund, plus reimbursement of expenses incurred for
attendance at Board meetings.
The Fund has an executive committee whose members currently are John R.
Kenney, G. John Hurley and Peter R. Brown. The executive committee may perform
all of the functions which may be performed by the Board of Trustees, except as
set forth in the Declaration of Trust and By-Laws of the Fund or as prohibited
by applicable law.
Commencing on January 1, 1996, a non-qualified deferred compensation plan
(the "Plan") became available to Trustees who are not interested persons of the
Fund. Under the Plan, compensation may be deferred that would otherwise be
payable by IDEX Series Fund and/or WRL Series Fund, Inc., to a Disinterested
Trustee or Director on a current basis for services rendered as Trustee.
Deferred compensation amounts will accumulate based on the value of Class A
shares of a Portfolio of the Fund (without imposition of sales charge), as
elected by the Trustee. It is not anticipated that the Plan will have any impact
on the Portfolios of the Fund.
During the fiscal year ended September 30, 1995, the Fund paid $78,244 in
trustees fees and expenses and no trustee emeritus fees or expenses. As of July
2, 1996, the trustees and officers held in the aggregate less than 1% of the
outstanding shares of each of the Aggressive Growth, Capital Appreciation,
Global, Growth, C.A.S.E., Equity-Income, Tactical Asset Allocation, Balanced,
Flexible Income, Income Plus and Tax-Exempt Portfolios.
PURCHASE OF SHARES
As stated in the Prospectus, each Portfolio offers investors a choice of
three classes of shares, and the Growth Portfolio includes a fourth class, Class
T shares. Class A, Class B or Class C shares of a Portfolio can be purchased
through ISI or through broker-dealers or other financial institutions that have
sales agreements with ISI. Class T shares of IDEX Growth Portfolio are not
available to new investors; only existing Class T shareholders (former
shareholders of IDEX Fund and IDEX Fund 3) can purchase Class T shares of the
Growth Portfolio. Shares of each Portfolio are sold at the net asset value per
share as determined at the close of the regular session of business on the New
York Stock Exchange next occurring after a purchase order is received and
accepted by the Fund plus the applicable sales charge in the case of Class A and
Class T shares. The Prospectus contains detailed information about the purchase
of Portfolio shares.
44
<PAGE>
DISTRIBUTION PLANS
As stated in the Prospectus under "Investment Advisory and Other Services",
each Portfolio has adopted a separate Distribution Plan pursuant to Rule 12b-1
under the 1940 Act (individually, a "Plan" and collectively, the "Plans"),
applicable to Class A, Class B and Class C shares of the Portfolio. Class T
shares of the Growth Portfolio are not subject to annual distribution and
service fees.
Under the Plans for Class A shares (the "Class A Plans"), a Portfolio may
pay ISI an annual distribution fee of up to 0.35%, and an annual service fee of
up to 0.25%, of the average daily net assets of the Portfolio's Class A shares;
however, to the extent that the 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 the Portfolio's Class A shares.
Under the Plans for Class B shares (the "Class B Plans"), 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 the Portfolio's Class B shares.
Under the Plans for Class C shares (the "Class C Plans"), 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 the Portfolio's Class C shares;
however, the total fee payable pursuant to the Class C Plan may not on an
annualized basis exceed 0.90% of the average daily net assets of the Portfolio's
Class C shares.
ISI may use the fees payable under the Class A, Class B and Class C Plans
as it deems appropriate to pay for activities or expenses primarily intended to
result in the sale of the Class A, Class B or Class C shares, respectively, or
in personal service to and/or maintenance of Class A, Class B 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
cost of preparing, printing and distributing sales literature and advertising
materials.
Under the Plans, as required by Rule 12b-1, the Board of Trustees will
review at least quarterly a written report provided by ISI of the amounts
expended by ISI in distributing and servicing Class A, Class B or Class C shares
of the Portfolio and the purpose for which such expenditures were made. For so
long as the Plans are in effect, selection and nomination of the Trustees who
are not interested persons of the Fund shall be committed to the discretion of
the Trustees who are not interested persons of the Fund.
A Plan may be terminated as to a class of shares of a Portfolio at any time
by vote of a majority of the non-interested Trustees or by vote of a majority of
the outstanding voting securities of the applicable class. A Plan may be amended
by vote of the Trustees, including a majority of the non- interested Trustees
who are not interested persons of the Fund and have no direct or indirect
financial interest in the operation of the Plan or any agreement relating
thereto ("non-interested Trustees"), cast in person at a meeting called for that
purpose. Any amendment of a Plan that would materially increase the costs to a
particular class of shares of a Portfolio requires approval by the shareholders
of that class. A Plan will remain in effect for successive one year periods, so
long as such continuance is approved annually by vote of the Fund's Trustees,
including a majority of the non-interested Trustees, cast in person at a meeting
called for the purpose of voting on such continuance.
During the fiscal year ended September 30, 1995, the Fund incurred fees
under the Plan applicable to the Class A shares of the Aggressive Growth,
Capital Appreciation, Global, Growth, Equity- Income, Balanced, Flexible Income,
Income Plus and Tax-Exempt Portfolios in the amounts of $20,522, $11,713,
$293,288, $1,496,132, $8,379, $5,983, $70,009, $227,812 and $97,746,
respectively, of which $11,492, $6,559, $164,241, $837,834, $4,692, $3,350,
$39,205, $127,575 and $54,738, respectively, was paid to non-affiliated
broker/dealers.
During the fiscal year ended September 30, 1995, the Fund incurred fees
under the Plan applicable to the Class C shares of the Aggressive Growth,
Capital Appreciation, Global, Growth, Equity-Income, Balanced, Flexible Income,
Income Plus and Tax-Exempt Portfolios in the amounts of $3,058, $9,131, $32,348,
$37,551, $1,076, $12,977, $5,801, $17,237, and $1,760, respectively, of which
$1,712, $5,113, $18,115, $21,029, $603, $7,267, $3,249, $9,653 and $986,
respectively, was paid to non-affiliated broker/dealers.
45
<PAGE>
Distribution fees for the fiscal year ended September 30, 1995, were used
by the Distributor as follows:
<TABLE>
<CAPTION>
AGGRESSIVE CAPITAL
GROWTH APPRECIATION GLOBAL GROWTH EQUITY-INCOME
A C A C A C A C A C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advertising 3,657 912 1,766 1,288 14,259 1,111 38,999 1,495 1,748 143
Printing/mailing
Prospectuses to other than 20,411 6,242 7,816 6,462 60,427 4,624 170,641 7,127 8,656 708
current shareholders
Compensation to underwriters 5,817 1,249 3,329 925 83,796 10,297 425,069 9,569 2,380 598
Compensation to dealers 14,544 1,768 8,324 8,151 209,491 22,067 1,062,673 27,980 5,950 474
Compensation to sales personnel 25,349 6,485 11,602 9,985 86,696 6,507 242,467 9,231 12,576 1,025
Interest or other finance charges -- -- -- -- -- -- -- -- -- --
Travel 5,255 1,394 2,283 1,938 16,808 1,263 47,538 1,842 2,506 204
Office Expenses 2,453 652 1,096 1,022 8,003 597 22,668 869 1,232 100
Administrative Processing Costs 1,182 664 926 645 7,706 1,343 39,700 1,430 753 625
TOTAL 78,668 19,366 37,142 30,416 487,186 47,809 2,049,755 59,543 35,801 3,877
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE INCOME
BALANCED INCOME PLUS TAX-EXEMPT
A C A C A C A C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advertising 1,499 1,936 1,852 198 6,111 555 1,917 259
Printing/mailing
Prospectuses to other than 7,209 8,954 8,795 848 27,724 2,356 8,377 1,191
current shareholders
Compensation to underwriters 1,699 321 20,003 1,744 65,089 1,088 27,927 216
Compensation to dealers 4,248 12,574 50,006 4,060 62,723 16,138 69,819 1,538
Compensation to personnel 9,967 15,275 11,662 1,241 38,450 3,483 11,615 1,761
Interest or other finance charges -- -- -- -- -- -- -- --
Travel 1,985 2,903 2,319 244 7,630 685 2,277 343
Office Expenses 956 1,570 1,106 115 3,594 322 1,079 172
Administrative Processing Costs 694 638 1,588 673 7,986 752 1,381 653
TOTAL 28,257 44,171 97,331 9,123 319,307 25,379 124,392 6,133
- ------------------------------------------------------
</TABLE>
On October 1, 1995, the Fund began offering Class B shares of each IDEX II
Portfolio. Accordingly, no distribution fees were applicable to Class B shares
for the period ended September 30, 1995. No distribution fees were applicable to
Class A or Class C shares of the Tactical Asset Allocation or C.A.S.E.
Portfolios for the fiscal year ended September 30, 1995, as those Portfolios had
not commenced operations at that time. Class T shares of the Growth Portfolio
are not subject to annual distribution and service fees.
