IDEX SERIES FUND
201 Highland Avenue, Largo, FL 33770-2597
Customer Service: (888) 233-4339 (toll free)
Prospectus dated March 1, 1998
as Revised March 4, 1998
This Prospectus is a legal document provided to you, the investor, which sets
forth concise information about the IDEX Series Fund (the "Fund") that should be
considered carefully before you invest in a Portfolio of the Fund. 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 March 1, 1998,
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 pages
of this Prospectus. There can be, of course, no assurance that a Portfolio will
achieve its investment objective. For further information about the Portfolios,
please read The IDEX Series Fund Introduction to the Portfolios; Securities in
Which the Portfolios Invest; How the Portfolios Invest; and Additional Risk
Factors.
The investment objectives for each of the Flexible Income Portfolio and the
Income Plus Portfolio permit these Portfolios to invest a substantial portion of
their assets in certain high yield/high risk bonds, commonly referred to as junk
bonds. Investing in junk bonds entails certain risks. For a description of the
risks associated with investing in junk bonds, please read Securities in Which
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.
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.
<PAGE>
Table of Contents
The IDEX Series Fund...........................................................1
Introduction to the Portfolios.................................................1
Summary of Expenses .......................................................1
Financial Highlights ......................................................1
Aggressive Growth Portfolio...........................................2
International Equity Portfolio........................................5
Capital Appreciation Portfolio........................................8
Global Portfolio.....................................................11
Growth Portfolio.....................................................14
C.A.S.E. Portfolio...................................................17
Value Equity Portfolio...............................................20
Strategic Total Return Portfolio ....................................23
Tactical Asset Allocation Portfolio..................................26
Balanced Portfolio...................................................29
Flexible Income Portfolio............................................32
Income Plus Portfolio................................................35
Tax-Exempt Portfolio.................................................38
Performance/Total Return......................................................43
Shareholder Information and Instructions .....................................44
Securities in Which the Portfolios Invest ....................................58
How the Portfolios Invest ....................................................63
Additional Risk Factors ......................................................66
Investment Advisory and Other Services .......................................69
Distributor and Distribution and Service Plans ...............................78
Miscellaneous Information ....................................................79
Distributions and Taxes ......................................................81
Brief Explanation of Rating Categories................................Appendix A
Glossary of Investment Terms..........................................Appendix B
i
<PAGE>
IDEX SERIES FUND
INTRODUCTION TO THE PORTFOLIOS
The IDEX Series Fund consists of thirteen Portfolios. Each Portfolio is a
separate series of IDEX Series Fund (formerly IDEX II Series Fund), an open-end
management investment company offering a selection of separate investment
portfolios. The Fund is registered under the Investment Company Act of 1940 (the
"1940 Act"). All Portfolios of the Fund are diversified except for the Capital
Appreciation Portfolio. The Capital Appreciation Portfolio is non-diversified.
See How the Portfolios Invest - Diversification. Each Portfolio has its own
distinct investment objective and policies, which are summarized in the
following sections. 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. The summaries 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. 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.
Each Portfolio may change its investment objective without shareholder approval.
Unless otherwise noted, a Portfolio may also change its investment policies
without shareholder approval.
Summary of Expenses
Before investing in a Portfolio of the Fund, please read this section carefully
to understand the cost of investing. When you buy shares of any of the
Portfolios, you will incur certain expenses. The Summary for each Portfolio
shows the fees and expenses involved in owning shares of each class of the
Portfolios. The section titled Examples shows the fees and expenses you might
pay when making a hypothetical $1,000 investment. Class T shares of the Growth
Portfolio are not available for sale to new investors.
Financial Highlights
Each Financial Highlights table shows the earnings, capital gains or losses, and
expenses of a share of each class in a Portfolio. On October 1, 1996, the Fund
changed its fiscal year end from September 30 to October 31. The information
contained in the tables for each fiscal year through October 31, 1997 has been
audited by Price Waterhouse LLP, independent accountants, whose report is
incorporated by reference into the SAI. All periods have been audited unless
otherwise noted. 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 Portfolios is contained in the Annual Report to
shareholders, which you may also obtain without charge by calling or writing to
the Fund.
1
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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 net 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 flexibility to take advantage of new opportunities for
investments in accordance with its investment objective, the 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. The amount held by the Portfolio in money market
instruments and repurchase agreements 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.
Sub-Adviser: Fred Alger Management, Inc. ("Alger Management")
2
<PAGE>
<TABLE>
<CAPTION>
Aggressive Growth Portfolio
e SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 5.50% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90%
Other Expenses (net of expense reimbursements and/or fee waivers) (c) 0.50% 0.50% 0.50%
----- ----- -----
Total Operating Expenses (net of expense reimbursements and/or fee waivers) (c) 1.85% 2.50% 2.40%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $75 $108 $143 $267
C $24 $75 $128 $274
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $25 $78 $133 $267
C $24 $75 $128 $274
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses. The Other Expenses before reimbursement/waiver were 1.09% for each
class of shares. The Total Expenses before reimbursement/waiver for Class A,
Class B and Class C shares were 2.44%, 3.09% and 2.99%, respectively. Although
the continuation of the expense reimbursement and fee waivers cannot be
guaranteed, it is expected that they will remain in effect at least until the
end of the Portfolio's fiscal year, October 31, 1998.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the National
Association of Securities Dealers, Inc. ("NASD").
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
3
<PAGE>
<TABLE>
<CAPTION>
Aggressive Growth Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $15.70 $0.05 $3.69 $3.74 -- $(0.67) $(0.67) $18.77
10/31/96 (3) $15.75 $(0.01) $(0.04) $(0.05) -- -- -- $15.70
9/30/96 (4) $17.68 $(0.15) $(0.76) $(0.91) -- $(1.02) $(1.02) $15.75
9/30/95 $10.00 $(0.14) $7.82 $7.68 -- -- -- $17.68
Class B
10/31/97 $15.58 $(0.02) $3.69 $3.67 -- $(0.67) $(0.67) $18.58
10/31/96 (3) $15.63 $(0.01) $(0.04) $(0.05) -- -- -- $15.58
9/30/96 (4) $17.64 $(0.23) $(0.76) $(0.99) -- $(1.02) $(1.02) $15.63
Class C
10/31/97 $15.60 $(0.01) $3.69 $3.68 -- $(0.67) $(0.67) $18.61
10/31/96 (3) $15.65 $(0.01) $(0.04) $(0.05) -- -- -- $15.60
9/30/96 (4) $17.64 $(0.21) $(0.76) $(0.97) -- $(1.02) $(1.02) $15.65
9/30/95 $10.00 $(0.18) $7.82 $7.64 -- -- -- $17.64
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 24.71% $31,260 1.85% 1.85% 2.44% (1.07)% 120.96% $0.0707
10/31/96 (3) (0.32)% $21,938 1.85% 1.85% 2.62% (1.06)% 9.40% $0.0662
9/30/96 (4.91)% $22,078 1.85% 1.85% 2.60% (1.15)% 127.49% $0.0715
9/30/95 76.80% $16,747 2.85% 2.85% 3.35% (2.39)% 88.28% --
Class B
10/31/97 24.47% $4,880 2.50% 2.50% 3.09% (1.71)% 120.96% $0.0707
10/31/96 (3) (0.32)% $1,992 2.50% 2.50% 3.27% (1.71)% 9.40% $0.0662
9/30/96 (5.33)% $1,800 2.50% 2.50% 3.25% (1.80)% 127.49% $0.0715
Class C
10/31/97 24.50% $3,468 2.40% 2.40% 2.99% (1.62)% 120.96% $0.0707
10/31/96 (3) (0.32)% $2,129 2.40% 2.40% 3.17% (1.62)% 9.40% $0.0662
9/30/96 (5.22)% $2,250 2.40% 2.40% 3.15% (1.70)% 127.49% $0.0715
9/30/95 76.40% $1,736 3.40% 3.40% 3.91% (2.94)% 88.28% --
See Notes to Financial Highlights on Page 41
</TABLE>
4
<PAGE>
International Equity Portfolio
Objective: Long-term growth of capital.
Investment Focus: The International Equity Portfolio invests primarily in the
common stock and other equity securities of foreign issuers traded on overseas
exchanges and in foreign over-the-counter markets.
Investor Profile: For the investor who seeks long-term growth of capital through
investments in foreign securities. The investor should also be able to tolerate
the significant risk factors associated with foreign investing.
Primary Investment Practices: The Portfolio invests primarily in common stock
and other equity securities, including preferred stocks, convertible securities,
warrants or rights. The Portfolio may also invest in fixed-income instruments
when its sub-advisers deem appropriate.
Daily cash inflows attributable to shares purchased by investors will be divided
equally each day between its sub-advisers, and each portion will thereafter be
managed separately by each sub-adviser.
Under normal circumstances, with respect to 65% of the Portfolio's assets, the
Portfolio will seek to be invested in a minimum of 50 stocks of issuers from
approximately 15-25 countries. The Portfolio will not be invested in issuers of
fewer than twelve countries other than the U.S. at any time. Typically, the
Portfolio will be invested broadly, not only in the larger stock markets of the
United Kingdom, Continental Europe, Japan and the Far East, but also, to a
lesser extent, in the smaller stock markets of Asia, Europe and Latin America.
At any time, overseas economies may not be moving in the same direction and will
be subject to substantially different fiscal and monetary policies. These
provide situations the Portfolio will aim to exploit. The Portfolio will aim to
add value through active asset allocation among international equity markets.
In selecting investments on behalf of the Portfolio, its sub-adviser GE
Investment Management Incorporated seeks companies that are expected to grow
faster than relevant markets and whose securities are available at a price that
does not fully reflect the potential growth of those companies. GEIM typically
focuses on companies that possess one or more of a variety of characteristics,
including strong earnings growth relative to price-to-earnings and price-to-cash
earnings ratios, low price-to-book value, strong cash flow, presence in an
industry experiencing strong growth, and high quality management.
In selecting investments on behalf of the Portfolio, its sub-adviser, Scottish
Equitable Investment Management Limited, seeks initially to identify countries
where economic growth conditions are favorable (through analysis of gross
domestic product growth rates, inflation, interest rates and other economic
factors), and where stock market valuations generally do not fully reflect
growth potential. Scottish Equitable then seeks to identify within each of the
individual markets, companies whose earnings are undervalued (that is, where
future earnings potential is not reflected in the present share price). Scottish
Equitable will utilize measures of value appropriate to local market conditions,
which may include low price earnings ratios, low price to book value, low price
to cash flow ratios, as well as considering such factors as industry position
and management quality.
Under normal circumstances, the Portfolio will seek to invest as described
above, but may for cash management purposes and to meet operating expenses,
invest a portion of its total assets in cash and/or money market instruments as
described under How the Portfolios Invest, pending investment in accordance with
its investment objective and policies. During periods when a sub-adviser
believes there are unstable market, economic, political or currency conditions
abroad, the Portfolio may assume a temporary defensive posture and (i) restrict
the securities markets in which its assets will be invested and/or invest all or
a significant portion of its assets in cash and/or money market instruments
issued by companies incorporated in and/or having their principal activities in
the United States, or (ii) without limitation, hold cash and/or invest in such
money market instruments.
Sub-Advisers: Scottish Equitable Investment Management Limited and GE Investment
Management Incorporated ("Scottish Equitable" and "GEIM")
5
<PAGE>
<TABLE>
<CAPTION>
International Equity Portfolio
SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 5.50% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90%
Other Expenses (net of expense reimbursements and/or fee waivers)(c) 0.75% 0.75% 0.75%
Total Operating Expenses (net of expense reimbursements and/or fee waivers)(c) ----- ----- -----
2.10% 2.75% 2.65%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $75 $117 $162 $285
B $78 $115 $155 $292
C $27 $82 $141 $298
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $75 $117 $162 $285
B $28 $85 $145 $292
C $27 $82 $141 $298
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses. The percentages reflect an increase in the total annual operating
expense limitation from 1.35% to 1.75%, effective March 1, 1998. The Other
Expenses net of reimbursement/waiver were 7.58% for each class of shares. The
Total Operating Expenses net of reimbursement/waiver for Class A, Class B and
Class C shares were 8.93%, 9.58% and 9.48%, respectively. Although the
continuation of the expense reimbursement and fee waivers cannot be guaranteed,
it is expected that they will remain in effect at least until the end of the
Portfolio's fiscal year, October 31, 1998.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
6
<PAGE>
<TABLE>
<CAPTION>
International Equity Portfolio
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $10.00 $0.07 $0.50 $0.57 -- -- -- $10.57
Class B
10/31/97 $10.00 $0.02 $0.50 $0.52 -- -- -- $10.52
Class C
10/31/97 $10.00 $0.03 $0.50 $0.53 -- -- -- $10.53
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 5.70% $3,076 1.70% 1.70% 8.93% 0.19% 21.85% $0.0209
Class B
10/31/97 5.20% $589 2.35% 2.35% 9.58% (0.45)% 21.85% $0.0209
Class C
10/31/97 5.30% $399 2.25% 2.25% 9.48% (0.35)% 21.85% $0.0209
See Notes to Financial Highlights on Page 41
</TABLE>
7
<PAGE>
Capital Appreciation Portfolio
Objective: Long-term growth of capital.
Investment Focus: The Capital Appreciation Portfolio is a nondiversified
Portfolio that pursues its objective by normally investing at least 50% of its
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 31, 1997, the MidCap Index included
companies with capitalizations between $213 million and $13.7 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, and who can
tolerate the greater risks associated with common stock investments.
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.
Sub-Adviser: Janus Capital Corporation ("Janus Capital")
8
<PAGE>
<TABLE>
<CAPTION>
Capital Appreciation Portfolio
SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 5.50% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90%
Other Expenses (net of expense reimbursements and/or fee waivers) (c) 0.50% 0.50% 0.50%
----- ----- -----
Total Operating Expenses (net of expense reimbursements and/or fee waivers) (c) 1.85% 2.50% 2.40%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $75 $108 $143 $267
C $24 $75 $128 $274
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $25 $78 $133 $267
C $24 $75 $128 $274
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses. The Other Expenses before reimbursement/waiver were 1.31% for each
class of shares. The Total Operating Expenses before reimbursement/waiver for
Class A, Class B and Class C shares were 2.66%, 3.31% and 3.21%, respectively.
Although the continuation of the expense reimbursement and fee waivers cannot be
guaranteed, it is expected that they will remain in effect at least until the
end of the Portfolio's fiscal year, October 31, 1998.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
9
<PAGE>
<TABLE>
<CAPTION>
Capital Appreciation Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $15.49 $0.04 $0.58 $0.62 -- $(0.21) $(0.21) $15.90
10/31/96 (3) $15.75 $(0.02) $(0.24) $(0.26) -- -- -- $15.49
9/30/96 (4) $13.54 $(0.02) $3.12 $3.10 $(0.07) $(0.82) $(0.89) $15.75
9/30/95 $10.00 $(0.03) $3.57 $3.54 -- -- -- $13.54
Class B
10/31/97 $15.42 $(0.05) $0.58 $0.53 -- $(0.21) $(0.21) $15.74
10/31/96 (3) $15.69 $(0.03) $(0.24) $(0.27) -- -- -- $15.42
9/30/96 $13.49 $(0.10) $3.12 $3.02 -- $(0.82) $(0.82) $15.69
Class C
10/31/97 $15.43 $(0.03) $0.58 $0.55 -- $(0.21) $(0.21) $15.77
10/31/96 (3) $15.70 $(0.03) $(0.24) $(0.27) -- -- -- $15.43
9/30/96 (4) $13.49 $(0.08) $3.12 $3.04 $(0.01) $(0.82) $(0.83) $15.70
9/30/95 $10.00 $(0.08) $3.57 $3.49 -- -- -- $13.49
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 4.09% $20,605 1.85% 1.85% 2.66% (1.27)% 130.48% $0.0447
10/31/96 (3) (1.59)% $19,350 1.85% 1.85% 2.48% (1.41)% 10.11% $0.0340
9/30/96 24.35% $18,713 1.85% 1.85% 2.72% (0.35)% 160.72% $0.0369
9/30/95 35.40% $6,241 2.90% 2.85% 4.17% 0.75% 262.97% --
Class B
10/31/97 3.56% $2,866 2.50% 2.50% 3.31% (1.92)% 130.48% $0.0447
10/31/96 (3) (1.66)% $2,132 2.50% 2.50% 3.13% (2.06)% 10.11% $0.0340
9/30/96 23.63% $2,022 2.50% 2.50% 3.37% (1.00)% 160.72% $0.0369
Class C
10/31/97 3.64% $1,751 2.40% 2.40% 3.21% (1.82)% 130.48% $0.0447
10/31/96 (3) (1.66)% $2,243 2.40% 2.40% 3.03% (1.96)% 10.11% $0.0340
9/30/96 23.81% $2,369 2.40% 2.40% 3.27% (0.90)% 160.72% $0.0369
9/30/95 34.90% $2,565 3.45% 3.40% 4.72% 0.20% 262.97% --
See Notes to Financial Highlights on Page 41
10
</TABLE>
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 Portfolio's assets are normally invested in
securities of issuers from at least five different countries, including the
United States. Under unusual market circumstances, the Portfolio may, however,
invest its assets in as few as three countries, or for temporary 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.