46
<PAGE>
NET ASSET VALUE DETERMINATION
As stated in the Prospectus, net asset value is determined separately for
each class of shares of a Portfolio on each day 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, Monday through Friday, except on (i) days on which
changes in the value of portfolio securities will not materially affect the net
asset value of a particular class of shares of the Portfolio; (ii) days during
which no shares of the Portfolio are tendered for redemption and no orders to
purchase shares of that Portfolio are received; or (iii) customary national
holidays on which the Exchange is closed. The per share net asset value of each
class of shares of a Portfolio is determined by dividing the total value of the
Portfolio's securities, receivables and other assets allocable to that class by
the total number of shares outstanding of that class. The public offering price
of a Class A, Class B, Class C or Class T share of a Portfolio is the net asset
value per share plus, in the case of Class A and Class T shares, the applicable
sales charge. Investment securities are valued at the closing price for
securities traded on a principal securities exchange (U.S. or foreign) or on the
NASDAQ National Market. Investment securities traded on the over-the-counter
market and listed securities for which no sales are reported for the trading
period immediately preceding the time of determination are valued at the last
bid price. Foreign currency denominated assets and liabilities are converted
into U.S. dollars at the closing exchange rate each day. Other securities for
which quotations are not readily available are valued at fair values determined
in such manner as the Portfolio's sub-adviser, under the supervision of the
Board of Trustees, decide in good faith.
The offering price per share of the Growth Portfolio as of March 31, 1996
was calculated as follows:
CLASS A CLASS B CLASS C
Net asset value per share
(net assets shares outstanding).................$21.82 $21.53 $21.57
Add maximum selling commission
(5.50% of offering price for Class A shares).... 1.27 -0- -0-
Offering price per share .........................$23.09 $21.53 $21.57
====== ====== ======
The offering price per share of the Global Portfolio as of March 31, 1996
was calculated as follows:
CLASS A CLASS B CLASS C
Net asset value per share
(net assets shares outstanding) ............... $19.61 $19.40 $19.33
Add maximum selling commission
(5.50% of offering price for Class A shares)... 1.14 -0- -0-
Offering price per share......................... $20.75 $19.40 $19.33
====== ====== ======
The offering price per share of the Flexible Income Portfolio as of March
31, 1996 was calculated as follows:
CLASS A CLASS B CLASS C
Net asset value per share
(net assets shares outstanding) ................ $9.16 $9.16 $9.16
Add maximum selling commission
(4.75% of offering price for Class A shares) ... 0.46 -0- -0-
Offering price per share.......................... $9.62 $9.16 $9.16
===== ===== =====
47
<PAGE>
The offering price per share of the Tax-Exempt Portfolio as of March 31,
1996 was calculated as follows:
CLASS A CLASS B CLASS C
Net asset value per share
(net assets shares outstanding)................. $11.23 $11.23 $11.23
Add maximum selling commission
(4.75% of offering price for Class A shares).... 0.56 -0- -0-
Offering price per share ......................... $11.79 $11.23 $11.23
====== ====== ======
The offering price per share of the Income Plus Portfolio as of March 31,
1996 was calculated as follows:
CLASS A CLASS B CLASS C
Net asset value per share
(net assets shares outstanding).................. $10.30 $10.30 $10.30
Add maximum selling commission
(4.75% of offering price for Class A shares) .... 0.51 -0- -0-
Offering price per share .......................... $10.81 $10.30 $10.30
====== ====== ======
The offering price per share of the Balanced Portfolio as of March 31, 1996
was calculated as follows:
CLASS A CLASS B CLASS C
Net asset value per share
(net assets shares outstanding) ................. $12.48 $12.48 $12.48
Add maximum selling commission
(5.50% of offering price for Class A shares)..... 0.73 -0- -0-
Offering price per share .......................... $13.21 $12.48 $12.48
====== ====== ======
The offering price per share of the Capital Appreciation Portfolio as of
March 31, 1996 was calculated as follows:
CLASS A CLASS B CLASS C
Net asset value per share
(net assets shares outstanding) ................. $15.19 $15.17 $15.17
Add maximum selling commission
(5.50% of offering price for Class A shares) .... 0.88 -0- -0-
Offering price per share .......................... $16.07 $15.17 $15.17
====== ====== ======
The offering price per share of the Aggressive Growth Portfolio as of March
31, 1996 was calculated as follows:
CLASS A CLASS B CLASS C
Net asset value per share
(net assets shares outstanding) ................. $15.48 $15.40 $15.41
Add maximum selling commission
(5.50% of offering price for Class A shares) .... 0.90 -0- -0-
Offering price per share .......................... $16.38 $15.40 $15.41
====== ====== ======
48
<PAGE>
The offering price per share of the Equity-Income Portfolio as of March 31,
1996 was calculated as follows:
CLASS A CLASS B CLASS C
Net asset value per share
(net assets shares outstanding) ............ $12.72 $12.71 $12.71
Add maximum selling commission
(5.50% of offering price for Class A shares) .... 0.74 -0- -0-
Offering price per share ..................... $13.46 $12.71 $12.71
====== ====== ======
The offering price per share of the Tactical Asset Allocation Portfolio as
of March 31, 1996 was calculated as follows:
CLASS A CLASS B CLASS C
Net asset value per share
(net assets shares outstanding) ................. $10.77 $10.77 $10.77
Add maximum selling commission
(5.50% of offering price for Class A shares) .... 0.63 -0- -0-
Offering price per share ..................... $11.40 $10.77 $10.77
====== ====== ======
The offering price per share of the C.A.S.E. Portfolio as of March 31, 1996
was calculated as follows:
CLASS A CLASS B CLASS C
Net asset value per share
(net assets shares outstanding) ................ $10.04 $10.03 $10.03
Add maximum selling commission
(5.50% of offering price for Class A shares) ... .58 -0- -0-
Offering price per share .................... $10.62 $10.03 $10.03
====== ====== ======
DIVIDENDS AND OTHER DISTRIBUTIONS
As indicated in the Prospectus, an investor may choose among several
options with respect to dividends and capital gain distributions payable to the
investor. Dividends or other distributions will be paid in full and fractional
shares at the net asset value determined as of the ex-dividend date, unless the
shareholder has elected another distribution option as described in the
Prospectus. Transaction confirmations and checks for payments designated to be
made in cash generally will be mailed on the payable date. The per share income
dividends on Class B and Class C shares of a Portfolio are anticipated to be
lower than the per share income dividends on Class A shares of that Portfolio,
and Class T shares of the Growth Portfolio, as a result of higher service and
distribution fees applicable to the Class B and Class C shares.
SHAREHOLDER ACCOUNTS
Detailed information about general procedures for Shareholder Accounts and
specific types of accounts is set forth in the Prospectus.
RETIREMENT PLANS
As stated in the Prospectus, the Fund offers several types of retirement plans
that an investor may establish to invest in shares of a Portfolio with tax
deductible dollars. Prototype retirement plans for both corporations and
self-employed individuals and for Individual Retirement Accounts, Code Section
401(k) Plans and Simplified Employee Pension Plans are available by calling or
writing IDEX Customer Service. These plans require the completion of separate
applications which are also available from IDEX Customer Service. Investors
Fiduciary Trust Company ("IFTC"), Kansas City, Missouri, acts as the custodian
or trustee under these plans for which it charges an annual fee of up to $15.00
on each such account with a maximum of $30.00 per tax identification number.
However, if your retirement plan is under custody of IFTC and your combined
retirement account balances per taxpayer ID number are more than $50,000, there
is generally no fee. Shares of a Portfolio are also available for investment by
Code Section 403(b)(7) retirement plans for employees of charities, schools, and
other qualifying employers. The Tax Exempt Portfolio is not well-suited as an
investment vehicle for tax-deferred retirement plans which cannot benefit from
tax-
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exempt income and whose distributed earnings are taxable to individual
recipients as ordinary income. To receive additional information or forms on
these plans, please call IDEX Customer Service at (800) 851-9777 or write the
Transfer Agent at P. O. Box 9015, Clearwater, Florida 34618-9015. No
contribution to a retirement plan can be made until the appropriate forms to
establish the plan have been completed. It is advisable for an investor
considering the funding of any retirement plan to consult with an attorney,
retirement plan consultant or financial or tax advisor with respect to the
requirements of such plans and the tax aspects thereof.
REDEMPTION OF SHARES
Shareholders may redeem their shares at any time at any price equal to the
net asset value per share next determined following receipt of a valid
redemption order by the transfer agent, in proper form as prescribed in the
Prospectus. Payment will ordinarily be made within three days of the receipt of
a valid redemption order. The value of shares on redemption may be more or less
than the shareholder's cost, depending upon the market value of the Portfolio's
net assets at the time of redemption. Class B shares and certain Class A share
purchases are also subject to a declining contingent deferred sales charge upon
certain redemptions. The Prospectus describes the requirements and procedures
for the redemption of shares.
Shares will normally be redeemed for cash, although each Portfolio retains
the right to redeem its shares in kind under unusual circumstances, in order to
protect the interests of the remaining shareholders, by the delivery of
securities selected from its assets at its discretion. The Fund has, however,
elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the
Fund is obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of a Portfolio during any 90-day period for any one
shareholder. Should redemptions by any shareholder exceed such limitation, the
Fund will have the option of redeeming the excess in cash or in kind. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage costs in
converting the assets to cash. The method of valuing securities used to make
redemptions in kind will be the same as the method of valuing portfolio
securities described under "Net Asset Value Determination", and such valuation
will be made as of the same time the redemption price is determined. Upon any
distributions in-kind, shareholders may appeal the valuation of such securities
by writing to the Fund.
Redemption of shares may be suspended, or the date of payment may be
postponed, whenever (1) trading on the Exchange is restricted, as determined by
the Securities and Exchange Commission, or the Exchange is closed except for
holidays and weekends, (2) the Securities and Exchange Commission permits such
suspension and so orders, or (3) an emergency exists as determined by the
Securities and Exchange Commission so that disposal of securities and
determination of net asset value is not reasonably practicable.