Sub-Adviser: Janus Capital
11
<PAGE>
<TABLE>
<CAPTION>
Global Portfolio
SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 5.50% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90%
Other Expenses (c) 0.56% 0.56% 0.56%
----- ----- -----
Total Operating Expenses (c) 1.91% 2.56% 2.46%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $112 $152 $266
B $76 $110 $146 $273
C $25 $77 $131 $280
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $112 $152 $266
B $26 $80 $136 $273
C $25 $77 $131 $280
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
12
<PAGE>
<TABLE>
<CAPTION>
Global Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $21.39 $0.07 $4.38 $4.45 -- $(2.10) $(2.10) $23.74
10/31/96 (3) $21.40 $(0.02) $0.01 $(0.01) -- -- -- $21.39
9/30/96 $17.73 $(0.09) $4.38 $4.29 -- $(0.62) $(0.62) $21.40
9/30/95 $15.93 $(0.06) $2.42 $2.36 -- $(0.56) $(0.56) $17.73
9/30/94 $13.35 $(0.04) $2.62 $2.58 -- -- -- $15.93
9/30/93 $10.00 $(0.04) $3.39 $3.35 -- -- -- $13.35
Class B
10/31/97 $21.13 $(0.03) $4.38 $4.35 -- $(2.10) ($2.10) $23.38
10/31/96 (3) $21.14 $(0.02) $0.01 $(0.01) -- -- -- $21.13
9/30/96 $17.57 $(0.19) $4.38 $4.19 -- $(0.62) $(0.62) $21.14
Class C
10/31/97 $21.03 $(0.01) $4.38 $4.37 -- $(2.10) $(2.10) $23.30
10/31/96 (3) $21.04 $(0.02) $0.01 $(0.01) -- -- -- $21.03
9/30/96 $17.46 $(0.18) $4.38 $4.20 -- $(0.62) $(0.62) $21.04
9/30/95 $15.74 $(0.14) $2.42 $2.28 -- $(0.56) $(0.56) $17.46
9/30/94 $13.35 $(0.23) $2.62 $2.39 -- -- -- $15.74
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 22.72% $218,681 1.91% 1.91% -- (0.05)% 91.02% $0.0457
10/31/96 (3) (0.05)% $135,837 2.08% 2.07% -- (1.15)% 2.59% $0.0520
9/30/96 25.04% $131,347 2.09% 2.06% -- (0.67)% 97.94% $0.0489
9/30/95 15.47% $89,397 2.10% 1.97% -- (0.43)% 161.48% --
9/30/94 19.33% $81,241 2.14% -- -- (0.55)% 148.01% --
9/30/93 33.52% $17,430 2.84% -- 3.65% (0.87)% 116.98% --
Class B
10/31/97 22.53% $43,951 2.56% 2.56% -- (1.15)% 91.02% $0.0457
10/31/96 (3) (0.05)% $5,966 2.73% 2.72% -- (1.80)% 2.59% $0.0520
9/30/96 24.70% $5,000 2.74% 2.71% -- (1.32)% 97.94% $0.0489
Class C
10/31/97 22.72% $27,210 2.46% 2.46% -- (1.05)% 91.02% $0.0457
10/31/96 (3) (0.05)% $8,624 2.63% 2.62% -- (1.70)% 2.59% $0.0520
9/30/96 24.91% $8,081 2.64% 2.61% -- (1.22)% 97.94% $0.0489
9/30/95 15.14% $3,567 2.65% 2.52% -- (0.98)% 161.48% --
9/30/94 17.90% $3,571 4.04% -- -- (2.46)% 148.01% --
See Notes to Financial Highlights on Page 41
</TABLE>
13
<PAGE>
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 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.
Sub-Adviser: Janus Capital
14
<PAGE>
<TABLE>
<CAPTION>
Growth Portfolio
SUMMARY OF EXPENSES CLASS OF SHARES
A B C T
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 5.50% None None 8.50%
Redemption Fees (a) None None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90% --
Other Expenses (net of expense reimbursements and/or fee waivers) (c) 0.26% 0.26% 0.26% 0.26%
----- ----- ----- -----
Total Operating Expenses (net of expense reimbursements and/or fee waivers) (c) 1.61% 2.26% 2.16% 1.26%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $70 $103 $138 $236
B $73 $101 $131 $243
C $22 $68 $116 $249
T $97 $122 $148 $224
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $70 $103 $138 $236
B $23 $71 $121 $243
C $22 $68 $116 $249
T $97 $122 $148 $224
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) 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 24 months after
purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
15
<PAGE>
<TABLE>
<CAPTION>
Growth Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $21.97 $(0.02) $3.56 $3.54 -- $(0.47) $(0.47) $25.04
10/31/96 (3) $22.21 -- $(0.24) $(0.24) -- -- -- $21.97
9/30/96 $22.84 $(0.11) $4.66 $4.55 -- $(5.18) $(5.18) $22.21
9/30/95 $16.78 $(0.05) $6.18 $6.13 -- $(0.07) $(0.07) $22.84
9/30/94 (4) (10) $18.46 $0.01 $(1.22) $(1.21) -- $(0.47) $(0.47) $16.78
9/30/93 (11) $16.46 $0.04 $2.42 $2.46 $(0.07) $(0.39) $(0.46) $18.46
9/30/92 $16.22 $0.08 $0.88 $0.96 $(0.07) $(0.65) $(0.72) $16.46
9/30/91 (10) $13.77 $0.14 $5.32 $5.46 $(0.17) $(2.84) $(3.01) $16.22
9/30/90 $17.52 $0.12 $(2.21) $(2.09) $(0.09) $(1.57) $(1.66) $13.77
9/30/89 $11.48 $0.09 $6.18 $6.27 $(0.23) -- $(0.23) $17.52
9/30/88 $14.08 $0.25 $(1.59) $(1.34) $(0.16) $(1.10) $(1.26) $11.48
Class B
10/31/97 $21.60 $(0.14) $3.56 $3.42 -- $(0.47) $(0.47) $24.55
10/31/96 (3) $21.85 $(0.01) $(0.24) $(0.25) -- -- -- $21.60
9/30/96 $22.64 $(0.27) $4.66 $4.39 -- $(5.18) $(5.18) $21.85
Class C
10/31/97 $21.65 $(0.12) $3.56 $3.44 -- $(0.47) $(0.47) $24.62
10/31/96 (3) $21.91 $(0.02) $(0.24) $(0.26) -- -- -- $21.65
9/30/96 $22.64 $(0.21) $4.66 $4.45 -- $(5.18) $(5.18) $21.91
9/30/95 $16.68 $(0.15) $6.18 $6.03 -- $(0.07) $(0.07) $22.64
9/30/94 (4) $18.46 $(0.09) $(1.22) $(1.31) -- $(0.47) $(0.47) $16.68
Class T (12)
10/31/97 $22.17 $0.05 $3.56 $3.61 -- $(0.47) $(0.47) $25.31
10/31/96 (3) $22.41 -- $(0.24) $(0.24) -- -- -- $22.17
9/30/96 (13) $22.23 -- $0.18 $0.18 -- -- -- $22.41
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 16.40% $614,544 1.61% 1.61% -- 0.10% 91.52% $0.0443
10/31/96 (3) (1.09)% $565,032 1.68% 1.68% -- (0.13)% 9.40% $0.0360
9/30/96 22.41% $567,564 1.83% 1.82% -- (0.22)% 57.80% $0.0385
9/30/95 36.70% $485,935 1.86% 1.84% -- (0.26)% 123.26% --
9/30/94 (10) (6.72)% $431,207 1.76% -- -- 0.04% 63.73% --
9/30/93 15.13 % $548,564 1.61% -- -- 0.29% 97.40% --
9/30/92 6.10% $403,361 1.61% -- -- 0.69% 56.21% --
9/30/91 (10) 48.00% $126,436 1.48% -- -- 0.88% 102.16% --
9/30/90 (12.50)% $74,594 1.35% -- -- 0.75% 127.79% --
9/30/89 55.70% $89,494 1.41% -- -- 0.67% 98.88% --
9/30/88 (8.00)% $65,463 1.47% -- -- 2.45% 133.28% --
Class B
10/31/97 16.11% $13,046 2.26% 2.26% -- (0.75)% 91.52% $0.0443
10/31/96 (3) (1.14)% $5,242 2.32% 2.32% -- (0.78)% 9.40% $0.0360
9/30/96 21.87% $4,536 2.46% 2.45% -- (0.86)% 57.80% $0.0385
Class C
10/31/97 16.19% $14,295 2.16% 2.16% -- (0.65)% 91.52% $0.0443
10/31/96 (3) (1.19)% $11,016 2.23% 2.23% -- (0.68)% 9.40% $0.0360
9/30/96 22.15% $11,167 2.34% 2.33% -- (0.77)% 57.80% $0.0385
9/30/95 36.32% $5,593 2.41% 2.38% -- (0.81)% 123.26% --
9/30/94 (7.72)% $3,423 3.48% -- -- (1.68)% 63.73% --
Class T (12)
10/31/97 16.54% $603,129 1.26% 1.26% -- 0.25% 91.52% $0.0443
10/31/96 (3) (1.03)% $573,884 1.33% 1.33% -- (0.20)% 9.40% $0.0360
9/30/96 (13) 0.81% $585,505 1.18% 1.17% -- 0.36% 57.80% $0.0385
See Notes to Financial Highlights on Page 41
</TABLE>
16
<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 Standard &
Poor's 500 Stock Index ("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 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. For temporary defensive purposes, the Portfolio may elect to invest
20% or more of its investable assets in money market instruments, repurchase
agreements and cash equivalents.
Sub-Adviser: C.A.S.E. Management, Inc. ("C.A.S.E.")
17
<PAGE>
<TABLE>
<CAPTION>
C.A.S.E. Portfolio
SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 5.50% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90%
Other Expenses (net of expense reimbursements and/or fee waivers) (c) 0.50% 0.50% 0.50%
----- ----- -----
Total Operating Expenses (net of expense reimbursements and/or fee waivers) (c) 1.85% 2.50% 2.40%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $75 $108 $143 $267
C $24 $75 $128 $274
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $25 $78 $133 $267
C $24 $75 $128 $274
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses. The Other Expenses before reimbursement/waiver were 3.27% for each
class of shares. The Total Operating Expenses before reimbursement/waiver for
Class A, Class B and Class C shares were 4.62%, 5.27% and 5.17%, respectively.
Although the continuation of the expense reimbursement and fee waivers cannot be
guaranteed, it is expected that they will remain in effect at least until the
end of the Portfolio's fiscal year, October 31, 1998.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
18
<PAGE>
<TABLE>
<CAPTION>
C.A.S.E. Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 (4) $10.56 $(0.01) $2.86 $2.85 $(0.51) -- $(0.51) $12.90
10/31/96 (3) $10.46 $(0.07) $0.17 $0.10 -- -- -- $10.56
9/30/96 $10.00 $0.61 $(0.15) $0.46 -- -- -- $10.46
Class B
10/31/97 (4) $10.51 $(0.07) $2.86 $2.79 $(0.45) -- $(0.45) $12.85
10/31/96 (3) $10.41 $(0.07) $0.17 $0.10 -- -- -- $10.51
9/30/96 $10.00 $0.56 $(0.15) $0.41 -- -- -- $10.41
Class C
10/31/97 (4) $10.52 $(0.06) $2.86 $2.80 $(0.46) -- $(0.46) $12.86
10/31/96 (3) $10.42 $(0.07) $0.17 $0.10 -- -- -- $10.52
9/30/96 $10.00 $0.57 $(0.15) $0.42 -- -- -- $10.42
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 28.31% $3,920 1.85% 1.85% 4.62% (0.34)% 183.06% $0.0604
10/31/96 (3) 0.96% $1,675 1.85% 1.84% 6.79% 0.27% 20.69% $0.0603
9/30/96 4.60% $1,455 2.85% 2.85% 5.89% 10.00% 654.49% $0.0396
Class B
10/31/97 27.62% $2,436 2.50% 2.50% 5.27% (0.99)% 183.06% $0.0604
10/31/96 (3) 0.96% $1,159 2.50% 2.49% 7.44% 0.38% 20.69% $0.0603
9/30/96 4.10% $1,100 3.50% 3.50% 6.54% 9.35% 654.49% $0.0396
Class C
10/31/97 27.73% $2,028 2.40% 2.40% 5.17% (0.89)% 183.06% $0.0604
10/31/96 (3) 0.96% $687 2.40% 2.39% 7.34% 0.28% 20.69% $0.0603
9/30/96 4.20% $613 3.40% 3.40% 6.44% 9.45% 654.49% $0.0396
See Notes to Financial Highlights on Page 41
</TABLE>
19
<PAGE>
Value Equity Portfolio
Objective: Maximum consistent total return with minimum risk to principal.
Investment Focus: The Value Equity Portfolio invests primarily in common stocks
with above-average statistical value which the sub-adviser believes are in
fundamentally attractive industries and are undervalued at the time of purchase.
Investor Profile: For the investor who seeks both capital preservation and
long-term capital appreciation.
Primary Investment Practices: The Portfolio seeks to achieve its investment
objective by investing its assets in common stocks with above-average
statistical value which the sub-adviser believes are in fundamentally attractive
industries and are undervalued at the time of purchase. The sub-adviser will
seek to identify stocks of above-average statistical value by using statistical
measures to screen for below-average price-to-earnings and price-to-book ratios,
above-average dividend yields and strong financial stability.
The sub-adviser will begin the process of evaluating potential investments by
screening a universe of 1,100 companies, primarily of medium to large
capitalization. For these purposes, the sub-adviser considers medium
capitalization stocks to be stocks issued by companies with market
capitalization of between $500 million and $3 billion, and large capitalization
stocks to be those stocks issued by companies with market capitalization in
excess of $3 billion. Investments in companies with market capitalization under
$500 million will be limited to 10% of the Portfolio's total assets.
The process used by the sub-adviser to identify promising under-valued companies
within this universe of companies may be different from those of other
value-oriented investment managers in the following ways: the use of earnings
averaged over both strong and weak periods to value cyclical companies, a focus
on quality of earnings, investment in relative value, and concentration in
industries/sectors having strong long-term fundamentals.
As a part of this multi-disciplined approach to capturing value, the sub-adviser
first seeks to identify market sectors early in their cycle of fundamental
improvement, investor recognition and market exploitation. Industry fundamentals
used in this decision making process are business trend analysis (to analyze
industry and company fundamentals for the impact of changing worldwide product
demand/supply), direction of inflation and interest rates, and
expansion/contraction of business cycles. The sub-adviser utilizes in-house
capabilities, in addition to independent resources, for economic, industry and
securities research.
Following this initial phase, approximately 200 companies that the sub-adviser
believes have above-average statistical value and are in a sector identified as
having positive fundamentals on a long-term basis, will be actively followed.
The Portfolio's investments will generally be selected from among these 200
actively followed companies. Company visits and interviews with management
augment fundamental research in seeking to identify the potential value in these
investments. The Portfolio will focus on those industries with positive
fundamentals and likewise will seek to minimize risk by avoiding industries with
deteriorating long-term fundamentals. No more than 10% of the Portfolio's assets
may be invested in fixed-income securities considered to be non-investment
grade, commonly known as "junk bonds."
Sub-Adviser: NWQ Investment Management Company, Inc. ("NWQ")
20
<PAGE>
<TABLE>
<CAPTION>
Value Equity Portfolio
SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 5.50% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90%
Other Expenses (net of expense reimbursements and/or fee waivers) (c) 0.15% 0.15% 0.15%
----- ----- -----
Total Operating Expenses (net of expense reimbursements and/or fee waivers) (c) 1.50% 2.15% 2.05%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $69 $100 $132 $224
B $72 $97 $125 $232
C $21 $64 $110 $238
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $69 $100 $132 $224
B $22 $67 $115 $232
C $21 $64 $110 $238
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) The Value Equity Portfolio commenced operations on February 3, 1997,
therefore the percentages set forth as "Other Expenses" and "Total Operating
Expenses" are annualized. See Ratio of Expenses to Average Net Assets in the
Financial Highlights section, and Note 6 to the Notes to Financial Highlights
for further discussion of expenses. The Other Expenses before
reimbursement/waiver were 2.70% for each class of shares. The Total Operating
Expenses before reimbursement waiver for Class A, Class B and Class C shares
were 4.05%, 4.70% and 4.60%, respectively. Although the continuation of the
expense reimbursements and fee waivers cannot be guaranteed, it is expected that
they will remain in effect at least until the end of the Portfolio's fiscal
year, October 31, 1998.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
21
<PAGE>
<TABLE>
<CAPTION>
Value Equity Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $10.00 $0.02 $1.69 $1.71 -- -- -- $11.71
Class B
10/31/97 $10.00 $(0.02) $1.69 $1.67 -- -- -- $11.67
Class C
10/31/97 $10.00 $(0.02) $1.69 $1.67 -- -- -- $11.67
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 17.14% $5,305 1.50% 1.50% 4.05% 0.38% 6.40% $0.0673
Class B
10/31/97 16.65% $2,850 2.15% 2.15% 4.70% (0.28)% 6.40% $0.0673
Class C
10/31/97 16.73% $1,670 2.05% 2.05% 4.60% (0.18)% 6.40% $0.0673
See Notes to Financial Highlights on Page 41
</TABLE>
22
<PAGE>
Strategic Total Return Portfolio
Objective: Current income, long-term growth of income and capital appreciation.
Investment Focus: The Strategic Total Return 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 seeks capital appreciation and income
growth through a strategic blend of stocks and bonds. The investor should desire
a fundamentally-oriented investment approach which emphasizes risk management.
Primary Investment Practices: The Portfolio seeks to invest its assets primarily
in income producing common or preferred stock, convertible debt obligations and
other income producing 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-adviser
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. It is anticipated that
approximately 25% of the Portfolio's assets will be invested in fixed-income
securities, some of which may be convertible into common stocks. No more than
10% of the Portfolio's assets may be invested in fixed-income securities
considered to be non-investment grade. The Portfolio does not 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.
Sub-Adviser: Luther King Capital Management Corporation ("Luther King")
23
<PAGE>
<TABLE>
<CAPTION>
Strategic Total Return Portfolio
SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 5.50% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90%
Other Expenses (net of expense reimbursements and/or fee waivers) (c) 0.50% 0.50% 0.50%
----- ----- -----
Total Operating Expenses (net of expense reimbursements and/or fee waivers) (c) 1.85% 2.50% 2.40%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $75 $108 $143 $267
C $24 $75 $128 $274
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $25 $78 $133 $267
C $24 $75 $128 $274
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses. The Other Expenses before reimbursement/waiver were .93% for each
class of shares. The Total Operating Expenses before reimbursement/waiver for
Class A, Class B and Class C shares were 2.28%, 2.93% and 2.83%, respectively.
Although the continuation of the expense reimbursements and fee waivers cannot
be guaranteed, it is expected that they will remain in effect at least until the
end of the Portfolio's fiscal year, October 31, 1998.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
24
<PAGE>
<TABLE>
<CAPTION>
Strategic Total Return Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $13.43 $0.20 $2.79 $2.99 $(0.19) $(0.32) $(0.51) $15.91
10/31/96 (3) $13.27 $0.01 $0.15 $0.16 -- -- -- $13.43
9/30/96 $11.74 $0.20 $1.65 $1.85 $(0.17) $(0.15) $(0.32) $13.27
9/30/95 $10.00 $0.09 $1.75 $1.84 $(0.10) -- $(0.10) $11.74
Class B
10/31/97 $13.42 $0.10 $2.79 $2.89 $(0.10) $(0.32) $(0.42) $15.89
10/31/96 (3) $13.27 -- $0.15 $0.15 -- -- -- $13.42
9/30/96 $11.73 $0.13 $1.65 $1.78 $(0.09) $(0.15) $(0.24) $13.27
Class C
10/31/97 $13.42 $0.12 $2.79 $2.91 $(0.11) $(0.32) $(0.43) $15.90
10/31/96 (3) $13.27 -- $0.15 $0.15 -- -- -- $13.42
9/30/96 $11.73 $0.15 $1.65 $1.80 $(0.11) $(0.15) $(0.26) $13.27
9/30/95 $10.00 $0.03 $1.75 $1.78 $(0.05) -- $(0.05) $11.73
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 22.80% $21,629 1.85% 1.85% 2.28% 1.41% 51.44% $0.0607
10/31/96 (3) 1.20% $11,744 1.85% 1.82% 2.76% 1.47% 5.50% $0.0591
9/30/96 16.00% $11,314 1.85% 1.79% 2.79% 1.67% 40.58% $0.0622
9/30/95 18.43% $5,167 2.99% 2.85% 4.57% 0.85% 34.67% --
Class B
10/31/97 22.03% $4,698 2.50% 2.50% 2.93% 0.76% 51.44% $0.0607
10/31/96 (3) 1.13% $1,684 2.50% 2.47% 3.40% 0.82% 5.50% $0.0591
9/30/96 15.38% $1,537 2.50% 2.44% 3.44% 1.02% 40.58% $0.0622
Class C
10/31/97 22.15% $4,332 2.40% 2.40% 2.83% 0.86% 51.44% $0.0607
10/31/96 (3) 1.13% $1,792 2.40% 2.37% 3.30% 0.92% 5.50% $0.0591
9/30/96 15.49% $1,728 2.40% 2.34% 3.34% 1.12% 40.58% $0.0622
9/30/95 17.95% $281 3.54% 3.40% 5.12% 0.30% 34.67% --
See Notes to Financial Highlights on Page 41
</TABLE>
25
<PAGE>
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, money market funds and debt
obligations of U.S. issuers. 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.
Primary Investment Practices: The Portfolio focuses on high quality, liquid,
large capitalization stocks. In selecting the Portfolio securities, the
sub-adviser utilizes a selection process that starts with a "bottom-up"
screening of the market to identify stocks that are statistically undervalued,
based on certain financial characteristics relative to the stock's historical
norms. The sub-adviser's ultimate goal is to choose stocks whose price has been
driven down due to an "overreaction" by the market to their perceived risks. By
following the sub-adviser's approach, the Portfolio seeks to achieve a dividend
income yield in excess of the dividend income yield of the S&P 500.
"Asset allocation" is an investment technique which shifts assets from one class
of investment to another in anticipation of changes in market direction. The
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 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. The Portfolio does not, at present,
intend to invest morer than 20% of its assets in equities which do not pay a
dividend.
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. The Portfolio does not, at present,
intend to invest more than 20% of its assets in equities which do not pay a
dividend.
The Portfolio may invest up to 10% of its total assets in money market funds. If
the forecasting models predict a decline in the stock market, the sub-adviser
will reduce equity exposure which will increase the Portfolio's cash position,
including investment in money market funds.
Sub-Adviser: Dean Investment Associates ("Dean Investment")
26
<PAGE>
<TABLE>
<CAPTION>
Tactical Asset Allocation Portfolio
SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 5.50% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90%
Other Expenses (net of expense reimbursements and/or fee waivers) (c) 0.50% 0.50% 0.50%
----- ----- -----
Total Operating Expenses (net of expense reimbursements and/or fee waivers) (c) 1.85% 2.50% 2.40%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $75 $108 $143 $267
C $24 $75 $128 $274
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $25 $78 $133 $267
C $24 $75 $128 $274
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses. The Other Expenses before reimbursement/waiver were .95% for each
class of shares. The Total Operating Expenses before reimbursement/waiver for
Class A, Class B and Class C shares were 2.30%, 2.95% and 2.85%, respectively.
Although the continuation of the expense reimbursements and fee waivers cannot
be guaranteed, it is expected that they will remain in effect at least until the
end of the Portfolio's fiscal year, October 31, 1998.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
27
<PAGE>
<TABLE>
<CAPTION>
Tactical Asset Allocation Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $11.19 $0.19 $2.02 $2.21 $(0.17) $(0.04) $(0.21) $13.19
10/31/96 (3) $11.03 $0.02 $0.14 $0.16 -- -- -- $11.19
9/30/96 $10.00 $0.08 $1.03 $1.11 $(0.08) -- $(0.08) $11.03
Class B
10/31/97 $11.18 $0.11 $2.02 $2.13 $(0.09) $(0.04) $(0.13) $13.18
10/31/96 (3) $11.02 $0.02 $0.14 $0.16 -- -- -- $11.18
9/30/96 $10.00 -- $1.03 $1.03 $(0.01) -- $(0.01) $11.02
Class C
10/31/97 $11.18 $0.12 $2.02 $2.14 $(0.10) $(0.04) $(0.14) $13.18
10/31/96 (3) $11.03 $0.01 $0.14 $0.15 -- -- -- $11.18
9/30/96 $10.00 $0.02 $1.03 $1.05 $(0.02) -- $(0.02) $11.03
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 19.84% $12,291 1.85% 1.85% 2.30% 1.57% 71.63% $0.0732
10/31/96 (3) 1.45% $8,396 1.85% 1.85% 2.65% 1.26% 2.38% $0.0800
9/30/96 11.07% $7,401 2.85% 2.85% 3.20% 0.72% 56.22% $0.0828
Class B
10/31/97 19.08% $9,747 2.50% 2.50% 2.95% 0.92% 71.63% $0.0732
10/31/96 (3) 1.45% $5,013 2.50% 2.50% 3.30% 0.61% 2.38% $0.0800
9/30/96 10.39% $4,848 3.50% 3.50% 3.85% 0.07% 56.22% $0.0828
Class C
10/31/97 19.20% $5,088 2.40% 2.40% 2.85% 1.02% 71.63% $0.0732
10/31/96 (3) 1.36% $4,758 2.40% 2.40% 3.20% 0.71% 2.38% $0.0800
9/30/96 10.50% $4,641 3.40% 3.40% 3.75% 0.17% 56.22% $0.0828
See Notes to Financial Highlights on Page 41
</TABLE>
28
<PAGE>
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 securities selected primarily for their growth potential and 40-60% of its
assets in securities selected primarily for their income potential. At least 25%
of its assets normally will be invested in fixed income senior securities, which
include debt securities and preferred stocks.
Investor Profile: For the investor who wants capital growth and income from the
same investment, but who also wants an investment that sustains its value by
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 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 Portfolio may shift assets between the growth and income portions of its
portfolio based on its sub-adviser'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.
Sub-Adviser: Janus Capital
29
<PAGE>
<TABLE>
<CAPTION>
Balanced Portfolio
SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 5.50% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90%
Other Expenses (net of expense reimbursements and/or fee waivers) (c) 0.50% 0.50% 0.50%
----- ----- -----
Total Operating Expenses (net of expense reimbursements and/or fee waivers) (c) 1.85% 2.50% 2.40%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $75 $108 $143 $267
C $24 $75 $128 $274
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $73 $110 $150 $260
B $25 $78 $133 $267
C $24 $75 $128 $274
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses. The Other Expenses before reimbursement/waiver were 1.53% for each
class of shares. The Total Operating Expenses before reimbursement/waiver for
Class A, Class B and Class C shares were 2.88%, 3.53% and 3.43%, respectively.
Although the continuation of the expense reimbursements and fee waivers cannot
be guaranteed, it is expected that they will remain in effect at least until the
end of the Portfolio's fiscal year, October 31, 1998.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
30
<PAGE>
<TABLE>
<CAPTION>
Balanced Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $13.58 $0.19 $2.52 $2.71 $(0.20) $(1.75) $(1.95) $14.34
10/31/96 (3) $13.47 $0.01 $0.10 $0.11 -- -- -- $13.58
9/30/96 $11.47 $0.24 $2.25 $2.49 $(0.21) $(0.28) $(0.49) $13.47
9/30/95 $10.00 $0.05 $1.47 $1.52 $(0.05) -- $(0.05) $11.47
Class B
10/31/97 $13.56 $0.12 $2.52 $2.64 $(0.12) $(1.75) $(1.87) $14.33
10/31/96 (3) $13.46 -- $0.10 $0.10 -- -- -- $13.56
9/30/96 $11.47 $0.15 $2.25 $2.40 $(0.13) $(0.28) $(0.41) $13.46
Class C
10/31/97 $13.57 $0.12 $2.52 $2.64 $(0.13) $(1.75) $(1.88) $14.33
10/31/96 (3) $13.46 $0.01 $0.10 $0.11 -- -- -- $13.57
9/30/96 $11.47 $0.16 $2.25 $2.41 $(0.14) $(0.28) $(0.42) $13.46
9/30/95 $10.00 $0.01 $1.47 $1.48 $(0.01) -- $(0.01) $11.47
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 22.96% $13,414 1.85% 1.85% 2.88% 1.29% 127.08% $0.0481
10/31/96 (3) 0.81% $8,402 1.85% 1.85% 3.44% 1.84% 9.08% $0.0408
9/30/96 22.12% $8,056 1.85% 1.85% 3.11% 1.87% 175.78% $0.0443
9/30/95 15.27% $3,670 2.92% 2.85% 4.48% 0.56% 82.48% --
Class B
10/31/97 22.19% $2,583 2.50% 2.50% 3.53% 0.64% 127.08% $0.0481
10/31/96 (3) 0.74% $878 2.50% 2.50% 4.09% 1.18% 9.08% $0.0408
9/30/96 21.38% $687 2.50% 2.50% 3.76% 1.22% 175.78% $0.0443
Class C
10/31/97 22.31% $1,561 2.40% 2.40% 3.43% 0.74% 127.08% $0.0481
10/31/96 (3) 0.81% $967 2.40% 2.40% 3.99% 1.28% 9.08% $0.0408
9/30/96 21.49% $943 2.40% 2.40% 3.66% 1.32% 175.78% $0.0443
9/30/95 14.77% $3,365 3.47% 3.40% 5.03% 0.01% 82.48% --
</TABLE>
See Notes to Financial Highlights on Page 41
31
<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 total 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 invests primarily 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 Portfolio may, at times, have substantial holdings of high-yield/high-risk
bonds or unrated bonds of foreign and domestic issuers.
The 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.
Sub-Adviser: Janus Capital
32
<PAGE>
<TABLE>
<CAPTION>
Flexible Income Portfolio
SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 4.75% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 0.90% 0.90% 0.90%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90%
Other Expenses (net of expense reimbursements and/or fee waivers) (c) 0.60% 0.60% 0.60%
----- ----- -----
Total Operating Expenses (net of expense reimbursements and/or fee waivers) (c) 1.85% 2.50% 2.40%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $65 $103 $143 $254
B $75 $108 $143 $267
C $24 $75 $128 $274
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $65 $103 $143 $254
B $25 $78 $133 $267
C $24 $75 $128 $274
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses. The Other Expenses before reimbursement/waiver for each class of
shares were 1.15%. The Total Operating Expenses before reimbursement/waiver for
Class A, Class B and Class C shares were 2.40%, 3.05% and 2.95%, respectively.