The Contingent Deferred Sales Charge ("CDSC") is waived on redemptions of
Class B shares in the circumstances described below:
(a) Redemption upon Total Disability or Death
The Fund will waive the CDSC on redemptions following the death or total
disability (as evidenced by a determination of the federal Social Security
Administration) of a Class B shareholder, but in the case of total disability
only as to shares owned at the time of the initial determination of disability.
The Transfer Agent or Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC.
(b) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds paid in accordance with the shareholder's instructions. The amount to
be redeemed and frequency of the systematic withdrawals will be specified by the
shareholder upon his or her election to participate in the Plan. The CDSC will
be waived on redemptions made under the Plan subject to the limitations
described below.
The amount of the shareholder's investment in a Fund at the time election
to participate in the Plan is made with respect to the Fund is hereinafter
referred to as the "Initial Account Balance." The amount to be systematically
redeemed from the Fund without the imposition of a CDSC may not exceed a maximum
of 12% annually of the shareholder's Initial Account Balance. The Fund reserves
the right to change the terms and conditions of the Plan and the ability to
offer the Plan.
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The CDSC is also waived on redemption of Class B shares as it relates to
the reinvestment of redemption proceeds in Class B shares of another IDEX
Portfolio within 90 days after redemption.
TAXES
Each Portfolio has qualified, and intends to continue to qualify, for
treatment as a regulated investment company ("RIC") under the Internal Revenue
Code of 1986, as amended (the "Code"). In order to qualify for that treatment,
each Portfolio must must distribute to its shareholders for each taxable year at
least 90% of its investment company taxable income (consisting generally of
taxable net investment income and net short-term capital gain) and must meet
several additional requirements. With respect to each Portfolio, these
requirements include the following: (1) the Portfolio must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
securities, or other income (including gains from futures contracts) derived
with respect to its business of investing in securities; (2) the Portfolio must
derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities or futures contracts that were held for less
than three months ("Short-Short Limitation"); (3) at the close of each quarter
of the Portfolio's taxable year, at least 50% of the value of its total assets
must be represented by cash and cash items, U.S. government securities,
securities of other RICs and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Portfolio's total assets and that does not represent more than
10% of the outstanding voting securities of the issuer; and (4) at the close of
each quarter of the Portfolio's taxable year, not more than25% of the value of
its total assets may be invested in securities (other than U.S. government
securities or the securities of other RICs) of any one issuer.
A Portfolio will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts. Each
Portfolio intends to distribute annually a sufficient amount of any taxable
income and capital gains so as to avoid liability for this excise tax.
If the Tax-Exempt Portfolio invests in any instruments that generate
taxable income, under the circumstances described in the Prospectus,
distributions of the interest earned thereon will be taxable to that Portfolio's
shareholders as ordinary income to the extent of its earnings and profits.
Moreover, if that Portfolio realizes capital gains as a result of market
transactions, any distributions of that gain also will be taxable to its
shareholders.
Proposals may be introduced before Congress for the purpose of restricting
or eliminating the federal income tax exemption for interest on municipal
securities. If such a proposal were enacted, the availability of municipal
securities for investment by the Tax-Exempt Portfolio and the value of its
portfolio securities would be affected. In that event, the Tax-Exempt Portfolio
will re-evaluate its investment objective and policies.
Dividends and interest received by a Portfolio may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and foreign countries generally do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of
the Global Portfolio's total assets at the close of its taxable year consists of
securities of foreign corporations, it will be eligible to, and may, file an
election with the Internal Revenue Service that will enable its shareholders, in
effect, to receive the benefit of the foreign tax credit with respect to any
foreign and U.S. possessions income taxes paid by it. Pursuant to the election,
a Portfolio will treat those taxes as dividends paid to its shareholders and
each shareholder will be required to (1) include in gross income, and treat as
paid by him, his proportionate share of those taxes, (2) treat his share of
those taxes and of any dividend paid by the Portfolio that represents income
from foreign or U.S. possessions sources as his own income from those sources,
and (3) either deduct the taxes deemed paid by him in computing his taxable
income or, alternatively, use the foregoing information in calculating the
foreign tax credit against his federal income tax. The Global Portfolio will
report to its shareholders shortly after each taxable year their respective
shares of the income from sources within, and taxes paid to, foreign countries
and U.S. possessions if it makes this election.
Each Portfolio except the Tax-Exempt Portfolio may invest in the stock of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, a Portfolio will be subject to federal income tax on a portion of
any "excess distribution" received on the stock of a PFIC or of any gain on
disposition of that stock (collectively "PFIC income"), plus interest thereon,
even if the Portfolio distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Portfolio's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is
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distributed to its shareholders. If a Portfolio invests in a PFIC and elects to
treat the PFIC as a "qualified electing fund," then in lieu of the foregoing tax
and interest obligation, the Portfolio will be required to include in income
each year its pro rata share of the qualified electing fund's annual ordinary
earnings and net capital gain (the excess of net long-term capital gain over net
short-term capital loss), even if they are not distributed to the Portfolio;
those amounts would be subject to the distribution requirements described above.
In most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the income received in connection therewith by a
Portfolio. Income from foreign currencies (except certain gains therefrom that
may be excluded by future regulations), and income from transactions in options,
futures and forward contracts derived by a Portfolio with respect to its
business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement. However, income from the
disposition of foreign currencies that are not directly related to the
Portfolio's principal business of investing in securities (or options and
futures with respect thereto) also will be subject to the Short-Short Limitation
if the securities are held for less than three months.
If a Portfolio satisfies certain requirements, any increase in value on a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for urposes of determining whether the Portfolio satisfies
the Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Portfolio intends that, when it engages in hedging transactions, they will
qualify for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the Portfolio's hedging transactions. To
the extent this treatment is not available, a Portfolio may be forced to defer
the closing out of certain options and futures contracts beyond the time when it
otherwise would be advantageous to do so, in order for the Portfolio to continue
to qualify as an RIC.
The treatment of income dividends and capital gain distributions by a
Portfolio to shareholders under the various state income tax laws may not
parallel that under the federal law. Qualification as a regulated investment
company does not involve supervision of a Portfolio's management or of its
investment policies and practices by any governmental authority.
Shareholders are urged to consult their own tax advisors with specific
reference to their own tax situations, including their state and local tax
liabilities.
PRINCIPAL SHAREHOLDERS
To the knowledge of the Fund, as of July 2, 1996, no shareholder owned
beneficially or of record 5% or more of the outstanding shares of beneficial
interest of each of the Growth, Global, Flexible Income, Tax-Exempt, Balanced,
Capital Appreciation, Aggressive Growth, Equity-Income, Tactical Asset
Allocation or C.A.S.E. Portfolios, with the following exceptions: Patrick J.
Logue was record owner of approximately 10% of the Balanced Portfolio; and ISI
owned beneficially or of record approximately 11% of the C.A.S.E. Portfolio. As
of July 2, 1996, certain affiliates of ISI and AEGON Management were the record
owners of shares of beneficial interest of the Income Plus Portfolio, as
follows: AUSA Life Insurance Company owned approximately 7%, and Bankers United
Life Assurance Company owned approximately 2%. After giving effect to the
reorganization of IDEX Fund and IDEX Fund 3 into the IDEX Series Fund Growth
Portfolio, which closed as of the date of this Statement of Additional
Information, State Street Bank and Trust Company as Trustee for the ConAgra
Retirement Income Savings Plan, Boston, Massachusetts, was expected to own of
record approximately 7% of the outstanding shares of the Growth Portfolio as a
whole, and approximately 14% of the outstanding Class T shares of the Growth
Portfolio, on the basis of its ownership of shares of beneficial interest in
IDEX Fund and IDEX Fund 3 (and commitments) as of July 2, 1996 (prior to the
date of the reorganization).
MISCELLANEOUS
ORGANIZATION
The Portfolios are series of IDEX Series Fund, a Massachusetts business
trust that was formed by a Declaration of Trust dated January 7, 1986. The Trust
currently is governed by a Restatement of Declaration of Trust ("Declaration of
Trust") dated as of August 30, 1991.
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On September 20, 1996 in a tax-free reorganization, IDEX Growth Portfolio
(formerly IDEX II Growth Portfolio) acquired all of the assets and assumed all
of the liabilities of IDEX Fund and IDEX Fund 3 in exchange for Class T shares
of IDEX Growth Portfolio which were then distributed on a pro rata basis to the
respective shareholders of IDEX Fund and IDEX Fund 3. Upon closing of the
reorganization, IDEX II Series Fund changed its name to IDEX Series Fund.
On October 1, 1993, in a tax-free reorganization, the Flexible Income
Portfolio acquired all of the assets and assumed all of the liabilities of IDEX
Total Income Trust ("IDEX Total") in exchange for shares of the Flexible Income
Portfolio which were then distributed to IDEX Total shareholders. All historical
financial and performance information set forth in the Statement of Additional
Information relates to IDEX Total prior to the date it was reorganized into the
Flexible Income Portfolio.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Fund to issue an unlimited number of
shares of beneficial interest. Shares of the Fund are fully paid and
nonassessable when issued. Shares of the Fund have no preemptive, cumulative
voting, conversion or subscription rights. Shares of the Fund are fully
transferable but the Fund is not bound to recognize any transfer until it is
recorded on its books.