Although the continuation of the expense reimbursements and fee waivers cannot
be guaranteed, it is expected that they will remain in effect at least until the
end of the Portfolio's fiscal year, October 31, 1998.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
33
<PAGE>
<TABLE>
<CAPTION>
Flexible Income Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $9.33 $0.61 $0.42 $1.03 $(0.61) -- $(0.61) $9.75
10/31/96 (3) $9.19 $0.05 $0.14 $0.19 $(0.05) -- $(0.05) $9.33
9/30/96 $9.17 $0.60 -- $0.60 $(0.58) -- $(0.58) $9.19
9/30/95 $8.83 $0.61 $0.37 $0.98 $(0.64) -- $(0.64) $9.17
9/30/94 (10) (14) $9.59 $0.65 $(0.81) $(0.16) $(0.60) -- $(0.60) $8.83
9/30/93 $8.95 $0.70 $0.60 $1.30 $(0.66) -- $(0.66) $9.59
10/31/92 (11) $8.73 $0.80 $0.22 $1.02 $(0.80) -- $(0.80) $8.95
10/31/91 $7.74 $0.82 $1.10 $1.92 $(0.80) $(0.13) $(0.93) $8.73
10/31/90 $9.55 $0.90 $(1.80) $(0.90) $(0.91) -- $(0.91) $7.74
10/31/89 $10.15 $0.95 $(0.46) $0.49 $(0.93) $(0.16) $(1.09) $9.55
10/31/88 $9.60 $0.91 $0.55 $1.46 $(0.91) -- $(0.91) $10.15
Class B
10/31/97 $9.32 $0.56 $0.42 $0.98 $(0.55) -- $(0.55) $9.75
10/31/96 (3) $9.18 $0.05 $0.14 $0.19 $(0.05) -- $(0.05) $9.32
9/30/96 $9.17 $0.53 -- $0.53 $(0.52) -- $(0.52) $9.18
Class C
10/31/97 $9.32 $0.57 $0.42 $0.99 $(0.56) -- $(0.56) $9.75
10/31/96 (3) $9.18 $0.05 $0.14 $0.19 $(0.05) -- $(0.05) $9.32
9/30/96 $9.17 $0.54 -- $0.54 $(0.53) -- $(0.53) $9.18
9/30/95 $8.83 $0.56 $0.37 $0.93 $(0.59) -- $(0.59) $9.17
9/30/94 $9.59 $0.60 $(0.81) $(0.21) $(0.55) -- $(0.55) $8.83
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 11.53% $15,532 1.85% 1.85% 2.40% 6.41% 135.53% --
10/31/96 (3) 2.08% $17,001 1.85% 1.85% 2.98% 6.15% 16.16% --
9/30/96 6.73% $17,065 1.85% 1.85% 2.07% 6.46% 135.38% --
9/30/95 11.57% $19,786 1.87% 1.85% 1.94% 7.03% 149.58% --
9/30/94 (10) (14) (1.54)% $21,527 1.85% -- 2.13% 6.57% 105.40% --
9/30/93 13.66% $29,232 1.50% -- 1.56% 7.76% 138.86% --
10/31/92 (11) 12.17% $26,676 1.50% -- 1.66% 8.55% 140.23% --
10/31/91 26.38% $18,696 1.50% -- 1.75% 9.84% 130.73% --
10/31/90 (10.22)% $18,760 1.50% -- 1.60% 10.51% 72.40% --
10/31/89 5.17% $27,645 1.29% -- 1.56% 9.63% 71.44% --
10/31/88 15.62% $20,469 1.00% -- 1.96% 9.22% 54.42% --
Class B
10/31/97 10.79% $746 2.50% 2.50% 3.05% 5.76% 135.53% --
10/31/96 (3) 2.04% $522 2.50% 2.50% 3.63% 5.50% 16.16% --
9/30/96 5.94% $494 2.50% 2.50% 2.72% 5.81% 135.38% --
Class C
10/31/97 10.91% $928 2.40% 2.40% 2.95% 5.86% 135.53% --
10/31/96 (3) 2.04% $846 2.40% 2.40% 3.53% 5.60% 16.16% --
9/30/96 6.03% $883 2.40% 2.40% 2.62% 5.91% 135.38% --
9/30/95 10.95% $558 2.42% 2.40% 2.49% 6.48% 149.58% --
9/30/94 (2.15)% $691 2.40% -- 8.59% 6.03% 105.40% --
See Notes to Financial Highlights on Page 41
</TABLE>
34
<PAGE>
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 is 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). 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 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 investment grade (below the four highest rating categories).
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 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 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.
The sub-adviser uses, but does not place sole reliance on, credit ratings in
evaluating bonds and determining credit quality of the issuer.
Sub-Adviser: AEGON USA Investment Management, Inc. ("AIMI")
35
<PAGE>
<TABLE>
<CAPTION>
Income Plus Portfolio
SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 4.75% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 0.60% 0.60% 0.60%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.90%
Other Expenses (c) 0.32% 0.32% 0.32%
----- ----- -----
Total Operating Expenses (c) 1.27% 1.92% 1.82%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $60 $86 $114 $194
B $69 $90 $114 $207
C $18 $57 $99 $214
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $60 $86 $114 $194
B $19 $60 $104 $207
C $18 $57 $99 $214
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
36
<PAGE>
<TABLE>
<CAPTION>
Income Plus Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $10.61 $0.76 $0.44 $1.20 $(0.75) $(0.10) $(0.85) $10.96
10/31/96 (3) $10.41 $0.04 $0.22 $0.26 $(0.06) -- $(0.06) $10.61
9/30/96 $10.36 $0.72 $0.04 $0.76 $(0.71) -- $(0.71) $10.41
9/30/95 $9.75 $0.75 $0.71 $1.46 $(0.75) $(0.10) $(0.85) $10.36
9/30/94 $10.98 $0.76 $(1.10) $(0.34) $(0.75) $(0.14) $(0.89) $9.75
9/30/93 $10.55 $0.83 $0.46 $1.29 $(0.81) $(0.05) $(0.86) $10.98
9/30/92 (15) $10.04 $0.76 $0.64 $1.40 $(0.76) $(0.13) $(0.89) $10.55
11/30/91 $9.20 $0.98 $0.87 $1.85 $(0.98) $(0.03) $(1.01) $10.04
11/30/90 $9.99 $1.04 $(0.79) $0.25 $(1.04) -- $(1.04) $9.20
11/30/89 $9.89 $1.04 $0.10 $1.14 $(1.04) -- $(1.04) $9.99
11/30/88 $9.85 $1.04 $0.06 $1.10 $(1.04) $(0.02) $(1.06) $9.89
Class B
10/31/97 $10.61 $0.69 $0.44 $1.13 $(0.68) $(0.10) $(0.78) $10.96
10/31/96 (3) $10.40 $0.05 $0.22 $0.27 $(0.06) -- $(0.06) $10.61
9/30/96 $10.35 $0.65 $0.04 $0.69 $(0.64) -- $(0.64) $10.40
Class C
10/31/97 $10.61 $0.70 $0.44 $1.14 $(0.69) $(0.10) $(0.79) $10.96
10/31/96 (3) $10.40 $0.05 $0.22 $0.27 $(0.06) -- $(0.06) $10.61
9/30/96 $10.35 $0.66 $0.04 $0.70 $(0.65) -- $(0.65) $10.40
9/30/95 $9.74 $0.69 $0.71 $1.40 $(0.69) $(0.10) $(0.79) $10.35
9/30/94 $10.98 $0.66 $(1.10) $(0.44) $(0.66) $(0.14) $(0.80) $9.74
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 11.86% $65,612 1.27% 1.27% -- 7.14% 62.28% --
10/31/96 (3) 2.53% $66,285 1.33% 1.32% -- 5.60% 1.58% --
9/30/96 7.64% $65,252 1.33% 1.31% -- 6.89% 65.96% --
9/30/95 15.85% $68,746 1.29% 1.26% -- 7.53% 25.07% --
9/30/94 (3.28)% $63,995 1.33% -- -- 7.35% 48.12% --
9/30/93 12.80% $72,401 1.33% -- -- 7.73% 54.51% --
9/30/92 (15) 14.40% $54,647 1.17% -- -- 8.79% 91.01% --
11/30/91 21.00% $47,334 1.15% -- 1.21% 10.20% 52.79% --
11/30/90 2.50% $33,182 0.69% -- 1.44% 11.12% 18.54% --
11/30/89 12.10% $23,416 0.70% -- 1.09% 10.59% 57.50% --
11/30/88 11.50% $17,078 0.68% -- 1.11% 10.55% 34.29% --
Class B
10/31/97 11.10% $1,761 1.92% 1.92% -- 6.49% 62.28% --
10/31/96 (3) 2.59% $804 1.98% 1.97% -- 4.95% 1.58% --
9/30/96 6.95% $774 1.98% 1.96% -- 6.24% 65.96% --
Class C
10/31/97 11.22% $3,480 1.82% 1.82% -- 6.59% 62.28% --
10/31/96 (3) 2.59% $2,781 1.88% 1.87% -- 5.05% 1.58% --
9/30/96 7.05% $2,684 1.88% 1.86% -- 6.34% 65.96% --
9/30/95 15.08% $1,980 1.84% 1.81% -- 6.98% 25.07% --
9/30/94 (4.55)% $2,112 3.52% -- -- 5.16% 48.12% --
See Notes to Financial Highlights on Page 41
</TABLE>
37
<PAGE>
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 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 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 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.
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.
Sub-Adviser: AEGON USA Investment Management, Inc.
38
<PAGE>
<TABLE>
<CAPTION>
Tax-Exempt Portfolio
SUMMARY OF EXPENSES Class of Shares
A B C
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as percentage of offering price) 4.75% None None
Redemption Fees (a) None None None
Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, None 5.00% None
whichever is lower) (b)
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 0.60% 0.60% 0.60%
12b-1 Distribution and Service Fees 0.35% 1.00% 0.60%
Other Expenses (net of expense reimbursements and/or fee waivers) (c) 0.40% 0.40% 0.40%
----- ----- -----
Total Operating Expenses (net of expense reimbursements and/or fee waivers) (c) 1.35% 2.00% 1.60%
Examples
The tables below show the expenses you would pay on a $1,000 investment over a
variety of time frames, assuming a 5% annual return. The first example assumes
redemption at the end of each period.
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $61 $88 $118 $202
B $70 $93 $118 $216
C $16 $51 $87 $190
The next example assumes no redemption and, therefore, no deferred sales charge.
Share Class 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
A $61 $88 $118 $202
B $20 $63 $108 $216
C $16 $51 $87 $190
- -------------------------------
</TABLE>
(a) A $10 service fee is charged for each redemption transaction paid by Federal
funds bank wire, and a $20 service fee is charged for each check redemption sent
via overnight delivery.
(b) On certain purchases of Class A shares in amounts greater than $1,000,000, a
contingent deferred sales charge of 1% applies for 24 months after purchase.
(c) See Ratio of Expenses to Average Net Assets in the Financial Highlights
section, and Note 6 to the Notes to Financial Highlights for further discussion
of expenses. The percentages reflect an increase in the total annual operating
expense limitation from 0.65% to 1.00%, effective March 1, 1998. The Other
Expenses net of reimbursement/waiver were .68% for each class of shares. The
Total Operating Expenses net of reimbursement/waiver for Class A, Class B and
Class C shares were 1.63%, 2.28% and 1.88%, respectively. Although the
continuation of the expense reimbursements and fee waivers cannot be guaranteed,
it is expected that they will remain in effect at least until the end of the
Portfolio's fiscal year, October 31, 1998.
The purpose of the Examples shown in the Summary of Expenses is to help you
understand the direct and indirect expenses an investor in the Portfolio may
bear. The Examples for Class B shares reflect conversion to Class A shares eight
years after purchase, and assume that the shareholder was the owner of shares on
the first day of the first year. For more information, see Investment Advisory
and Other Services and Shareholder Information and Instructions.
Long-term shareholders may pay more in 12b-1 fees than the economic equivalent
of the maximum sales charge permitted under the rules of the NASD.
EXPENSES SHOWN IN THE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% RETURN IS
HYPOTHETICAL, AND IS NOT A REPRESENTATION OR PREDICTION OF PAST OR FUTURE
RETURNS, WHICH MAY BE MORE OR LESS THAN 5%.
39
<PAGE>
<TABLE>
<CAPTION>
Tax-Exempt Portfolio
FINANCIAL HIGHLIGHTS
INVESTMENT OPERATIONS (2)
NET REALIZED
NET ASSET AND TOTAL INCOME DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED (LOSS) FROM FROM NET FROM NET NET ASSET
YEAR OR PERIOD BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL VALUE AT END
ENDED (1) PERIOD INCOME (LOSS) INVESTMENTS INCOME INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 $11.40 $0.53 $0.43 $0.96 $(0.53) $(0.08) $(0.61) $11.75
10/31/96 (3) $11.36 $0.05 $0.04 $0.09 $(0.05) -- $(0.05) $11.40
9/30/96 $11.34 $0.55 $0.10 $0.65 $(0.56) $(0.07) $(0.63) $11.36
9/30/95 $11.10 $0.55 $0.29 $0.84 $(0.56) $(0.04) $(0.60) $11.34
9/30/94 $12.07 $0.56 $(0.60) $(0.04) $(0.54) $(0.39) $(0.93) $11.10
9/30/93 $11.62 $0.56 $0.45 $1.01 $(0.54) $(0.02) $(0.56) $12.07
9/30/92 (16) $11.46 $0.54 $0.28 $0.82 $(0.54) $(0.12) $(0.66) $11.62
11/30/91 $11.27 $0.75 $0.26 $1.01 $(0.75) $(0.07) $(0.82) $11.46
11/30/90 $11.39 $0.78 $(0.12) $0.66 $(0.78) -- $(0.78) $11.27
11/30/89 $10.97 $0.78 $0.42 $1.20 $(0.78) -- $(0.78) $11.39
11/30/88 $10.44 $0.79 $0.53 $1.32 $(0.79) -- $(0.79) $10.97
Class B
10/31/97 $11.40 $0.44 $0.43 $0.87 $(0.45) $(0.08) $(0.53) $11.74
10/31/96 (3) $11.36 $0.04 $0.04 $0.08 $(0.04) -- $(0.04) $11.40
9/30/96 $11.34 $0.48 $0.10 $0.58 $(0.49) $(0.07) $(0.56) $11.36
Class C
10/31/97 $11.40 $0.50 $0.43 $0.93 $(0.50) $(0.08) $(0.58) $11.75
10/31/96 (3) $11.36 $0.04 $0.04 $0.08 $(0.04) -- $(0.04) $11.40
9/30/96 $11.34 $0.52 $0.10 $0.62 $(0.53) $(0.07) $(0.60) $11.36
9/30/95 $11.10 $0.52 $0.29 $0.81 $(0.53) $(0.04) $(0.57) $11.34
9/30/94 $12.07 $0.53 $(0.60) $(0.07) $(0.51) $(0.39) $(0.90) $11.10
RATIO OF NET
NET ASSETS RATIO OF EXPENSES TO AVERAGE INCOME
AT END OF NET ASSETS (6) (7) (LOSS) TO PORTFOLIO AVERAGE
YEAR OR PERIOD TOTAL PERIOD EXCLUDING INCLUDING AVERAGE NET TURNOVER COMMISSION
ENDED (1) RETURN (5) (000'S) CREDITS CREDITS GROSS ASSETS (7) RATE (8) RATE (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
10/31/97 8.68% $23,320 1.00% 1.00% 1.63% 4.60% 71.29% --
10/31/96 (3) 0.76% $24,439 1.00% 1.00% 1.89% 4.60% 3.79% --
9/30/96 5.89% $24,708 1.00% 1.00% 1.46% 4.88% 71.05% --
9/30/95 7.75% $27,401 1.02% 1.00% 1.35% 4.83% 126.48% --
9/30/94 (0.41)% $29,096 1.00% -- 1.30% 4.83% 59.84% --
9/30/93 8.97% $30,717 1.00% -- 1.43% 4.83% 91.03% --
9/30/92 (16) 7.20% $28,363 1.00% -- 1.20% 5.49% 106.89% --
11/30/91 9.20% $28,242 0.95% -- 1.24% 6.67% 117.92% --
11/30/90 6.00% $22,708 0.68% -- 0.92% 6.92% 81.17% --
11/30/89 11.20% $15,916 0.70% -- 1.11% 6.98% 67.45% --
11/30/88 12.90% $11,805 0.70% -- 1.13% 7.28% 35.44% --
Class B
10/31/97 7.93% $377 1.65% 1.65% 2.28% 3.95% 71.29% --
10/31/96 (3) 0.71% $198 1.65% 1.65% 2.54% 3.94% 3.79% --
9/30/96 5.21% $189 1.65% 1.65% 2.11% 4.23% 71.05% --
Class C
10/31/97 8.39% $921 1.25% 1.25% 1.88% 4.35% 71.29% --
10/31/96 (3) 0.74% $939 1.25% 1.25% 2.14% 4.34% 3.79% --
9/30/96 5.63% $907 1.25% 1.25% 1.71% 4.63% 71.05% --
9/30/95 7.48% $454 1.27% 1.25% 1.60% 4.58% 126.48% --
9/30/94 (0.73)% $277 1.25% -- 20.88% 4.58% 59.84% --
See Notes to Financial Highlights on Page 41
</TABLE>
40
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
(1) Commencement of operations for Growth Portfolio Class A, Global Portfolio
Class A, IDEX Total Income Trust (predecessor to Flexible Income Portfolio Class
A), AEGON USA Tax-Exempt Portfolio (predecessor to Tax-Exempt Portfolio Class A)
and AEGON USA High Yield Portfolio (predecessor to Income Plus Portfolio 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 Portfolios was October 1,
1993. Commencement of operations for Class A and Class C shares of Balanced,
Capital Appreciation, Aggressive Growth and Strategic Total Return Portfolios
was December 2, 1994. Commencement of operations for Class B shares of each of
the above 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. Commencement of
operations for Class A, Class B and Class C shares of the International Equity
and Value Equity Portfolios was February 1, 1997.