The shares of beneficial interest of each Portfolio are divided into three
classes, Class A, Class B and Class C shares; the Growth Portfolio includes a
fourth class, Class T shares. 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
matter appropriately limited to that class; Class A shares are subject to an
initial sales charge; Class B shares are subject to a contingent deferred sales
charge, or back-end load, at a declining rate; Class B and 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. Class T shares of the Growth Portfolio are subject
to an initial sales charge, but no annual distribution and service fees. Class T
shares are not available to new investors; only existing Class T shareholders
(who were shareholderes of IDEX Fund or IDEX Fund 3 on September 20, 1996) may
purchase additional Class T shares. 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 these classes. On an ongoing basis,
the Board of Trustees will consider whether any such conflict exists and, if so,
take appropriate action. On any matter submitted to a vote of shareholders of a
series or class, each full issued and outstanding share of that series or class
has one vote.
The Declaration of Trust provides that each of the trustees will continue
in office until the termination of the Trust or his earlier death, resignation,
bankruptcy or removal. A meeting will be called for the election of trustees
upon the written request of holders of 10% or more of the outstanding shares of
the Trust. Vacancies may be filled by majority of the remaining trustees,
subject to certain limitations imposed by the 1940 Act. Therefore, it is not
anticipated that annual or regular meetings of shareholders normally will be
held, unless otherwise required by the Declaration of Trust or the 1940 Act.
Subject to the foregoing, shareholders have the power to vote for the election
and removal of trustees, to terminate or reorganize the Fund, to amend the
Declaration of Trust, on whether to bring certain derivative actions and on any
other matters on which a shareholder vote is required by the 1940 Act, the
Declaration of Trust, the Fund's bylaws or the trustees.
LEGAL COUNSEL AND AUDITORS
Sutherland, Asbill & Brennan, 1275 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as counsel to the Fund and certain of its affiliates. Price
Waterhouse LLP, 1055 Broadway, Kansas City, Missouri 64105, serves as
independent accountants for the Fund.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus for the
Portfolios do not contain all the information set forth in the registration
statement and exhibits relating thereto, which the Fund has filed with the
Securities and Exchange Commission, Washington, D.C. under the Securities Act of
1933 and the 1940 Act, to which reference is hereby made.
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PERFORMANCE INFORMATION
The Prospectus contains a brief description of how performance is
calculated.
Quotations of average annual total return for a particular class of shares
of a Portfolio will be expressed in terms of the average annual compounded rate
of return of a hypothetical investment in the Portfolio over periods of 1, 5,
and 10 years. These are the average annual compounded rates of return that would
equate the initial amount invested to the ending redeemable value. These rates
of return are calculated pursuant to the following formula:
T ((ERV / P) 1/N)-1
(where P = a hypothetical initial investment of $1,000; T = the average annual
total return; N = the number of years; and ERV = the ending redeemable value of
a hypothetical $1,000 investment made at the beginning of the period). All
average annual total return figures reflect the deduction of a proportionate
share of each Portfolio's expenses on an annual basis, and assume that the
maximum sales load (Class A and Class T shares) is deducted from the initial
$1,000 investment and all dividends and distributions are paid in additional
shares.
For the one-year period ended March 31, 1996, the five-year period ended
March 31, 1996 and the period from inception (May 8, 1986) through March 31,
1996, the average annual total return for the Growth Portfolio's Class A shares
was 37.62%, 12.62% and 15.75%, respectively, assuming deduction of the maximum
sales charge of 5.5% and taking into account 12b-1 fees at the maximum level of
0.35%. Assuming no deduction of the maximum sales charge of 5.5%, the average
annual total returns for the Growth Portfolio's Class A shares were 45.60%,
13.90% and 16.41%, respectively, for those same periods. The cumulative total
returns for the Class A shares of the Growth Portfolio for the one-year period
ended March 31, 1996, the five-year period ended March 31, 1996 and the period
from inception (May 8, 1986) through March 31, 1996 were 45.60%, 91.68% and
350.13%, respectively.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Growth Portfolio's Class B shares was 8.64%,
which takes into account 12b-1 fees at the maximum level of 1.00%.
For the one-year period ended March 31, 1996 and the period from inception
(October 1, 1993) through March 31, 1996, the average annual total return for
the Growth Portfolio's Class C shares was 45.41% and 13.80%, respectively, which
takes into account 12b-1 fees at the maximum level of 0.90%. The cumulative
total return for the Class C shares of the Growth Portfolio for the one-year
period ended March 31, 1996 and the period from inception (October 1, 1993)
through March 31, 1996 was 45.41% and 38.17%, respectively.
For the one-year period ended March 31, 1996 and the period from inception
(October 1, 1992) through March 31, 1996, the average annual total return for
the Global Portfolio's Class A shares was 28.97% and 21.78%, respectively,
assuming deduction of the maximum sales charge of 5.5% and taking into account
12b-1 fees at the maximum level of 0.35%. Assuming no deduction of the maximum
sales charge of 5.5%, the average annual total return for the Global Portfolio's
Class A shares was 36.51% and 23.75%, respectively, for those periods. The
cumulative total return for the Class A shares of the Global Portfolio for the
one-year period ended March 31, 1996 and for the period from inception (October
1, 1992) through March 31, 1996 was 36.51% and 110.89%, respectively.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Global Portfolio's Class B shares was 13.40%,
which takes into account 12b-1 fees at the maximum level of 1.00%.
For the one-year period ended March 31, 1996 and the period from inception
(October 1, 1993) through March 31, 1996, the average annual total return for
the Global Portfolio's Class C shares was 36.59% and 19.19%, respectively, which
takes into account 12b-1 fees at the maximum level of 0.90%. The cumulative
total return for the Class C shares of the Global Portfolio for the one-year
period ended March 31, 1996 and the period from inception (October 1, 1993)
through March 31, 1996, was 36.59% and 55.10%, respectively.
For the one-year period ended March 31, 1996, the five-year period ended March
31, 1996 and the period from inception (June 29, 1987) through March 31, 1996,
the average annual total return for the Flexible Income Portfolio's Class A
shares was 6.63%, 9.27% and 7.39%, respectively, assuming deduction of the
applicable maximum sales charge of 4.75% and taking into account 12b-1 fees at
the maximum level of 0.35% through the period ended March 31, 1996. Assuming no
deduction of the maximum sales charge of 4.75%, the average annual total return
for the Flexible Income Portfolio's Class
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A shares was 12.00%, 10.33% and 8.05%, respectively, for those periods. For the
one-year period ended March 31, 1996, the five-year period ended March 31, 1996
and the period from inception (June 29, 1987) through March 31, 1996, the
cumulative total return for the Flexible Income Portfolio's Class A shares, was
12.00%, 63.46% and 97.13%, respectively.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Flexible Income Portfolio's Class B shares was
2.23%, which takes into account 12b-1 fees at the maximum level of 1.00%.
For the one-year period ended March 31, 1996 and the period from inception
(October 1, 1993) through March 31, 1996, the average annual total return for
the Flexible Income Portfolio's Class C shares was 11.39% and 4.32%,
respectively, which takes into account 12b-1 fees at the maximum level of 0.90%.
The cumulative total return for the Class C shares of the Flexible Income
Portfolio for the one-year period ended March 31, 1996 and the period from
inception (October 1, 1993) through March 31, 1996, was 11.39% and 11.15%.
For the one-year period ended March 31, 1996, the five-year period ended
March 31, 1996, the ten-year period ended March 31, 1996 and the period from
inception (April 1, 1985) through March 31, 1996, the average annual total
return for the Tax-Exempt Portfolio's Class A shares was 0.40%, 5.33%, 6.18% and
7.47%, respectively, assuming deduction of the maximum sales charge of 4.75% and
taking into account 12b-1 fees at the maximum level of 0.35% through the period
ended March 31, 1996. Assuming no deduction of the maximum sales charge of
4.75%, the average annual total return for the Tax-Exempt Portfolio's Class A
shares was 5.39%, 6.37%, 6.70% and 7.95%, respectively, for those periods. The
cumulative total return for the Class A shares of the Tax-Exempt Portfolio for
the one-year period ended March 31, 1996, the five-year period ended March 31,
1996, the ten-year period ended March 31, 1996 and the period from inception
(April 1, 1985) through March 31, 1996, was 5.39%, 36.17%, 91.31% and 131.96%,
respectively.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Tax-Exempt Portfolio's Class B shares was 1.43%,
which takes into account 12b-1 fees at the maximum level of 1.00%.
For the one-year period ended March 31, 1996 and the period from inception
(October 1, 1993) through March 31, 1996, the average annual total return for
the Tax-Exempt Portfolio's Class C shares was 5.22% and 3.44%, respectively,
which takes into account 12b-1 fees at the maximum level of 0.60%. The
cumulative total return for the Class C shares of the Tax-Exempt Portfolio for
the one-year period ended March 31, 1996 and the period from inception (October
1, 1993) through March 31, 1996 was 5.22% and 8.82%.
For the one-year period ended March 31, 1996, the five-year period ended
March 31, 1996, the ten-year period ended March 31, 1996 and the period from
inception (June 14, 1985) through March 31, 1996, the average annual total
return for the Income Plus Portfolio's Class A shares was 6.42%, 9.72%, 8.87%
and 10.15%, respectively, assuming deduction of the maximum sales charge of
4.75% and taking into account 12b-1 fees at the maximum level of 0.35% through
the period ended March 31, 1996. Assuming no deduction of the maximum sales
charge of 4.75%, the average annual total return for the Income Plus Portfolio's
Class A shares was 11.70%, 10.80%, 9.40% and 10.65%, respectively, for those
periods. The cumulative total return for the Class A shares of the Income Plus
Portfolio for the one-year period ended March 31, 1996, the five-year period
ended March 31, 1996, the ten-year period ended March 31, 1996 and the period
from inception (June 14, 1985) through March 31, 1996 was 11.70%, 66.99%,
145.59% and 198.27%, respectively.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Income Plus Portfolio's Class B shares was
2.51%, which takes into account 12b-1 fees at the maximum level of 1.00%.
For the one-year period ended March 31, 1996 and the period from inception
(October 1, 1993) through March 31, 1996, the average annual total return for
the Income Plus Portfolio's Class C shares was 11.09% and 4.92%, which takes
into account 12b-1 fees at the maximum level of 0.90%. The cumulative total
return for the Class C shares of the Income Plus Portfolio for the one-year
period ended March 31, 1996 and the period from inception (October 1, 1993)
through March 31, 1996 was 11.09% and 12.77%.
For the one-year period ended March 31, 1996 and the period from inception
(December 2, 1994) through March 31, 1996, the average annual total return for
the Balanced Portfolio's Class A shares was 13.37% and 13.40%, respectively,
assuming deduction of the maximum sales charge of 5.5% and taking into account
12b-1 fees at the maximum level of 0.35%. Assuming no deduction of the maximum
sales charge of 5.5%, the average annual total return for the Balanced
Portfolio's Class A shares was 23.93% and 21.31%, respectively for those
periods. The cumulative total return for the Class A shares of the
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Balanced Portfolio for the one-year period ended March 31, 1996 and the period
from inception (December 2, 1994) through March 31, 1996 was 23.93% and 29.26%,
respectively.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Balanced Portfolio's Class B shares was 11.71%,
which takes into account 12b-1 fees at the maximum level of 1.00%.
For the one-year period ended March 31, 1996 and the period from inception
(December 2, 1994) through March 31, 1996, the average annual total return for
the Balanced Portfolio's Class C shares was 23.27% and 20.61%, respectively,
which take into account 12b-1 fees at the maximum level of 0.90%. The cumulative
total return for the Class C shares of the Balanced Portfolio for the one-year
period ended March 31, 1996 and the period from inception (December 2, 1994)
through March 31, 1996 was 23.27% and 28.39%, respectively
For the one-year period ended March 31, 1996 and the period from inception
(December 2, 1994) through March 31, 1996, the average annual total return for
the Capital Appreciation Portfolio's Class A shares was 34.75% and 34.40%,
respectively, assuming deduction of the maximum sales charge of 5.5% and taking
into account 12b-1 fees at the maximum level of 0.35%. Assuming no deduction of
the maximum sales charge of 5.5%, the average annual total return for the
Capital Appreciation Portfolio's Class A shares was 47.24% and 43.85%,
respectively for those periods. The cumulative total return for the Class A
shares of the Capital Appreciation Portfolio for the one-year period ended March
31, 1996 and the period from inception (December 2, 1994) through March 31, 1996
was 47.24% and 62.11%, respectively.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Capital Appreciation Portfolio's Class B shares
was 19.57%, which takes into account 12b-1 fees at the maximum level of 1.00%.
For the one-year period ended March 31, 1996 and the period from inception
(December 2, 1994) through March 31, 1996, the average annual total return for
the Capital Appreciation Portfolio's Class C shares was 46.68% and 43.06%,
respectively, which take into account 12b-1 fees at the maximum level of 0.90%.
The cumulative total return for the Class C shares of the Capital Appreciation
Portfolio for the one-year period ended March 31, 1996 and the period from
inception (December 2, 1994) through March 31, 1996 was 46.68% and 61.21%,
respectively
For the one-year period ended March 31, 1996 and the period from inception
(December 2, 1994) through March 31, 1996, the average annual total return for
the Aggressive Growth Portfolio's Class A shares was 24.97% and 36.40%,
respectively, assuming deduction of the maximum sales charge of 5.5% and taking
into account 12b-1 fees at the maximum level of 0.35%. Assuming no deduction of
the maximum sales charge of 5.5%, the average annual total return for the
Aggressive Growth Portfolio's Class A shares was 36.53% and 46.00%, respectively
for those periods. The cumulative total return for the Class A shares of the
Aggressive Growth Portfolio for the one-year period ended March 31, 1996 and the
period from inception (December 2, 1994) through March 31, 1996 was 36.53% and
65.34%, respectively.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Aggressive Growth Portfolio's Class B shares was
(6.99)%, which takes into account 12b-1 fees at the maximum level of 1.00%.
For the one-year period ended March 31, 1996 and the period from inception
(December 2, 1994) through March 31, 1996, the average annual total return for
the Aggressive Growth Portfolio's Class C shares was 36.17% and 45.34%,
respectively, which take into account 12b-1 fees at the maximum level of 0.90%.
The cumulative total return for the Class C shares of the Aggressive Growth
Portfolio for the one-year period ended March 31, 1996 and the period from
inception (December 2, 1994) through March 31, 1996 was 36.17% and 64.64%,
respectively
For the one-year period ended March 31, 1996 and the period from inception
(December 2, 1994) through March 31, 1996, the average annual total return for
the Equity-Income Portfolio's Class A shares was 10.65% and 14.36%,
respectively, assuming deduction of the maximum sales charge of 5.5% and taking
into account 12b-1 fees at the maximum level of 0.35%. Assuming no deduction of
the maximum sales charge of 5.5%, the average annual total return for the
Equity-Income Portfolio's Class A shares was 20.93% and 22.34%, respectively for
those periods. The cumulative total return for the Class A shares of the
Equity-Income Portfolio for the one-year period ended March 31, 1996 and the
period from inception (December 2, 1994) through March 31, 1996 was 20.93% and
30.72%, respectively.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Equity-Income Portfolio's Class B shares was
9.95%, which takes into account 12b-1 fees at the maximum level of 1.00%.
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For the one-year period ended March 31, 1996 and the period from inception
(December 2, 1994) through March 31, 1996, the average annual total return for
the Equity-Income Portfolio's Class C shares was 20.29% and 21.63%,
respectively, which take into account 12b-1 fees at the maximum level of 0.90%.
The cumulative total return for the Class C shares of the Equity-Income
Portfolio for the one-year period ended March 31, 1996 and the period from
inception (December 2, 1994) through March 31, 1996 was 20.29% and 29.84%,
respectively.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Tactical Asset Allocation Portfolio's Class A
shares was 2.18%, assuming deduction of the maximum sales charge of 5.5% and
taking into account 12b-1 fees at the maximum level of 0.35%. Assuming no
deduction of the maximum sales charge of 5.5%, the cumulative total return for
the Tactical Asset Allocation Portfolio's Class A shares was 8.11% for that
period.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Tactical Asset Allocation Portfolio's Class B
shares was 7.79%, which takes into account 12b-1 fees at the maximum level of
1.00%.
For the period from inception (October 1, 1995) through March 31, 1996, the
cumulative total return for the Tactical Asset Allocation Portfolio's Class C
shares was 7.84%, which take into account 12b-1 fees at the maximum level of
0.90%.
For the period from inception (February 1, 1996) through March 31, 1996,
the cumulative total return for the C.A.S.E. Portfolio's Class A shares was
(5.10)%, assuming deduction of the maximum sales charge of 5.5% and taking into
account 12b-1 fees at the maximum level of 0.35%. Assuming no deduction of the
maximum sales charge of 5.5%, the cumulative total return for the C.A.S.E.
Portfolio's Class A shares was 0.40% for that period.
For the period from inception (February 1, 1996) through March 31, 1996,
the cumulative total return for the C.A.S.E. Portfolio's Class B shares was
0.30%, which takes into account 12b-1 fees at the maximum level of 1.00%.
For the period from inception (February 1, 1996) through March 31, 1996,
the cumulative total return for the C.A.S.E. Portfolio's Class C shares was
0.30%, which take into account 12b-1 fees at the maximum level of 0.90%.
The current yield for a particular class of shares of the Flexible Income
Portfolio, the Tax-Exempt Portfolio, the Income Plus Portfolio, Balanced
Portfolio or the Equity-Income Portfolio is computed in accordance with a
standardized method prescribed by rules of the Securities and Exchange
Commission. The yield is computed by dividing the Portfolio's investment income
per share earned during a particular 30-day base period (including dividends, if
any and interest earned, minus expenses (excluding reductions for affiliated
brokerage and custody earnings credits) accrued during the period) by the
maximum offering price per share on the last day of the base period and then
annualizing the result. The current yield for the Class A, Class B and Class C
shares of the Flexible Income Portfolio for the 30-day period ended March 31,
1996 was 5.97%, 5.66% and 5.71%, respectively. The current yield for the Class
A, Class B and Class C shares of the Tax-Exempt Portfolio for the 30-day period
ended March 31, 1996 was 4.75%, 4.40% and 4.74%, respectively. The current yield
for the Class A, Class B and Class C shares of the Income Plus Portfolio for the
30-day period ended March 31, 1996 was 6.28%, 5.96% and 6.04%, respectively. The
current yield for the Class A, Class B and Class C shares of the Balanced
Portfolio for the 30-day period ended March 31, 1996 was 1.63%, 1.10% and 1.18%,
respectively. The current yield for the Class A, Class B and Class C shares of
the Equity-Income Portfolio for the 30-day period ended March 31, 1996 was
1.14%, 0.57% and 0.66%, respectively.