(2) Certain amounts for the periods ended September 30, 1996 and October 31,
1996 have been reclassified between Net Investment Income (Loss) and Net
Realized and Unrealized Gain (Loss).
(3) For the month ended October 31, 1996. On October 1, 1996, each Portfolio
changed its fiscal year end from September 30 to October 31.
(4) Distributions from net realized capital gains include distributions in
excess of current net realized capital gains for the Aggressive Growth Portfolio
Classes A, B and C, for the period ended September 30, 1996, in the amount of
$1.02, and for the Growth Portfolio Classes A and C, for the period ended
September 30, 1994, in the amount of $0.14. Dividends from net investment income
include distributions in excess of current net investment income for the Capital
Appreciation Portfolio Classes A and C, for the period ended September 30, 1996,
in the amount of $0.01, and for the C.A.S.E. Portfolio Classes A, B and C, for
the period ended October 31, 1997, in the amount of $0.08.
(5) Total return has been calculated without deduction of a sales load, if any,
on an initial purchase for Class A or Class T shares and assumes all dividends
and distributions are paid in additional shares. Periods of less than one year
are not annualized.
(6) Ratio of expenses to average net assets shows: Expenses Excluding Credits
(total expenses less amounts waived/reimbursed by the investment adviser);
Expenses Including Credits (total expenses less amounts waived/reimbursed by the
investment adviser and reduced by affiliated brokerage and custody earnings
credits); and Gross Expenses (total expenses, not taking into account
waived/reimbursed amounts by the investment adviser or affiliated brokerage and
custody earnings credits).
(7) Periods of less than one year are annualized. The Ratio of Net Investment
Income (Loss) is based upon Net Investment Income (Loss) prior to certain
reclassifications as discussed in the Notes to Financial Statements in the
Fund's Annual Report to shareholders dated October 31, 1997.
(8) Growth's acquisition of investment securities of IDEX Fund and IDEX Fund 3
has been eliminated from the September 30, 1996 portfolio turnover calculation.
Periods of less than one year are not annualized.
(9) Amount represents average commission rate paid per share of securities
purchased or sold during the period. For fiscal years beginning on or after
September 1, 1995, disclosure of this rate is required for Portfolios in which
equity securities constitute more than 10% of average net assets for the period.
(10) Prior to May 1, 1991, no 12b-1 fees were incurred by Growth Portfolio 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. On October 1, 1993, Growth
Portfolio Class A shares changed its distribution rate to 0.35% from 0.25%. On
October 1, 1993, Flexible Income Portfolio Class A initiated a 12b-1 Plan of
Distribution. 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.
(11) As of October 1, 1992, Growth Portfolio Class A and Flexible Income
Portfolio Class A discontinued the practice of equalization accounting.
41
<PAGE>
(12) 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.
(13) The information shown for Class T shares is for the period from inception
(September 20, 1996) through the fiscal year ended September 30, 1996.
(14) 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 Portfolio acquired all of the assets and assumed
all of the liabilities of IDEX Total in exchange for Class A shares of Flexible
Income Portfolio. All historical financial information relates to IDEX Total
prior to the date it was reorganized into Flexible Income Portfolio.
(15) On August 7, 1992, AEGON High Yield Portfolio was reorganized into IDEX II
Income Plus Portfolio (formerly known as IDEX II High Yield Portfolio), which
had no prior operating history as of that date. Pursuant to the Agreement and
Plan of Reorganization and Liquidation, the Income Plus Portfolio acquired all
of the assets and assumed all the liabilities of AEGON High Yield Portfolio in
exchange for shares of Income Plus Portfolio. All historical financial
information prior to August 7, 1992 relates to AEGON High Yield Portfolio.
(16) On August 7, 1992, AEGON Tax-Exempt Portfolio was reorganized into IDEX II
Tax-Exempt Portfolio, which had no prior operating history as of that date.
Pursuant to the Agreement and Plan of Reorganization and Liquidation, the
Tax-Exempt Portfolio acquired all of the assets and assumed all of the
liabilities of AEGON Tax-Exempt Portfolio in exchange for shares of Tax-Exempt
Portfolio. All historical financial information prior to August 7, 1992 relates
to AEGON Tax-Exempt Portfolio.
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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.
Performance is calculated separately for each class of shares.
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 is completed for a class of shares of the Flexible
Income, Tax-Exempt or Income Plus Portfolios and 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 both standard and non-standard
ways. In accordance with rules of the SEC and NASD, any non-standard performance
included in advertising or sales literature must be accompanied by standard
performance. The Portfolios may also advertise their returns for periods in
addition to those required by the NASD and SEC. In advertising their returns in
non-standard ways, the Portfolios may not deduct applicable sales charges. In
such cases, the returns of the Portfolios will be higher than if the applicable
sales charges had been deducted.
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, CDA/Wiesenberger Investment Technologies, 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
General Municipal Bond Index or the Morgan Stanley Capital International World
Index.
The International Equity and Global Portfolios' 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.
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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.
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 (888)
233-4339 (toll free) Monday-Thursday, 8 a.m.-7 p.m. and Friday, 8 a.m.- 6 p.m.
Eastern Time, or contact your representative.
HOW TO BUY SHARES
Buying shares in IDEX is a three-step process:
1. Select the class of shares you want to buy.
2. Open an account.
3. Pay for the shares.
If you're buying through an IDEX representative, he or she can help you. If
you're investing on your own, here's what to do:
1. Select the class of shares you want to buy
All the Portfolios are available in Class A, B and C shares. (The Growth
Portfolio has Class T shares, but they can be bought only by shareholders who
owned shares of IDEX Fund or IDEX Fund 3 on or before September 20, 1996.)
Which class makes the most sense for you depends on your particular
circumstances and investment goals. It will help with your decision to ask
yourself these questions:
o How much do I intend to invest? For example, Class A and T shares have an
up-front shares charge, but if you invest enough you may get a lower
percentage sales charge or no sales charge at all.
o How long do I intend to keep my shares? Class B shares don't have an
up-front sales charge, but you will have to pay a sales load if you redeem
them during the first six years. This load decreases each year and goes to
zero after six years. Class A, C and T shares are generally not subject to
sales charges when you redeem. However, if you buy $1 million worth or more
of Class A or T shares and thus don't pay an up-front sales charge, you
will pay a deferred sales charge of 1% if you redeem any of those shares
within the first 24 months after buying them, unless they were purchased
through a qualified retirement plan.
o Will I keep my shares long enough so that the higher annual fees paid by
Class B or C shares will add up to more than the up-front sales charge on
Class A or T shares? 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 C shares. Class C shares have lower service
and distribution charges than Class B shares, but they don't convert to
Class A shares automatically. Class T shares have a higher up-front sales
charge, but are not subject to annual distribution and service fees.
The different classes of shares represent interests in the same portfolio of
investments and generally have the same rights. But each class bears separate
expenses and has separate voting rights on matters involving that class.
Dividends and other distributions are calculated in a similar fashion and paid
at the same time for each class of shares. Because they have higher expenses,
Class B and C shares are likely to pay lower income dividends than Class A or T
shares.
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BRIEF COMPARISON OF SHARE CLASSES
Class A Class B Class C Class T
Up-front sales charge Yes No No Yes
Higher ongoing distribution
and service fees No Yes Yes No
Sales charge on redemption No** Yes* No No**
Quantity sales charge discounts Yes No No Yes
available
* 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 24
months of a $1 million purchase on which no up-front sales charge was
imposed, unless the shares were purchased through a qualified retirement
plan.
2. 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 or other retirement account, call or write IDEX for the required
application.
If you already have an account in an IDEX Portfolio, and you want to open an
account in another Portfolio with the same account features, you don't need to
submit an application. Simply call or write to IDEX.
Note: On your application, you must include your Social Security or Taxpayer
Identification Number. If you don't, your account may be subject to backup
withholding or be closed.
The Fund reserves the right to reject any purchase.
3. Pay for Your Shares
The Fund will not accept initial purchases for less than $500 worth of shares
(including the appropriate sales charge) per Portfolio account; however,
purchases through plans for regular investment, like the Automatic Investment
Plan, don't require a minimum initial investment. Investments made after the
initial purchase must be at least $50 per Portfolio account.
For direct investments, if your check, draft or electronic transfer is returned
because of insufficient or uncollected funds or a stop-payment order, the Fund
may charge a $15 fee (through a redemption of shares).
You may buy shares in four ways:
a. By check:
Make check payable to Idex Investor Services, Inc. and send it to:
Idex Investor Services, Inc.
P.O. Box 9015
Clearwater, FL 33758-9015
or
201 Highland Avenue
Largo, FL 33770-2597
(for overnight express deliveries only)
b. By Automatic Investment Plan:
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With an Automatic Investment Plan, you invest a level dollar amount on a regular
basis and have that amount deducted from your bank account on any day between
the 3rd and 28th of the month. Your money will be transferred electronically. To
establish, change or discontinue an Automatic Investment Plan, call or write to
IDEX.
c. By telephone:
You can establish telephone purchase privileges by writing to IDEX, or by
selecting Telephone Purchase in Section 4 of your New Account Application. Funds
to pay for telephone purchases will be transferred electronically from your bank
account to IDEX.
d. Through authorized dealers:
Orders of at least $1,000 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.
The dealer's bank may charge for a wire transfer. IDEX currently does not charge
for this service.
Generally, the Fund must receive your payment within three business days from
when the Fund accepts your dealer's order.
HOW THE SHARES ARE PRICED
To understand this, you must be familiar with two terms: Net Asset Value (NAV)
and Public Offering Price.
The Net Asset Value (NAV) of a share is determined each business day by adding
up the value of all the assets of the Portfolio, subtracting the liabilities,
then dividing by the number of shares outstanding.
The Public Offering Price of a share is its per-share NAV plus any sales charge.
Since Class B and C shares have no up-front sales charges, their public offering
price is simply the NAV.
When you place an order to buy a number of dollars worth of shares, the number
of shares you actually buy depends on the public offering price as it is
determined after IDEX receives and accepts your order. The NAV is determined
separately for each class. Example: If you buy $1,000 worth of Class B shares,
and the NAV is $10, you will receive 100 Class B shares of a Portfolio.
The NAV per share of each class 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 business on the Exchange (currently 4:00 p.m. Eastern time). If your order to
purchase shares is received in proper form, by IDEX by 4:00 p.m. Eastern time,
your transaction will be priced at that day's NAV. If IDEX receives your order
after 4:00 p.m., it will be priced at the next day's NAV.
In determining NAV, portfolio investments are valued at market value.
Investments for which quotations are not readily available are valued at fair
value determined in good faith under the supervision of the Board of Trustees.
Differing expenses incurred by each class result in different NAVs and
dividends. The NAV of Class B and C shares will generally be lower than Class A
shares because Class B and C shares carry higher expenses.
CLASS "A" SHARES
Sales Charges and Fees
When you buy Class A shares, you generally pay an up-front sales charge, as well
as ongoing distribution and service fees up to 0.35% of net assets per year.
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Discounts
You can reduce the up-front sales charge percentage in four ways:
1. By investing larger amounts.
2. 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 purchases.
3. By filing a "letter of intention" to buy enough shares in a 13-month
period to qualify for a reduced sales charge.
4. By investing as part of a qualified group.
1. Discounts by investing in larger amounts
See the tables headed "Class A Share Quantity Discounts" on the pages that
follow.
NOTE: You generally pay no charge when you redeem Class A shares. But if you buy
$1 million worth or more and thus don't pay an up-front sales charge, you will
pay a deferred sales charge of 1% if you redeem any of those shares within the
first 24 months after buying them, unless they were purchased through a
qualified retirement plan. The privilege to purchase Class A shares in amounts
of $1 million or more is not available if another NAV purchase privilege, such
as a discount as a result of right of accumulation, is available to you.
The charge is based on either the current market value or the original cost of
the shares being redeemed, whichever is less. No sales charge is imposed on
increases in net asset value above the initial purchase price.
2. Discounts by a right of accumulation
If you already own Class A shares of certain Portfolios, or Growth Portfolio
Class T shares, you may get a discount when you buy new shares of Portfolios
described in this Prospectus. The value of shares you already own may be
"accumulated"--that is, counted together with the value of the new shares you
buy--to achieve quantities eligible for discount. For more information, ask your
representative or call IDEX Customer Service.
3. Discounts by a Letter of Intention
You may earn a sales charge discount 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.
When you buy under the terms of an LOI, you buy at a discounted offering price
during the period of the LOI. During this period, your purchases are subject to
these rules:
a. The first 5% of what you agree to invest will be put in escrow until
the LOI is complete, or 13 months elapse.
b. Future changes in quantity discounts (breakpoints) will apply to
purchases under the LOI.
c. Sales charge (and share) adjustments will be made if you buy more or
less than you committed to buy during the LOI period.
d. Shares bought up to 90 days before an LOI may be counted toward your
commitment. The LOI, however, will start on the day of the first
purchase included under it.
e. Right of accumulation can apply to an LOI. That is, the current value
of all prior Class A purchases that had a sales charge can be counted
towards fulfilling the LOI, but sales charges on the prior purchases
will not be adjusted.
f. Dividends and capital gains must be reinvested in additional shares.
No cash distributions are allowed on accounts with an LOI.
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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.
4. Discounts for a qualified group
Members of a qualified group may buy Class A shares at a reduced sales charge
within a specified period. In reducing the charge, IDEX takes into account how
much the group intends to buy. A "qualified group" is one which:
a. has been in existence for more than six months,
b. has a purpose other than to acquire shares of the Portfolio or similar
investments, and
c. satisfies uniform criteria that allows IDEX and other dealers offering
Portfolio shares to realize economies of scale.
Pension or other employee benefit plans may be eligible for qualified group
purchases. The Fund reserves the right to change or terminate this privilege at
any time. For information about qualifying groups, call IDEX Customer Service.
Waiver of Sales Charges for Certain Individuals
Class A shares may be sold without sales charges to:
o Current or former trustees, directors, officers, full-time employees
or sales representatives of the Fund, IMI, ISI, Alger Management,
Scottish Equitable, GEIM, Janus Capital, C.A.S.E., NWQ, Luther King,
Dean Investment, AIMI, or any of their affiliates.
o Directors, officers, full-time employees and sales representatives of
dealers having a sales agreement with ISI.
o Any trust, pension, profit-sharing or other benefit plan for any of
the foregoing persons.
o Any family members of the foregoing persons.
o "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.
Dealer Reallowances
IDEX sells shares of its Portfolios both directly and through authorized
dealers. When you buy shares, your Portfolio receives the entire NAV. ISI keeps
the sales charge, then "reallows" a portion to the dealers through which shares
were purchased. This is how dealers are compensated.
From time to time, ISI will create special promotions in which dealers earn
larger reallowances in return for selling significant amounts of shares or 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, in accordance with the
rules of the NASD.
Reallowances may also be given to 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 or financial institutions from its own funds for
administrative services for larger accounts.