The tax equivalent yield of the Tax-Exempt Portfolio is computed by
dividing that portion of the yield (as computed above) which is tax-exempt by
one minus an assumed tax rate of 28% and adding the product to that portion, if
any, of the Portfolio's yield that is not tax-exempt. The tax equivalent yield
of the Tax-Exempt Portfolio's Class A, Class B and Class C shares based on a
30-day period ended March 31, 1996 was 6.60%, 6.11% and 6.58%, respectively.
As stated in the Prospectus, from time to time in advertisements or sales
material, a Portfolio may present and discuss its performance rankings and/or
ratings or other information as published by recognized mutual fund statistical
services or by publications of general interest such as Wall Street Journal,
Boston Globe, New York Times, Los Angeles Times, Christian Science Monitor, USA
Today, Tampa Tribune, St. Petersburg Times, Financial Times, Hartford Current,
International Herald Tribune, Investor's Business Daily, Boston Herald,
Washington Post, Kiplinger's Washington Letter, Kiplinger's Tax Report,
Kiplinger's Personal Finance Magazine, Barron's, Business Week, Financial
Services Week, National Underwriter, Time, Newsweek, Pensions & Investments,
U.S. News and World Report, Morningstar Mutual Fund Values, Economist, Bank
Letter, Boston Business Journal, Research Recommendations, FACS of the Week,
Money, Modern Maturity, Forbes, Fortune, Financial Planner, American Banker,
U.S. Banker, ABA Banking Journal, Institutional Investor (U.S./Europe),
Registered Representative, Independent Agent, American Demographics, Trusts &
Estates, Credit Union Management, Personal Investor, New England
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Business, Business Month, Gentlemen's Quarterly, Employee Research Report,
Employee Benefit Plan Review, ICI Mutual Fund News, Succeed, Johnson Charts,
Weisenberger Investment Companies Service, Mutual Fund Quarterly, Financial
World Magazine, Consumer Reports, Babson-United Mutual Fund Selector and Mutual
Fund Encyclopedia (Dearborn Financial Publishing.) . A Portfolio may also
advertise non-standardized performance information which is for period in
addition to those required to be presented, or which provides actual
year-by-year return, or any combination thereof, or both. For Class A, Class B
and Class T shares, non-standardized performance may also be that which does not
reflect deduction of the maximum sales charge applicable to Class A and Class T
shares or the contingent deferred sales charge applicable to Class B shares. 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. Treasuries, or to certain interest rate and inflation indices, such as the
Consumer Price Index. A Portfolio may also advertise various methods of
investing including, among others, dollar cost averaging, and may use
compounding illustrations to show the results of such investment methods. The
Fund or the Distributor may also from time to time in advertisements or sales
material present tables or other information comparing tax-exempt yields to the
equivalent taxable yields, whether with specific reference to the Tax-Exempt
Portfolio or otherwise.
FINANCIAL STATEMENTS
Audited Financial Statements for IDEX Growth, Global, Flexible Income,
Tax-Exempt, Income Plus, Balanced, Capital Appreciation, Aggressive Growth and
Equity-Income Portfolios (each, former IDEX II Portfolios) for the fiscal year
ended September 30, 1995 are incorporated by reference from the Fund's Annual
Report dated September 30, 1995. No financial information exists for IDEX
Tactical Asset Allocation or C.A.S.E. Portfolios for the fiscal year ended
September 30, 1995, as those Portfolios had not commenced operations as of that
date. Unaudited Financial Statements for IDEX Growth, Global, Flexible Income,
Tax-Exempt, Income Plus, Balanced, Capital Appreciation, Aggressive Growth,
Equity-Income, Tactical Asset Allocation and C.A.S.E. Portfolios (each, former
IDEX II Portfolios) for the period ended March 31, 1996 are incorporated by
reference from the Fund's Semi-Annual Report dated March 31, 1996.
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APPENDIX A
CERTAIN SECURITIES IN WHICH THE PORTFOLIOS MAY INVEST
I. MUNICIPAL OBLIGATIONS IN WHICH THE TAX-EXEMPT PORTFOLIO MAY INVEST
A. MUNICIPAL BONDS
General Information. Municipal Bonds are debt obligations issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities such as airports, highways, bridges, schools, hospitals,
housing, mass transportation, streets and water and sewer works, and that pay
interest that is exempt from federal income tax in the opinion of issuer's
counsel. Other public purposes for which Municipal Bonds may be issued include
the refunding of outstanding obligations, obtaining funds for general expenses
and obtaining funds to lend to other public institutions and facilities.
The two principal classifications of Municipal Bonds are "general
obligation" bonds and "revenue" or "special tax" bonds. General obligation bonds
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue or special tax bonds are
payable only from the revenues derived from a particular facility or class of
facilities or project or, in some cases, from the proceeds of a special excise
tax or other specific revenue source, but are not supported by the issuer's
power to levy general taxes. Most industrial development bonds are in this
category.
There are, of course, variations in the security of Municipal bonds, both
within a particular classification and between classifications, depending on
numerous factors. The yields of Municipal Bonds depend, among other things, upon
general money market conditions, general conditions of the Municipal Bond
market, size of a particular offering, the maturity of the obligations and
rating of the issue.
Industrial Development Bonds and Private Activity Bonds. Industrial
development bonds ("IDBs") and private activity bonds ("PABs") are issued by or
on behalf of public authorities to finance various privately operated
facilities, such as airports or pollution control facilities. PABs generally are
such bonds issued after August 15, 1986. These obligations are included within
the term "municipal bonds" if the interest paid thereon is exempt from federal
income tax in the option of the bond counsel. IDBs and PABs are in most cases
revenue bonds and thus are not payable from the unrestricted revenues of the
issuer. The credit quality of IDBs and PABs is usually directly related to the
credit standing of the user of the facilities being financed.
Purchases on "When-Issued" or "Delayed Delivery" Basis. Sometimes the
Tax-Exempt Portfolio may buy Municipal Bonds on a "when-issued" or "delayed
delivery" basis. This means that when it agrees to buy, the terms of the Bonds
and the price it will pay are fixed, but it does not purchase and take delivery
of the Bonds until a later date (the "settlement date"), which is usually within
one month. The Tax-Exempt Portfolio pays no money and receives no interest
before the settlement date. The commitment to purchase securities on a
when-issued or delayed delivery basis involves the risk that the market value of
such securities may fall below cost prior to the settlement date. While the
Tax-Exempt Portfolio may sell the Municipal Bonds before the settlement date, it
will ordinarily do so only for investment management reasons. Ordinarily, the
Tax-Exempt Portfolio purchases Municipal Bonds that it has agreed to buy on a
when-issued or delayed delivery basis. Gains or losses on sales prior to the
settlement date are not tax-exempt.
A Municipal Bond purchased on a when-issued or delayed delivery basis is
recorded as an asset on the commitment date. The Tax-Exempt Portfolio will
direct the Fund's custodian to segregate cash, U.S. Government securities or
other appropriate high-grade debt obligations owned by the Portfolio that are at
least equal in value to the amount the Tax-Exempt Portfolio will have to pay on
the settlement date. If necessary, additional assets will be placed in the
account daily so that the value of the account will at least equal the
Portfolio's purchase commitment.
B. MUNICIPAL NOTES
The Tax-Exempt Portfolio may invest in the following types of Municipal
Notes, subject to the quality requirements described in the Prospectus:
Project Notes. Project notes ("PNs") are issued on behalf of local
authorities at auctions conducted by the United States Department of Housing and
Urban Development to raise funds for federally sponsored urban renewal,
neighborhood development and housing programs. PNs are backed by the full faith
and credit of the Federal government through agreements with the local authority
which provide that, if required, the Federal government will lend the issuer an
amount equal to the principal of and
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interest on the PNs. Ordinarily, PNs are repaid by rolling over the notes or
from the proceeds of new bonds or other securities which are issued to provide
permanent financing.
Bond Anticipation Notes. Bond anticipation notes ("BANs") are usually
general obligations of state and local governmental issuers which are sold to
obtain interim financing for projects that will eventually be funded through the
sale of long-term debt obligations or bonds. The ability of an issuer to meet
its obligations on its BANs is primarily dependent on the issuer's access to the
long-term municipal bond market and the likelihood that the proceeds of such
bond sales will be used to pay the principal and interest on the BANs.
Tax Anticipation Notes. Tax anticipation notes ("TANs") are issued by state
and local governments to finance their current operations. Repayment is
generally to be derived from specific future tax revenues. TANs are usually
general obligations of the issuer. A weakness in an issuer's capacity to raise
taxes due to, among other things, a decline in its tax base or a rise in
delinquencies, could adversely affect the issuer's ability to meet its
obligations on outstanding TANs.
Revenue Anticipation Notes. Revenue anticipation notes ("RANs") are issued
by governments or governmental bodies with the expectation that future revenues
from a designated source will be used to repay the notes. In general, they also
constitute general obligations of the issuer. A decline in the receipt of
projected revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its obligations
on outstanding RANs. In addition, the possibility that the revenues would, when
received, be used to meet other obligations could affect the ability of the
issuer to pay the principal and interest on RANs.