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Class A Share Quantity Discounts
Aggressive Growth Portfolio
International Equity Portfolio
Capital Appreciation Portfolio
Global Portfolio
Growth Portfolio
C.A.S.E. Portfolio
Value Equity Portfolio
Strategic Total Return 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
Under $50,000 5.50% 4.75% 5.82%
$50,000 to under $100,000 4.75% 4.00% 4.99%
$100,000 to under $250,000 3.50% 2.75% 3.63%
$250,000 to under $500,000 2.75% 2.25% 2.83%
$500,000 to under $1,000,000 2.00% 1.75% 2.04%
$1,000,000 and over 0.00% 1.00%* 0.00%
* This is not a charge incurred by shareholders. ISI, at its own expense, from
time to time may make the following payments: 1% of the NAV of shares sold in
amounts of $1,000,000 to under $2,500,000; .75% of the NAV of shares sold in
amounts of $2,500,000 to under $4,000,000; .50% of the NAV of shares sold in
amounts of $4,000,000 to under $5,000,000; and .25% of the NAV of shares sold in
amounts of $5,000,000 and over. The privilege of buying Class A shares at NAV in
amounts of $1,000,000 or more is not available if another NAV purchase privilege
is also available at the same time.
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
Under $50,000 4.75% 4.00% 4.99%
$50,000 to under $100,000 4.00% 3.25% 4.17%
$100,000 to under $250,000 3.50% 2.75% 3.63%
$250,000 to under $500,000 2.25% 1.75% 2.30%
$500,000 to under $1,000,000 1.25% 1.00% 1.27%
$1,000,000 and over 0.00% 0.50%* 0.00%
* This is not a charge incurred by shareholders. ISI, at its own expense, from
time to time may make the following payments: .50% of the NAV of shares sold in
amounts of $1,000,000 to under $2,500,000; .35% of the NAV of shares sold in
amounts of $2,500,000 to under $4,000,000; .20% of the NAV of shares sold in
amounts of $4,000,000 to under $5,000,000; and .15% of the NAV of shares sold in
amounts of $5,000,000 and over. The privilege of buying Class A shares at NAV in
amounts of $1,000,000 or more is not available if another NAV purchase privilege
is also available at the same time.
<PAGE>
CLASS "B" SHARES
Charges and Fees
When you buy Class B shares, you pay no up-front sales charge. You pay
distribution and service fees up to 1.00% per year as long as you own Class B
shares. When you redeem your shares, you may incur a sales charge, which
decreases year by year. Class B shares convert to Class A shares automatically
after eight years.
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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%
Here's how the amount subject to sales charge is determined:
o Dividends and capital gains, either in cash or reinvested shares, are
not subject to the sales charge.
o There is no sales charge on any increase in value of your shares.
o If your shares are worth less than when you bought them, the charge
will be assessed on their current, lower value.
o When you put in an order to redeem Class B shares, IDEX always sells
the longest held shares first, then the next longest held, etc., 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 Share Dealer Reallowances
Aggressive Growth Portfolio, International Equity Portfolio, Capital
Appreciation Portfolio, Global Portfolio, Growth Portfolio, C.A.S.E. Portfolio,
Value Equity Portfolio, Strategic Total Return Portfolio, Tactical Asset
Allocation Portfolio, Balanced 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, Income Plus Portfolio, Tax-Exempt Portfolio
Amount of Class B Shares Purchased Dealer Reallowance %
Up to $250,000 3.00%
$250,000 to $500,000 2.00%
Class B shares are not sold in amounts over $500,000. Besides 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 13th month after their
sale.
Waivers of Sales Charges
The sales charge on Class B shares may be waived in these circumstances:
o Following the death of the shareholder.
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o Following the total disability of the shareholder, as determined by
the Social Security Administration (applies only to shares held at the
time the disability is determined).
o On redemptions made under the Fund's systematic withdrawal plan, but
each year this amount may not exceed 12% of the value of the account
on the date the systematic withdrawal plan was established. The Fund's
systematic withdrawal plan is discussed in more detail later in this
Prospectus.
o Within 90 days of redeeming Class B shares of one Portfolio, if you
reinvest the proceeds in Class B shares of another Portfolio, the
sales charge on the first redemption will be waived.
o On withdrawals from IRS qualified and nonqualified retirement plans,
individual retirement accounts, tax-sheltered accounts, and deferred
compensation plans, where such withdrawals are permitted under the
terms of the plan or account (e.g., attainment of age 59 1/2,
separation from service, death, disability, loans, hardships,
withdrawals of excess contributions pursuant to applicable IRS rules
or withdrawals based on life expectancy under applicable IRS rules).
This waiver does not include transfer of asset redemptions, broker
directed accounts or omnibus accounts.
See the SAI for complete information about Class B share sales charge waivers.
CLASS "C" SHARES
Charges and Fees
When you buy Class C shares, you pay no up-front sales charge. As long as you
own them, you will be charged distribution and service fees of up to .90% per
year. The Tax-Exempt Portfolio currently limits these fees to no more than .60%
of average daily net assets attributable to Class C shares.
Dealer Reallowances
Currently, ISI pays dealers a distribution fee of no more than .90% per year of
the average daily net assets of Class C shares the dealer sells.
CLASS "T" SHARES
(not available to new investors)
Sales Charges
When you buy Class T shares of the Growth Portfolio, you generally pay an
up-front sales charge. You can reduce the sales charge percentage in the same
four ways that are described above under Class A Shares. Class T shares are not
subject to annual distribution and service fees.
You generally pay no sales charge when you redeem Class T shares. As with Class
A shares, 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 24 months after buying them,
unless they were purchased through 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.
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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
Under $10,000 8.50% 7.00% 9.29%
$10,000 to under $25,000 7.75% 6.25% 8.40%
$25,000 to under $50,000 6.25% 5.50% 6.67%
$50,000 to under $75,000 5.75% 5.00% 6.10%
$75,000 to under $100,000 5.00% 4.25% 5.26%
$100,000 to under $250,000 4.25% 3.75% 4.44%
$250,000 to under $500,000 3.00% 2.50% 3.09%
$500,000 to under $1,000,000 1.25% 1.00% 1.27%
$1,000,000 and over 0.00% 1.00%* 0.00%
* This is not a charge incurred by shareholders. ISI, at its own expense, from
time to time may make the following payments: 1% of the NAV of shares sold in
amounts of $1,000,000 to under $2,500,000; .75% of the NAV of shares sold in
amounts of $2,500,000 to under $4,000,000; .50% of the NAV of shares sold in
amounts of $4,000,000 to under $5,000,000; and .25% of the NAV of shares sold in
amounts of $5,000,000 and over. The privilege of buying Class T shares at NAV in
amounts of $1,000,000 or more is not available if another NAV purchase privilege
is also available at the same time.
Waiver of Sales Charges to Certain Individuals
Class T shares of a Portfolio may be sold without sales charges to:
o Current or former trustees, directors, officers, full-time employees
or sales representatives of the Fund, IMI, ISI, Alger Management,
Scottish Equitable, GEIM, Janus Capital, C.A.S.E., NWQ, Luther King,
Dean Investment, AIMI, or any of their affiliates.
o Directors, officers, full-time employees and sales representatives of
dealers having a sales agreement with ISI.
o Any trust, pension, profit-sharing or other benefit plan for any of
the foregoing persons.
o Any family members of the foregoing persons.
o "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.
HOW TO REDEEM (SELL) SHARES
In this section, the words "redeem" and "sell" with regard to your shares have
the same meaning. This section describes selling shares for cash. For other
circumstances, see Redemption of Shares in the SAI.
When you may redeem
You may redeem your shares at any time. Your transaction will be processed at
the NAV on the day your redemption request is received in proper form.
Redemption and repurchase of shares may be suspended or payment postponed during
any period when the Exchange is closed or trading on the Exchange is restricted.
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When to expect your money
IDEX will normally pay you for your shares within three days of receiving a
valid redemption request. However, shares purchased by check or electronically
are not considered part of your available balance for 15 days. Therefore, IDEX
may not send payment of such proceeds for up to 15 days from the purchase date
to allow for sufficient clearing time. You may avoid this delay by purchasing
shares using either a cashiers' check, certified check or electronic funds
transfer.
Payment by check will be sent by first-class mail. If you want overnight
delivery and if the service is available to your address, IDEX will use this
mail service for a $20 service charge. See below for other payment options.
As described under "How to Buy Shares," above, on Class B and certain Class A
shares, you will be charged a contingent deferred sales charge when you redeem
them.
How to Redeem Shares By Mail
Send your redemption request to:
Idex Investor Services, Inc.
Attention: Redemptions
P.O. Box 9015
Clearwater, FL 33758-9015
Your redemption request must be signed by the owner(s) of the account, or by a
person authorized to act for the owner(s). If the shares are held in the name of
a corporation, partnership or trust, you must include written evidence of the
authority of the person making the redemption.
o 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.
o If you have the share certificates, they must be returned.
o Your signature(s) may have to be guaranteed.
Signature Guarantees
For your protection, a signature guaranteed written request will be required for
the following transactions:
o Redemption requests larger than $100,000.
o Redemption requests of any size made for an account where the address
has been changed within the past 10 days.
o Redemptions by check made payable to someone other than the name(s) on
the account or sent to an address other than the address of record.
o Redemptions by Federal funds bank wire to a bank that is not
pre-designated on your account.
o Requests to change the registered owners of an account.
o Requests to change systematic withdrawal plan or cash dividend payment
details.
This guarantee must be made by a national or state bank, a member firm of 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 under certain other circumstances.
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How to Redeem Shares by Telephone and Get Your Money by Check
You may redeem shares by phone in amounts up to $50,000 per day and receive your
money by check unless you have declined this privilege on the New Account
Application. Call (888) 233-4339 (toll free) to request a phone redemption.
The Fund, ISI and IDEX are not liable for complying with telephone instructions
which are believed by the Fund, ISI and IDEX to be genuine. The Fund, ISI and
IDEX will employ reasonable procedures to make sure telephone instructions are
genuine. In situations where the Fund, ISI and IDEX reasonably believe they were
acting on genuine telephone instructions, you bear the risk of loss. These
procedures may include requiring personal identification, providing written
confirmation of transactions, and tape recording conversations. The Fund has the
right to modify the telephone redemption privilege.
Telephone redemption with payment by check is not allowed in the following
situations:
o For shares that have not yet become part of your available balance
(generally those purchased by check or electronically within the past
15 days).
o For retirement accounts (except IRAs, which will be subject to 10%
withholding).
o For shares of which you have the physical certificates.
o For accounts where the address has been changed within the past 10
days.
If the account is held in more than one name, IDEX, provided the
accountholder(s) have not declined the telephone redemption privilege on the New
Account Application, may accept a telephone sale order from any one account
holder. Your registered representative may redeem shares on your behalf by
telephone unless you have declined the telephone redemption privilege on your
New Account Application.
How to Redeem Shares by Telephone and Get Your Money Electronically (Direct
Deposit)
You may redeem up to $50,000 worth of shares per account per day by phone and
have your money sent electronically 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 want to add this privilege, mail a
signature-guaranteed letter and a voided check to IDEX. Electronic 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, a $10 fee will be charged
and will be deducted from your IDEX account. The receiving bank may also charge
you a fee. Federal funds wire transfers require a minimum redemption of $1,000.
If you don't have the wire transfer privilege, and don't 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 and including a voided check. Such a wire redemption request requires a
signature guarantee.
How to Redeem Shares Through a Dealer
You may also redeem through registered securities dealers. It's 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.
How to Redeem Shares Automatically-Monthly, Quarterly or Annually
You may set up a systematic withdrawal plan ("SWP") on your New Account
Application or by calling Customer Service to get the forms. To establish an
SWP, you must:
o Have an account worth at least $10,000 (no minimum for IRA accounts).
o Withdraw at least $50 with each redemption.
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o Withdraw no more than 12% annually of the value of your account, if
you own Class B shares.
You can get your money by direct deposit to your bank account or by check to
your address of record. Withdrawals paid by direct deposit can be made on any
day you select between the 3rd and 28th of the month. Withdrawals paid by check
are available only on a fixed date each month, which is normally seven to ten
days before the first of the month. The Fund cannot guarantee that you'll
receive your money exactly by the date you select.
Before you set up an SWP, be aware of these conditions:
o If an SWP is established on a new account, the initial disbursement
cannot normally be made within 15 days of your initial purchase to
allow for collection of funds.
o Dividends and capital gains on accounts with an active SWP must be
reinvested.
o If the requested payments under an SWP require sale of more shares
than have been credited, your original investment may be depleted and
ultimately exhausted.
o Payments under an SWP may be taxable.
o If you have an SWP in a Portfolio and are simultaneously buying shares
in it, you'll pay more in sales charges than you have to.
o 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 accountholder's
death.
Reinvestment Privilege
If you sell Class A, B or T shares, you may repurchase 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 check accompanied by a
written request to IDEX within 90 days after you sell your shares. IDEX reserves
the right to modify or eliminate this privilege at any time. Certain
distributions from qualified plans are not eligible.
When you exercise the reinvestment privilege:
o You may reinvest the proceeds of a Class B share sale in other Class B
shares, and your new shares will be considered the same age as your
old shares. For example, if you sell three-year-old shares and buy new
shares, the new shares will be considered three years old, and
therefore subject to a smaller contingent deferred sales charge;
o The contingent deferred sales charge you paid when you sold your Class
B shares will also be reinvested in new Class B shares;
o You may reinvest the proceeds of a Class B share sale (less the
contingent deferred sales charge) in Class A shares without paying the
up-front charge on the Class A shares.
HOW TO EXCHANGE SHARES
You may exchange shares of one Portfolio for shares in the same class of another
Portfolio of the Fund or for any of the three portfolios of the Cash Equivalent
Fund ("Money Market Funds") without incurring a sales charge at the time of the
exchange. Exchanges may be requested by telephone or in writing. You
automatically have the telephone exchange privilege unless you decline it on
your New Account Application. Exchanges will be effected as of the end of the
day when your exchange request is received, if it is received before the close
of the Exchange, normally 4:00 p.m. Eastern time. These restrictions apply:
o Exchanges must be made in amounts of $500 or more.
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o You may exchange Class A shares for A shares, Class B shares for B
shares, and Class C shares for C shares in any of the Portfolios.
o Class T Shares may be exchanged only for Class A shares of the IDEX
Portfolios other than the Growth Portfolio. Class A shares of all IDEX
Portfolios are subject to 12b-1 distribution and service fees.
o You may not exchange other classes of shares of the IDEX Portfolios
for Class T Shares.
o The Fund reserves the right to limit exchanges or modify or terminate
the exchange privilege at any time.
With Class B shares, the contingent deferred sales charge will be calculated
from the date you bought your original shares. This means your new shares will
be the same age as your old shares, so your sales charge will not increase
because of the exchange.
You may exchange all the shares in one account for shares in another account.
All special features of the old account, such as Automatic Investment Plan,
Letter of Intention, and Systematic Withdrawal Plan, will be transferred to the
new account, unless you instruct otherwise.
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
features except Automatic Investment Plan and Systematic Withdrawal Plan will be
transferred to the new account, unless you instruct otherwise.
There is currently not a fee for exchanges. However, if you request three or
more exchanges in a calendar quarter, a $10 service fee per exchange will be
charged on the accounts from which shares are being exchanged. This fee has been
imposed to deter the practice of timing the market and to defray the costs of
maintaining an automated exchange service for accounts wherein transactions are
based upon certain pre-determined market indicators ("Timing Accounts"). An
account will be deemed a Timing Account if three or more requests to exchange
from a Portfolio are made in any calendar quarter. Systematic exchanges,
dividend reinvestment to a different Portfolio and exchanges from Money Market
Funds are excluded from this service fee.
Before making an exchange into a Fund or Portfolio which is new to you, read the
Prospectus carefully. You can order Prospectuses by calling or writing IDEX
Customer Service.
Telephone Exchanges
Call IDEX Customer Service at (888) 233-4339 (toll free) to request a telephone
exchange. New shares you acquire by telephone exchange must be registered in
exactly the same name as the shares sold, and exchanges generally can only be
made between accounts registered in the name of the same shareholder(s)
(including newly established shareholder accounts).
Systematic Exchanges
You may choose to exchange shares of the same class automatically at regular
intervals from one Portfolio to another in the same way you would set up a
Systematic Withdrawal Plan. You can do it either on your New Account
Application, or by calling or writing IDEX. All exchange restrictions described
above also apply to systematic exchanges. In addition, new shares you acquire by
systematic exchange must be registered in exactly the same name as the shares
sold. Systematic Exchanges can only be made between accounts registered in the
name of the same shareholder(s) (including newly established shareholder
accounts).
Money Market Fund Exchange Privilege
You may exchange Class A, C or T shares for any of the Money Market Funds. You
may exchange Class B shares only for the Class B Cash Equivalent Money Market
Portfolio. You may request a Money Market Fund exchange by calling or writing
IDEX Customer Service.
Systematic exchanges may also be made between the Money Market Funds and the
Portfolios of the Fund.
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 received
before the close of the Exchange, normally 4:00 p.m. Eastern time.
Sales charges will be applied to exchanges from Money Market Funds when you
originally invest in the Money Market Funds and then decide to exchange for
shares of a Portfolio of the Fund.
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The Money Market Funds, which are separately managed by Scudder Kemper
Investments, Inc., are open-end, diversified money market mutual funds. The
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.
Special Rules for Class B Shares 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 won't be charged a contingent deferred
sales charge. You'll be charged the sales charge if you later sell the Class B
shares of the Cash Equivalent Money Market Portfolio, but the time you held them
will not count toward figuring the sales charge.
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. But 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
held 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 IMPORTANT INFORMATION
Minimum Account Balance
If your account balance falls below $500 due to redemptions, a $10 fee will be
charged twice a year. If your account falls below $250 because of redemptions,
it will be liquidated and a check will be mailed to your address of record.
Class B accounts will have applicable sales charges deducted.
No minimum account fees will be charged on:
o Accounts opened within the preceding 24 months;
o Accounts with an active monthly Automatic Investment Plan ($50 minimum
per account); or
o Accounts owned by individuals whose multiple accounts with the same
Social Security number have a combined balance totaling $5,000 or
more.
Currently, before a minimum account fee is assessed or an account is liquidated,
you'll be given 60 days notice and will have the opportunity to increase the
account balance to at least $500 or to start a monthly Automatic Investment
Plan. The Fund reserves the right to change these minimum account rules, subject
to regulatory requirements.
Repurchase Arrangements
For your convenience, 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
All classes of shares may be purchased in qualified retirement plans, including
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.
Retirement plan accounts naming IFTC as custodian are ordinarily charged a $15
per year maintenance fee, with a maximum of $30 per year per taxpayer ID number.
If the combined balances of such accounts with the same taxpayer ID number,
under IFTC as custodian, are more than $50,000, there's generally no fee.
The SAI contains more information about retirement plans. Consult with your tax
adviser about tax issues in such plans.
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How Transactions Are Confirmed
After most account transactions, you'll receive a statement showing the details
of the transaction. In addition, you'll receive a quarterly statement which
details all your financial transactions for the period indicated, including
dividend and capital gain distributions as well as your electronic transactions.
Historical Statements. You may order a historical statement covering years
before the current year.
Share Certificates. Account holders ordinarily don't want share certificates.
Shares are normally recorded on the Fund's books and no certificates are issued.
You may, however, get certificates for your shares, with these limitations:
o No certificates will be issued for fractional shares.
o 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.
o Certificates are issued only as your account is registered.
o Certificates are not issued for retirements plan accounts with IFTC as
custodian.
If you want certificates representing your shares, call or write IDEX to request
them. You may return share certificates to IDEX for re-deposit at any time.
Notify IDEX immediately if your certificates are lost or stolen. There may be a
charge for canceling and replacing lost or stolen share certificates. Remember
that if you ask for a certificate for your shares, you won't be able to redeem
or exchange your shares by telephone. You'll have to send your share certificate
to IDEX in order to redeem or exchange those shares.
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, each Portfolio, other than the Tax-Exempt
Portfolio, may invest directly in foreign securities denominated in a foreign
currency and not publicly traded in the United States.
o The Growth, Balanced, Capital Appreciation, Aggressive Growth,
Tactical Asset Allocation, C.A.S.E., Income Plus and Value Equity
Portfolios may invest up to 25% of their individual net assets,
directly or indirectly, in foreign securities.
o The Global and International Equity Portfolios may invest without
limit in foreign securities.
o The Strategic Total Return Portfolio may invest up to 25% of its net
assets directly or indirectly in foreign securities, provided that no
more than 10% of its total assets may be invested directly in such
securities denominated in foreign currency and not publicly traded in
the United States.
o The Flexible Income Portfolio may invest up to 50% of its net assets,
directly or indirectly, in foreign securities, provided that no more
than 25% of its total 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.
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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
Each of the Portfolios, other than the Tax-Exempt and Income Plus 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 -- for example, to protect
portfolio positions against market or currency swings, to gain market exposure
for accumulating and residual cash balances pending investment in securities, to
adjust a Portfolio's overall maturity duration, or to reduce the risk inherent
in the management of the Portfolio involved.
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 Value Equity, Strategic Total Return and Tactical Asset Allocation
Portfolios do not currently intend to purchase or sell any derivatives during
the fiscal year ending October 31, 1998. 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.
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:
o 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.
o The Portfolio does not intend to write any put options.
o The Portfolio may buy only those options listed on a national
securities exchange.
o 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.
o No more than 5% of the Portfolio's total assets will be committed to
non-hedging transactions.
o 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 total 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.
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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.
The Value Equity Portfolio does not currently intend to invest in these types of
securities during the fiscal year ending October 31, 1998, although it may do so
in the future.
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 that invests primarily in equity securities may invest in
convertibles as a substitute for common stock. When investing in convertible
debt securities, each Portfolio will evaluate them 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.
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"). 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.
See Appendix B for more information.
Illiquid Securities
Each of the Portfolios, other than the Tax-Exempt and Income Plus 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
their net assets in such securities.
Securities may be considered illiquid if there is no readily available market
for them, or if 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
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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. To the extent such securities are determined to be
liquid, they will not be subject to the percentage limitations described above.
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 and Value Equity
Portfolios, may invest as much as 10% of their assets in zero coupon bonds, step
coupon bonds, pay-in-kind securities or strips.
o 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.
o Step coupon bonds sell at a discount and pay a low coupon rate for an
initial period, then pay a higher coupon rate thereafter.
o Pay-in-kind securities may pay interest in cash or in the form of a
similar bond or other asset.
o 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.
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.
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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.
Debt Securities
None of the Portfolios, other than the Value Equity, Strategic Total Return,
Flexible Income and Income Plus Portfolios, may invest more than 5% of its net
assets in high yield/high risk bonds, commonly referred to as "junk bonds." Junk
bonds are bonds that are rated below investment grade and normally involve
greater risk than investment grade securities. (See Additional Risk Factors.)
The Flexible Income Portfolio may invest without limit, the Income Plus
Portfolio may invest up to 50% of its total assets, and each of the Value Equity
and Strategic Total Return Portfolios may invest up to 10% of its total assets,
in junk bonds, or in the case of the Value Equity and Strategic Total Return
Portfolios, in convertible securities rated lower than investment grade.
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 Tactical Asset Allocation Portfolio 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 a sub-adviser's opinion,
are equal in quality to a 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.
Other Investment Companies
Certain of the Portfolios may invest in securities issued by other investment
companies, within limits described in the SAI and in accordance with the 1940
Act. These limitations do not apply to investments by the International Equity
Portfolio in the GEI Short-Term Investment Fund, as described under How the
Portfolios Invest - Cash Positions and Debt Investing by Stock Portfolios. A
Portfolio may 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 such Portfolio.
The International Equity Portfolio may invest in investment funds which have
been authorized by the governments of certain countries specifically to permit
foreign investment in securities of companies listed and traded on the stock
exchanges in these countries.
Bank Obligations
Subject to its investment policy, during temporary defensive periods or for
investment of incidental cash balances and short-term cash management, a
Portfolio may invest up to 100% of its assets in bank obligations such as CDs or
time deposits. Certain characteristics of the banking industry and the possible
risks of such investments might be:
o banks are subject to extensive governmental regulations which may
limit the amounts and types of loans and other financial commitments,
as well as interest rates and fees which may be charged;
o profitability is largely dependent upon the availability and cost of
capital funds for the purpose of financing lending operations under
prevailing money market conditions; and
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o exposure to credit losses arising from possible financial difficulties
of borrowers might affect a bank's ability to meet its obligations.
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 and Concentration
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. With respect to 75% of its total assets,
a diversified investment company may not purchase the securities of any one
issuer (other than government securities), if immediately after and as a result
of such purchase, the value of the holdings of the securities of such issuer
exceeds 5% of the value of the Portfolio's total assets, or the Portfolio owns
more than 10% of the outstanding voting securities of any one class of
securities of such issuer. The Capital Appreciation Portfolio is a
nondiversified investment company.
As a fundamental policy governing concentration, each of the Portfolios will not
invest 25% or more of total assets in any one particular industry, other than
U.S. government securities.
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
o owns more than 10% of the outstanding voting securities of that
issuer; or
o 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 IDEX Series Fund - Introduction to the Portfolios: Investment Practices
and Risks for a discussion of the individual Portfolios' diversification styles.
Portfolio Turnover
Although it is the policy of each Portfolio, other than the Tax-Exempt and
Income Plus 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:
o liquidity needs;
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o securities having reached a price or yield objective;
o anticipated changes in interest rates or the credit standing of an
issuer; or
o 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 Value Equity Portfolio will not normally engage
in short-term trading, but reserves the right to do so.
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
the 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 (100% or more) 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.
Cash Positions and Debt Investing by Stock Portfolios
The Portfolios may at times choose to hold some portion of their 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.
The International Equity Portfolio may also invest in the GEI Short-Term
Investment Fund (the "Investment Fund"), an investment fund created specifically
to serve as a vehicle for the collective investment of cash balances of the
Portfolio and other accounts advised by GEIM or its affiliate, General Electric
Investment Corporation ("GEIC"). The Investment Fund invests exclusively in the
money market instruments described in (i) through (vii) below. The Investment
Fund is advised by GEIM. No advisory fee is charged by GEIM to the Investment
Fund, nor will a Portfolio incur, directly or indirectly, any sales charge,
redemption fee, distribution fee or service fee in connection with its
investments in the Investment Fund. The Portfolio may invest up to 25% of its
total assets in the Investment Fund. The types of money market instruments in
which the International Equity Portfolio may invest directly or indirectly
through its investment in the Investment Fund are as follows: (i) securities
issued or guaranteed by the U.S. government or one of its agencies or
instrumentalities; (ii) debt obligations of banks, savings and loan
institutions, insurance companies and mortgage bankers; (iii) commercial paper
and notes, including those with variable and floating rates of interest; (iv)
debt obligations of foreign branches of U.S. banks, U.S. branches of foreign
banks and foreign branches of foreign banks; (v) debt obligations issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities, including obligations of
supranational entities; (vi) debt securities issued by foreign issuers; and
(vii) repurchase agreements. The Investment Fund is not registered with the SEC
as an investment company.
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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, other than the Aggressive Growth Portfolio, may borrow money
from banks for temporary or emergency purposes. The amount borrowed shall not
exceed 25% of total assets for the Capital Appreciation, Global, Growth,
C.A.S.E., Strategic Total Return, Tactical Asset Allocation, Balanced and
Flexible Income Portfolios, 33 1/3% of total assets for the International
Equity, Income Plus and Tax-Exempt Portfolios, and 10% of total assets for the
Value Equity Portfolio.
To secure borrowings, a Portfolio may not mortgage or pledge its securities in
amounts that exceed 15% of its net assets for the International Equity, Capital
Appreciation, Global, Growth, C.A.S.E., Strategic Total Return, Tactical Asset
Allocation, Balanced and Flexible Income Portfolios, and 10% of net assets for
the Value Equity, Income Plus and Tax-Exempt Portfolios.
The Tactical Asset Allocation Portfolio does not currently intend to borrow.
The Capital Appreciation, Global, Growth, Balanced and Flexible Income
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, provided that
Janus Capital obtains 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.
o 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.
o Leveraging may exaggerate the effect on net asset value of any
increase or decrease in the market value of the Portfolio's
securities.
o Money borrowed for leveraging will be subject to interest costs. In
certain cases, interest costs may exceed the return received on the
securities purchased.
o 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 Portfolio 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% (or 30% in the case of the International Equity Portfolio)
of total assets would be lent to other parties. In practice, at this time, none
of these Portfolios intends 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 each
Portfolio, other than the Income Plus and Tax-Exempt 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:
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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.
In addition, political instability may also contribute to weakness in the
regulation and oversight of the capital markets and financial institutions in
such countries. Such weaknesses may lead to increased volatility in the
securities markets and increase the costs of investing in these markets.
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
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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 or exposed, 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").
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 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.
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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.
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:
o a new product or process;
o a management change;
o a technological breakthrough;
o an extraordinary corporate event; or
o 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 the Fund's
ownership, organization and management.
Trustees
The Board of Trustees is responsible for managing the business and affairs of
the 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.
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Capital Appreciation, Global, Growth, Balanced and Flexible Income 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
Capital Appreciation, Global, Growth, Balanced and Flexible Income (and its
predecessor, IDEX Total Income Trust) 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.
Each Portfolio pays 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.
Advisory Fee Reimbursement
IMI will reimburse each of these Portfolios, other than the Global 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 1.50% of that Portfolio's
average daily net assets. The Global Portfolio does not have an expense
limitation.
Aggressive Growth, International Equity, C.A.S.E., Value Equity, Strategic Total
Return, Tactical Asset Allocation, Income Plus and Tax-Exempt 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 IDEX Series Fund Aggressive Growth, International
Equity, C.A.S.E., Value Equity, Strategic Total Return, Tactical Asset
Allocation, Income Plus and Tax-Exempt Portfolios since the inception of each
Portfolio. 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 Fund officers. In addition, ISI
is responsible for the administration of each of these Portfolios.
Each Portfolio pays 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.
Advisory Fee Reimbursement
ISI will reimburse the following Portfolios or waive fees, or both, to the
extent that each 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 following percentages of each Portfolio's average daily
net assets: Tax-Exempt Portfolio, 1.00%; Income Plus Portfolio, 1.25%;
Aggressive Growth, C.A.S.E., Value Equity, Strategic Total Return and Tactical
Asset Allocation Portfolios, 1.50%; and International Equity Portfolio 1.75%
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<TABLE>
<CAPTION>
ACTUAL ADVISORY FEE RATIOS FOR TOTAL ACTUAL EXPENSE RATIOS FOR THE FISCAL
THE FISCAL YEAR ENDED YEAR ENDED OCTOBER 31, 1997,
OCTOBER 31, 1997 INCLUDING THE INVESTMENT ADVISORY FEE.
PERCENTAGE OF AVERAGE PERCENTAGE OF AVERAGE
DAILY NET ASSETS DAILY NET ASSETS
CLASS A CLASS B CLASS C CLASS T
<S> <C> <C> <C> <C> <C> <C>
Class A Class B Class C Class T
Capital Appreciation* 0.19% Capital Appreciation* 1.85% 2.50% 2.40% --
Global 1.00% Global 1.91% 2.56% 2.46% --
Growth 0.95% Growth 1.61% 2.26% 2.16% 1.26%
Balanced* 0.00% Balanced* 1.85% 2.50% 2.40% --
Flexible Income* 0.35% Flexible Income* 1.85% 2.50% 2.40% --
*Net of fees waived by IMI *Net of fees waived by IMI
</TABLE>
<TABLE>
<CAPTION>
ADVISORY FEE SCHEDULE
CAPITAL
AVERAGE DAILY NET ASSETS APPRECIATION GLOBAL GROWTH BALANCED FLEXIBLE INCOME
<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 OCTOBER 31, 1997,
OCTOBER 31, 1997 INCLUDING THE INVESTMENT ADVISORY FEE.