Construction Loan Notes. Construction loan notes are issued to provide
construction financing for specific projects. Frequently, these notes are
redeemed with funds obtained from the Federal Housing Administration.
Bank Notes. Bank notes are notes issued by local governmental bodies and
agencies as those described above to commercial banks as evidence of borrowings.
Banks on occasion sell such notes to purchasers such as the Tax-Exempt
Portfolio. The purposes for which the notes are issued vary, but bank notes are
frequently issued to meet short-term working-capital or capital-project needs.
These notes typically are redeemed with revenue from taxes or from long-term
financing proceeds, and may have risks similar to the risks associated with TANs
and RANs.
C. MUNICIPAL COMMERCIAL PAPER
Municipal Commercial Paper (also called "short-term discount notes")
represents short-term obligations of state and local governments and their
agencies issued typically to meet seasonal working capital or interim
construction financing requirements. Municipal Commercial Paper is often issued
at a discount, with shorter maturities than Municipal Notes. Such obligations
are repayable from general revenues of the issuer or refinanced with long-term
debt. In most cases, Municipal Commercial Paper is backed by letters of credit,
lending or note repurchase agreements, or other credit facility agreements
offered by banks or other institutions.
While the various types of Municipal Notes and Municipal Commercial Paper
described above as a group represent the major portion of the tax-exempt note
market, other types of notes are occasionally available in the marketplace and
the Tax-Exempt Portfolio may invest in such other types of notes to the extent
permitted under its investment objective and policies. Such short-term
obligations may be issued for different purposes and with different security
than those mentioned above.
D. FLOATING RATE AND VARIABLE RATE OBLIGATIONS
The Tax-Exempt Portfolio may purchase floating rate and variable rate
obligations, including participation interests therein (see section E below).
Investments in floating or variable rate securities normally will include IDBs
which provide that the rate of interest is set as a specific percentage of a
designated base rate, such as the rate on Treasury Bonds or Bills or the prime
rate at a major commercial bank, and that the Portfolio can demand payment of
the obligation on short notice at par value plus accrued interest. Variable rate
securities provide for a specified periodic adjustment in the interest rate,
while floating rate securities have flexible rates that change whenever there is
a change in the designated base interest rate. Frequently, such securities are
secured by letters of credit or other credit support arrangements provided by
banks. The quality of the underlying creditor (i.e., the corporation utilizing
the IDBs financing) or the bank, as the case may be, must be equivalent to the
Municipal Obligation ratings required for purchases for the Tax-Exempt
Portfolio.
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E. PARTICIPATION INTERESTS
The Tax-Exempt Portfolio may invest in participation interests purchased
from banks in variable rate tax-exempt securities (such as IDBs) owned by the
banks. A participation interest gives the purchaser an undivided interest in the
tax-exempt security in the proportion that the Portfolio's participation
interest bears to the total principal amount of the tax-exempt security, and
permits demand repurchase as described in section D above. Participations are
frequently backed by an irrevocable letter of credit or guarantee of the bank
offering the participation which the sub-adviser, under the supervision of the
Board of Trustees, has determined meets the prescribed quality standards for the
Tax-Exempt Portfolio. The Portfolio has the right to sell the instrument back to
the bank and draw on the letter of credit on 7 days' notice for all or any part
of the Portfolio's participation interest in the tax-exempt security, plus
accrued interest. The Portfolio intends to exercise its demand rights under the
letter of credit only (1) upon a default under the terms of the tax-exempt
security, (2) as needed to provide liquidity in order to meet redemptions, or
(3) upon a drop in the rating or the sub-adviser's evaluation of the underlying
security. Banks charge a service and letter of credit fee and a fee for issuing
repurchase commitments in an amount equal to the excess of the interest paid on
the tax-exempt securities over the yield negotiated between the Portfolio and
the bank at which the instruments were purchased by the Tax-Exempt Portfolio.
The sub-adviser will monitor the pricing, quality and liquidity of the variable
rate demand instruments held by the Tax-Exempt Portfolio, including the IDBs
supported by bank letters of credit or guarantee, on the basis of published
financial information, reports or rating agencies and other bank analytical
services. Participation interests will be purchased only if, in the opinion of
counsel, interest income on such interest will be tax-exempt when distributed as
dividends to shareholders.
Obligations of issuers of Municipal Bonds, Municipal Notes and Municipal
Commercial Paper are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, which may be enacted by Congress or state
legislatures extending the time for payment of principal or interest, or
imposing other constraints upon enforcement of such obligations or upon
municipalities' power to levy taxes. There is also the possibility that
litigation or other conditions may materially affect the power or ability of an
issuer to pay, when due, the principal of and interest on its Municipal
Obligations.
II. OBLIGATIONS IN WHICH EACH PORTFOLIO MAY INVEST (UNLESS OTHERWISE NOTED)
A. U.S. GOVERNMENT OBLIGATIONS
As described in the Prospectus, the Portfolios may invest in some or all of
the following types of direct obligations of the Federal Government, issued by
the Department of the Treasury, and backed by the full faith and credit of the
Federal Government.
Treasury Bills. Treasury bills are issued with maturities of up to one
year. They are issued in bearer form, are sold on a discount basis and are
payable at par value at maturity.
Treasury Notes. Treasury Notes are longer-term interest bearing obligations
with original maturities of one to seven years.
Treasury Bonds. Treasury bonds are longer-term interest bearing obligations
with original maturities from 5 to 30 years.
B. OBLIGATIONS OF FEDERAL AGENCIES, INSTRUMENTALITIES AND AUTHORITIES
Certain federal agencies have been established as instrumentalities of the
United States Government to supervise and finance certain types of activities.
These agencies include, but are not limited to, the Banks for Cooperatives,
Federal Land Banks, Federal Intermediate Credit Banks, Federal Home Loan Banks
("FHLB"), Federal National Mortgage Association ("FNMA"), Government National
Mortgage Association ("GNMA"), Export-Import Bank of the United States, and
Tennessee Valley Authority ("TVA"). Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA Certificates or certain TVA Bonds)
or are guaranteed by the Treasury (e.g., certain other TVA Bonds) or supported
by the issuing agencies' right to borrow from the Treasury (e.g., FHLB and FNMA
Bonds). There can be no assurance that the United States Government itself will
pay interest and principal on securities as to which it is not legally obligated
to do so.
C. CERTIFICATES OF DEPOSIT (ALL PORTFOLIOS) AND TIME DEPOSITS (INCOME PLUS
PORTFOLIO ONLY)
A time deposit is a non-negotiable interest-bearing deposit with a bank
which generally cannot be withdrawn prior to a specified maturity date without
substantial interest penalties. A certificate of deposit ("CD") is a negotiable
instrument issued
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by a bank against a time deposit. CDs normally can be traded in the secondary
market prior to maturity, and are thus more liquid than other forms of time
deposits. The Portfolios will only invest in U.S. dollar denominated time
deposits and CDs representing deposits in U.S. Banks with assets of $1 billion
or more, whose deposits are insured by the Federal Deposit Insurance
Corporation.
D. COMMERCIAL PAPER
Commercial paper refers to short-term unsecured promissory notes issued by
commercial and industrial corporations to finance their current operations.
Commercial paper may be issued at a discount and redeemed at par, or issued at
par with interest added at maturity. The interest or discount rate depends on
general interest rates, the credit standing of the issuer, and the maturity of
the note, and generally moves in tandem with rates on large CDs and Treasury
bills. An established secondary market exists for commercial paper, particularly
that of stronger issuers which are rated by Moody's Investors Service, Inc. and
Standard and Poor's Ratings Group. Investments in commercial paper are subject
to the risks that general interest rates will rise, that the credit standing and
outside rating of the issuer will fall, or that the secondary market in the
issuer's notes will become too limited to permit their liquidation at a
reasonable price.
E. BANKER'S ACCEPTANCE
A banker's acceptance is a negotiable short-term draft, generally arising
from a bank customer's commercial transaction with another party, with payment
due for the transaction on the maturity date of the customer's draft. The draft
becomes a banker's acceptance when the bank, upon fulfillment of the obligations
of the third party, accepts the draft for later payment at maturity, thus adding
the bank's guarantee of payment to its customer's own obligation. In effect, a
banker's acceptance is a post-dated certified check payable to its bearer at
maturity. Such acceptances are highly liquid, but are subject to the risk that
both the customer and the accepting bank will be unable to pay at maturity. The
Portfolios may invest in U.S. dollar denominated banker's acceptances issued by
U.S. banks, their foreign branches, and by U.S. branches of foreign banks.
F. REPURCHASE AGREEMENTS FOR U.S. GOVERNMENT SECURITIES (EXCEPT EQUITY-INCOME
PORTFOLIO)
The Portfolios may enter into repurchase agreements with banks and dealers
for securities of or guaranteed by the U.S. Government, under which the
Portfolio purchases securities and agrees to resell the securities at an agreed
upon time and at an agreed upon price. The difference between the amount the
Portfolio pays for the securities and the amount it receives upon resale is
accrued as interest and reflected in the Portfolio's net investment income. When
the Portfolio enters into repurchase agreements, it relies on the seller to
repurchase the securities. Failure to do so may result in a loss for the
Portfolio if the market value of the securities is less than the repurchase
price. Under the Investment Company Act of 1940, repurchase agreements may be
considered collateralized loans by the Portfolio.
At the time a Portfolio enters into a repurchase agreement, the value of
the underlying security including accrued interest will be equal to or exceed
the value of the repurchase agreement and, for repurchase agreements that mature
in more than one day, the seller will agree that the value of the underlying
security including accrued interest will continue to be at least equal to the
value of the repurchase agreement.
Although repurchase agreements carry certain risks not associated with
direct investment in securities, the Portfolios intend to enter into repurchase
agreements only with banks and dealers in transactions which the sub-adviser
believes present minimal credit risks in accordance with guidelines adopted by
the Trustees. To the extent that proceeds from any sales of collateral upon a
default in the counterparty's obligation to repurchase were less than the
repurchase price, the Portfolio would suffer a loss. If the counterpart's
petitions for bankruptcy or otherwise becomes subject to bankruptcy or
liquidation proceedings, there might be restrictions on the Portfolio's ability
to sell the collateral and the Portfolio could suffer a loss.
III. OTHER SECURITIES IN WHICH THE PORTFOLIOS MAY INVEST
A. CORPORATE DEBT SECURITIES
The Portfolio may invest in corporate bonds, notes and debentures of long
and short maturities and of various grades, including unrated securities.
Corporate debt securities exist in great variety, differing from one another in
quality, maturity, and call or other provisions. Lower grade bonds, whether
rated or unrated, usually offer higher interest income, but also carry increased
risk of default. Corporate bonds may be secured or unsecured, senior to or
subordinated to other debt of the issuer, and, occasionally, may be guaranteed
by another entity. In addition, they may carry other features, such as those
described under "Convertible Securities" and "Variable or Floating Rate
Securities", or have special features such as the right of the holder to
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shorten or lengthen the maturity of a given debt instrument, rights to purchase
additional securities, rights to elect from among two or more currencies in
which to receive interest or principal payments, or provisions permitting the
holder to participate in earnings of the issuer or to participate in the value
of some specified commodity, financial index, or other measure of value.
B. INTERNATIONAL AGENCY OBLIGATIONS
The Portfolio may invest in bonds, notes or Eurobonds of international
agencies. Examples are securities issued by the Asian Development Bank, the
European Economic Community, and the European Investment Bank. The Portfolio may
also purchase obligations of the International Bank for Reconstruction and
Development which, while technically not a U.S. Government agency or
instrumentality, has the right to borrow from the participating countries,
including the United States.
C. BANK OBLIGATIONS OR SAVINGS AND LOAN OBLIGATIONS
The Portfolios may purchase certificates of deposit, bankers' acceptances
and other debt obligations of commercial banks and certificates of deposit and
other debt obligations of savings and loan associations ("S&L's"). Certificates
of deposit are receipts from a bank or an S&L for funds deposited for a
specified period of time at a specified rate of return. Bankers' acceptance are
time drafts drawn on commercial banks by borrowers, usually in connection with
international commercial transactions. These instruments may be issued by
institutions of any size, may be of any maturity, and may be insured or
uninsured. The quality of bank or savings and loan obligations may be affected
by such factors as (a) location - the strength of the local economy will often
affect financial institutions in the region, (b) asset mix -institutions with
substantial loans in a troubled industry may be weakened by those loans, and (c)
amount of equity capital - -under-capitalized financial institutions are more
vulnerable when loan losses are suffered. The portfolio manager will evaluate
these and other factors affecting the quality of bank and savings and loan
obligations purchased by the Portfolio, but the Portfolio is not restricted to
obligations or institutions which satisfy specified quality criteria.
D. VARIABLE OR FLOATING RATE SECURITIES
The Portfolio may purchase variable rate securities that provide for
automatic establishment of a new interest rate at fixed intervals (e.g., daily,
monthly, semi-annually, etc.). Floating rate securities provide for automatic
adjustment of the interest rate whenever some specified interest rate index
changes. The interest rate on variable and floating rate securities is
ordinarily determined by reference to, or is a percentage of, a bank's prime
rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial paper
or bank certificates of deposit, an index of short-term interest rates, or some
other objective measure.
E. PREFERRED STOCKS (ALL PORTFOLIOS EXCEPT THE TAX-EXEMPT PORTFOLIO)
Preferred stocks are securities which represent an ownership interest in a
corporation and which give the owner a prior claim over common stock on the
corporation's earnings and assets. Preferred stock generally pays quarterly
dividends. Preferred stocks may differ in many of their provisions. Among the
features that differentiate preferred stocks from one another are the dividend
rights, which may be cumulative or non-cumulative and participating or
non-participating, redemption provisions, and voting rights. Such features will
establish the income return and may affect the prospects for capital
appreciation or risks of capital loss.
F. CONVERTIBLE SECURITIES
The Portfolios may invest in debt securities convertible into or
exchangeable for equity securities, or debt securities that carry with them the
right to acquire equity securities, as evidenced by warrants attached to such
securities or acquired as part of units of the securities. Such securities
normally pay less current income than securities without conversion features,
but add the potential opportunity for appreciation from enhanced value for the
equity securities into which they are convertible, and the concomitant risk of
loss from declines in those values.
G. COMMON STOCKS
Each Portfolio (other than the Tax-Exempt Portfolio) invests in common
stocks. The Flexible Income Portfolio will consider investment in
income-producing common stocks if the yields of common stocks generally become
competitive with the yields of other income securities. Common stocks are junior
to the debt obligations and preferred stocks of an issuer. Hence, dividend
payments on common stocks should be regarded as less secure than income payments
on corporate debt securities.
5
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IDEX SERIES FUND
GROWTH PORTFOLIO
GLOBAL PORTFOLIO
FLEXIBLE INCOME PORTFOLIO
BALANCED PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
AGGRESSIVE GROWTH PORTFOLIO
(FOR MISSOURI INVESTORS)
SUPPLEMENT DATED SEPTEMBER 20, 1996
TO PROSPECTUS DATED SEPTEMBER 20, 1996
FOR THE IDEX II GROWTH, GLOBAL, FLEXIBLE INCOME, BALANCED AND CAPITAL
APPRECIATION PORTFOLIOS ONLY, THE FOLLOWING SHALL SUPPLEMENT THE DISCLOSURE IN
THE PROSPECTUS RELATING TO PORTFOLIO TURNOVER:
The IDEX II Growth, Global, Flexible Income, Balanced and Capital
Appreciation Portfolios may engage in short-term trading, which is a
speculative activity and may involve greater risks and costs to the
investor.
* * * * *
FOR THE IDEX AGGRESSIVE GROWTH PORTFOLIO ONLY, THE FOLLOWING SHALL SUPPLEMENT
THE DISCLOSURE IN THE PROSPECTUS RELATING TO LEVERAGING:
The Aggressive Growth Portfolio may engage in borrowing for purposes of
investment in securities; however, the Portfolio may borrow only from banks
and will maintain continuous asset coverage (total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. This is known as leveraging, and may be considered a speculative
activity. To the extent that the Portfolio engages in leveraging, this
activity may involve greater risks and costs to the investor.
* * * * *
FOR THE IDEX AGGRESSIVE GROWTH PORTFOLIO ONLY, THE FOLLOWING SHALL SUPPLEMENT
THE DISCLOSURE IN THE PROSPECTUS RELATING TO INVESTMENTS IN HIGH-RISK
SECURITIES:
The Aggressive Growth Portfolio will invest at least 85% of its net assets
in equity securities. This will include the securities of companies which
may still be in the developmental stage as well as other types of equity
securities which have been selected for their growth potential, as
disclosed in the prospectus. Some of these securities may be considered
high risk; therefore, an investment in the Portfolio may not be suitable
for all investors.
<PAGE>
IDEX SERIES FUND
CAPITAL APPRECIATION PORTFOLIO
TAX EXEMPT PORTFOLIO
AGGRESSIVE GROWTH PORTFOLIO
(FOR OHIO INVESTORS)
SUPPLEMENT DATED SEPTEMBER 20, 1996
TO PROSPECTUS DATED SEPTEMBER 20, 1996
FOR THE IDEX CAPITAL APPRECIATION AND TAX EXEMPT PORTFOLIOS ONLY, THE FOLLOWING
SHALL SUPPLEMENT THE DISCLOSURE IN THE PROSPECTUS:
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. Further, the Capital Appreciation Portfolio therefore differs from
an investment company which complies with Ohio Administrative Code
1301:6-3-09(E)(8), which would require as to 75% of the investment
company's assets that no more than 10% of the voting securities of any
issuer be held by the investment company.
Although the Capital Appreciation Portfolio may invest 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 a fundamental policy, the Tax Exempt Portfolio may not purchase the
securities (other than Government securities) of any issuer if, as a
result, more than 5% of the Portfolio's total assets would be invested in
the securities of such issuer, provided that up to 25% of the Portfolio's
total net assets may be invested without regard to this 5% limitation.
FOR THE IDEX AGGRESSIVE GROWTH PORTFOLIO ONLY, THE FOLLOWING SHALL SUPPLEMENT
THE DISCLOSURE IN THE PROSPECTUS:
The Aggressive Growth Portfolio may engage in borrowing for purposes of
investment in securities; however, the Portfolio may borrow only from banks
and will maintain continuous asset coverage (total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. This is known as leveraging, and may be considered a speculative
activity. To the extent that the Portfolio engages in leveraging, this
activity may involve greater risks and costs to the investor.
<PAGE>