PERCENTAGE OF AVERAGE PERCENTAGE OF AVERAGE
DAILY NET ASSETS DAILY NET ASSETS
CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C>
Aggressive Growth* 0.40% Aggressive Growth* 1.85% 2.50% 2.40%
International Equity* 0.00% International Equity* 1.70% 2.35% 2.25%
C.A.S.E.* 0.00% C.A.S.E.* 1.85% 2.50% 2.40%
Value Equity* 0.00% Value Equity* 1.50% 2.15% 2.05%
Strategic Total Return* 0.57% Strategic Total Return* 1.85% 2.50% 2.40%
Tactical Asset Allocation* 0.55% Tactical Asset Allocation* 1.85% 2.50% 2.40%
Income Plus 0.60% Income Plus 1.27% 1.92% 1.82%
Tax-Exempt* 0.00% Tax-Exempt* 1.00% 1.65% 1.25%
*Net of fees waived by ISI *Net of fees waived by ISI
</TABLE>
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<TABLE>
<CAPTION>
ADVISORY FEE SCHEDULE
STRATEGIC TACTICAL
AGGRESSIVE INTERNATIONAL VALUE TOTAL ASSET INCOME TAX-
AVERAGE DAILY NET ASSETS GROWTH EQUITY C.A.S.E. EQUITY RETURN ALLOCATION PLUS EXEMPT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First $750 million 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.60% 0.60%
the next $250 million 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.60% 0.60%
over $1 billion 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.60% 0.60%
</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 Capital Appreciation, Global, Growth, Balanced
and Flexible Income 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.
The ownership of IMI by AUSA and Janus Capital is the subject of an agreement
among IMI, AUSA and Janus Capital (the "joint venture agreement") that currently
expires no later than March 31, 1998. It is anticipated that the joint venture
agreement will be further extended. As of the date of this Prospectus, AUSA and
Janus Capital are engaged in discussions regarding the acquisition by AUSA of
the 50% of the outstanding stock of IMI that is currently owned by Janus
Capital, which would result in IMI becoming a wholly-owned subsidiary of AUSA.
Under the 1940 Act, a change in control of IMI would generally trigger an
"assignment" and termination of the Advisory Agreements and Investment Counsel
Agreements relating to the Capital Appreciation, Global, Growth, Balanced and
Flexible Income Portfolios. New Advisory Agreements and Investment Counsel
Agreements relating to each of these Portfolios are subject to the approval of
the Board of Trustees, and a majority of outstanding voting securities of such
Portfolio.
Sub-Advisers
Janus Capital, AIMI, Alger Management, Luther King, Dean Investment, C.A.S.E.,
NWQ, Scottish Equitable and GEIM, 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."
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 December 31, 1997, Alger
Management had approximately $7.8 billion in assets under management for
investment companies and
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<PAGE>
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 broker/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.
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.
International Equity Portfolio
Scottish Equitable, Edinburgh Park, Edinburgh EH12 9SE, Scotland, a wholly-owned
subsidiary of Scottish Equitable plc and an indirect wholly-owned subsidiary of
AEGON nv, serves as an investment sub-adviser to the International Equity
Portfolio. Scottish Equitable plc is successor to Scottish Equitable Life
Assurance Society, which was founded in Edinburgh in 1831. As of December 31,
1997, Scottish Equitable plc had approximately $2.4 billion in assets under
management. Scottish Equitable currently provides investment advisory and
management services to certain of its affiliates, including Scottish Equitable
plc, and to other external organizations.
GEIM, 3003 Summer Street, Stamford, Connecticut 06905, a wholly-owned subsidiary
of General Electric Company, also serves as an investment sub-adviser to the
International Equity Portfolio. GEIM's principal officers and directors serve in
similar capacities with respect to GEIC, also a wholly-owned subsidiary of
General Electric Company. GEIC serves as investment adviser to various GE
pension and benefit plans and certain employee mutual funds. GEIC and GEIM (and
their predecessors) together have approximately 70 years of investment
management experience, and have managed mutual funds since 1935. Together, as of
December 31, 1997, GEIM and GEIC managed assets in excess of $69 billion, of
which more than $15.6 billion is invested in mutual funds.
GEIM and Scottish Equitable also serve as the investment sub-advisers to the WRL
Series Fund, Inc. International Equity Portfolio; and GEIM serves as the
investment sub-adviser to the WRL Series Fund, Inc. U.S. Equity Portfolio.
Scottish Equitable and GEIM provide ISI with investment advice and
recommendations for the International Equity Portfolio consistent with that
Portfolio's investment objective, policies and restrictions, and supervise 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, Scottish
Equitable and GEIM may consider research and other services furnished to them
and may place portfolio transactions with broker-dealers that are affiliated
with ISI, Scottish Equitable or GEIM. It is anticipated that PaineWebber, an
affiliate of GEIM, may serve as a broker to the Portfolio's transactions and
retain commissions in accordance with certain regulations of the SEC. In placing
portfolio business with all broker/dealers, Scottish Equitable and GEIM seek the
best execution of each transaction, and all brokerage placement must be
consistent with the Rules of Fair Practice of the NASD.
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<PAGE>
While Scottish Equitable and GEIM provide portfolio management services, ISI
retains responsibility for the performance of such functions. For their
services, Scottish Equitable and GEIM each will receive 45% of the fees received
by ISI with respect to the amount of Portfolio assets managed by each
sub-adviser under the International Equity Portfolio's Advisory Agreement.
Portfolio Managers:
At Scottish Equitable, investment strategy formulation is the responsibility of
the Investment Strategy Group ("ISG"), which consists of one full-time
Investment Strategist (currently, Alastair Bryne) working with a team of
analysts/fund managers drawn from their equity and fixed income team.
On a monthly basis, the ISG presents the proposed investment strategy to the
Investment Management Board ("IMB"). The IMB consists of Russell Hogan, Chief
Investment Officer, Tom Crombie, Chief Investment Manager, Colin Black,
Investment Actuary, Mike Craston, Investment Manager-Business Development,
Andrew Hartley, Investment Manager-UK Equities and Malcolm Jones, Investment
Manager-International Equities.
The role of the IMB is to review critically the proposed investment strategy,
testing the assumptions of the analysis and ensuring internal consistency. Once
the IMB is satisfied with the investment strategy proposal, it is adopted and
translated into asset allocations for the Portfolio. The adopted investment
strategy and model asset allocations are communicated to the whole investment
team, which also serves as a final check on the adopted investment strategy. No
one individual is responsible for managing the Portfolio.
Ralph R. Layman leads a team of GEIM Portfolio Managers for the International
Equity Portfolio. Mr. Layman has more than 19 years of investment experience and
has held positions with GEIM since 1991. From 1989 to 1991, Mr. Layman served as
Executive Vice President, Partner and Portfolio Manager of Northern Capital
Management, and prior thereto, served as Vice President and Portfolio Manager of
Templeton Investment Counsel and Vice President of the Templeton Emerging
Markets Fund. Mr. Layman is currently an Executive Vice President of GEIM.
Capital Appreciation, Global, Growth, Balanced and Flexible Income 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.
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 Board of Janus Capital, owns approximately 12% of Janus
Capital's voting stock and, by agreement with KCSI selects a majority of Janus
Capital's Board.
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
broker/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 the Fund, as described in
the SAI.
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<PAGE>
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 IDEX Fund and IDEX Fund 3 prior to their reorganization
into the Growth Portfolio Class T shares. 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. On January 13, 1997, Mr. Speaker, settled an SEC
administrative action involving two personal trades that he made in January of
1993. Without admitting or denying the allegations, Mr. Speaker agreed to civil
monetary penalty, disgorgement and interest payments totaling $37,199, and to a
90-day suspension starting on or about January 29, 1997. During that time, the
Flexible Income Portfolio was managed by its co-manager, Sandy Rufenacht.
Sandy R. Rufenacht has been co-portfolio manager of the Flexible Income
Portfolio since January, 1997. Mr. Rufenacht joined Janus Capital in 1990 and
gained experience as a trader and research analyst before assuming management
responsibilities. He holds a Bachelor of Arts in Business from the University of
Northern Colorado. Mr. Rufenacht is also an Executive Vice President of Janus
Investment Fund and serves as portfolio manager or co-manager of other mutual
funds.
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.
Value Equity Portfolio
NWQ, 2049 Century Park East, 4th Floor, Los Angeles, CA 90067, serves as the
investment sub-adviser to the Value Equity Portfolio. NWQ was founded in 1982
and is a wholly-owned subsidiary of United Asset Management Corporation. NWQ
provides investment management services to institutions and high net worth
individuals. As of September 30, 1997, NWQ had over $8.1 billion in assets under
management. NWQ has served as the investment sub-adviser to the WRL Series Fund,
Inc. Value Equity Portfolio since its inception.
NWQ provides ISI with investment advice and recommendations for the Value Equity
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, NWQ may consider research and other services furnished to it and
may place portfolio transactions with broker-dealers that are affiliated with
ISI or NWQ. In placing portfolio business with all broker/dealers, NWQ seeks the
best execution of each transaction, and all brokerage placement must be
consistent with the Rules of Fair Practice of the NASD.
While NWQ provides portfolio management services, ISI retains responsibility for
the performance of such functions. For its services, NWQ receives 40% of the
fees received by ISI under the Value Equity 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:
An investment policy committee is responsible for the day-to-day management of
the Value Equity Portfolio's investments. David A. Polak, CFA, Edward C.
Friedel, CFA, James H. Galbreath, CFA, Phyllis G. Thomas, CFA and Jon D. Bosse,
CFA, constitute the committee.
Edward C. Friedel serves as Senior Portfolio Manager for the Value Equity
Portfolio. Mr. Friedel has been a managing director and investment
strategist/portfolio manager of NWQ since 1983. From 1971 to 1983, Mr. Friedel
was a portfolio manager for Beneficial Standard Investment Management.
C.A.S.E. Portfolio
C.A.S.E., located at 5355 Town Center Road, Suite 702, Boca Raton, FL 33486,
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. Growth Portfolio since its
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 broker/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.
Strategic Total Return Portfolio
Luther King, 301 Commerce Street, Suite 1600, Fort Worth, Texas 76102, serves as
the investment sub-adviser to the Strategic Total Return Portfolio pursuant to
an Investment Counsel Agreement relating to the Portfolio. Ultimate control of
the sub-adviser is exercised by J. Luther King, Jr. Luther King is a registered
investment adviser and provides investment management services to accounts of
individual and other institutional investors. Luther King has served as the
investment sub-adviser to the WRL Series Fund, Inc. Strategic Total Return
Portfolio since its inception in February, 1993.
Luther King provides ISI with investment advice and recommendations for the
Strategic Total Return 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 broker/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 Strategic Total Return
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:
Luther King, Jr. and Scot C. Hollmann have served as portfolio managers of the
Strategic Total Return 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 $4 billion in assets under management as of November 30, 1997.
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 broker/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.
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.
Income Plus and Tax-Exempt Portfolios
AIMI, 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 AIMI on September 30, 1992. AEGON Securities
previously served as the investment adviser to each series of AEGON USA Managed
Portfolios, Inc. AIMI also serves as sub-adviser to certain portfolios of the
WRL Series Fund, Inc. AIMI is a wholly-owned indirect subsidiary of AEGON USA
and thus is an affiliate of ISI and IMI.
AIMI 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, AIMI may consider research and other services furnished to it and
may place portfolio transactions with broker-dealers that are affiliated with
ISI or AIMI. In placing portfolio business with all broker/dealers, AIMI seeks
the best execution of each transaction, and all brokerage placement must be
consistent with the Rules of Fair Practice of the NASD.
While AIMI provides portfolio management services, ISI retains responsibility
for the performance of such functions. For its services, AIMI 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.
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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 AIMI. Ms. Dennis has been
employed by AIMI 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 AIMI and has
been employed by AIMI and its affiliates in various positions since 1975.
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.
PREPARING FOR YEAR 2000
Like all financial service providers, IMI and ISI (each an "Adviser" and
together, the "Advisers") as well as the sub-adviser(s) to each Portfolio (each
a "Sub-Adviser" and collectively, the "Sub-Advisers") utilize systems that may
be affected by Year 2000 transition issues. In addition to its respective
Adviser and Sub-Adviser, each Portfolio relies on service providers, including
the Fund's administrator and custodian, that also may be affected. Each Adviser
and Sub-Adviser has advised the Fund that it has developed, and is in the
process of implementing a Year 2000 transition plan. Management of the Fund is
in the process of confirming that the service providers to the Fund are also
engaged in similar transition plans. While each Adviser and Sub-Adviser have
made representations to Management that each party is implementing a Year 2000
transition plan, the resources that are being devoted to this effort are
substantial and it is difficult to predict with precision whether the amount of
resources ultimately devoted, or the outcome of these efforts, will have any
negative impact on their operations. However, as of the date of this Prospectus,
it is not anticipated that shareholders will experience negative effects on
their investment, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. Each Adviser and Sub-Adviser has
advised Management that they currently anticipate that their systems will be
Year 2000 compliant prior to the end of 1999, but there can be no assurance that
the Advisers or Sub-Advisers will be successful, or that interaction with other
service providers will not impair the Advisers' or Sub-Advisers' services at
that time.
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
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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.
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, 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. At that time, 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.
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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.
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:
o 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.
o 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.
o Class B shares are subject to a contingent deferred sales charge, or
back-end load, at a declining rate.
o 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.
o 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 shares 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 distribution and
service fees imposed on those shares, after ISI has been substantially
compensated for distribution expenses by those fees.
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.
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.
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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 33758-9015, an
affiliate of IMI and ISI, is the Fund's transfer agent, withholding agent and
dividend paying agent.
The Custodian
Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania, Kansas City,
Missouri 64105-1307, 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.
Shareholder Inquiries
Inquiries by shareholders about a Portfolio or requests for forms for opening or
changing accounts or plans should be made by writing IDEX at P.O. Box 9015,
Clearwater, Florida 33758-9015 or calling IDEX Customer Service at (888)
233-4339 (toll free).
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 and
some of your Federal tax responsibilities related to such distributions. The
discussions are on taxes in general, and should not be construed as tax advice.
Shareholders are urged to consult tax advisers.
Income and Capital Gains Distributions
The Portfolios may pay distributions from various sources. 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 net of losses realized when securities owned
by a Portfolio for more than one year are sold at an amount greater than their
cost basis. 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. The Tax-Exempt Portfolio pays exempt interest dividends that
are generally exempt from Federal income tax.
Ordinarily, the Portfolios distribute income and capital gains annually, except
that the Strategic Total Return, Tactical Asset Allocation and Balanced
Portfolios distribute income quarterly, and the Flexible Income, Income Plus and
Tax-Exempt Portfolios distribute income monthly. Dividend transactions are
confirmed quarterly. Capital gain distributions realized during each fiscal year
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.
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Dividends and other distributions paid by a Portfolio with respect to its Class
A, Class B, Class C and 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. Dividend checks will be made
payable to the shareholder and mailed to the address of record. You may request
a different payee or address on the New Account Application. To change dividend
check payees for an existing account, mail a signature guaranteed written
request to IDEX.
Any checks which cannot be delivered and are returned by the Post Office 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 have
payments stopped and be reinvested back into the shareholder/payee's account at
the discretion of IDEX. Cash distributions that total less than $5.00 will not
be disbursed but will be reinvested into the account.
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 (888) 233-4339 (toll free) or
writing to IDEX, P.O. Box 9015, Clearwater, FL 33758-9015.
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 and gains realized from
investment operations to the extent earnings and profits are distributed to
shareholders. Shareholders are responsible for any taxes attributable to
distributions. (See The Tax-Exempt Portfolio -- Special Considerations, below,
for discussion of tax-exempt distributions; see the SAI for a complete
discussion of the tax treatment 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 Federal Income 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, 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
cost or basis in the shares, you may be able to offset that capital loss against
any 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.
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.
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For tax purposes, the cost per share 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 on the date of
purchase. 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
the Taxpayer Relief Act of 1997, capital gains Federal tax rate of 28% has been
reduced to 20% for individuals in certain circumstances. The 20% rate (10% for
those in the 15% income tax bracket) applies for sales of assets (such as
redemptions of mutual fund shares) from May 7, 1997 through July 28, 1997 for
assets held more than 12 months, and for sales on July 29, 1997 and later, for
assets held more than 18 months. Further, for sales of assets after December 31,
2005, for assets held more than 5 years, the tax rate drops to 18% (8% for those
in the 15% tax bracket). However, as with all issues relating to your personal
income taxes, we strongly encourage you to consult your tax adviser for advice
on how the Taxpayer Relief Act of 1997 will affect you.
For most accounts (other than retirement plan accounts which will receive Form
1099-R), IDEX will provide you with the "cost basis" for the shares you sold in
the tax package mailed in January. This cost basis figure is important. It is
figured on the single category average cost method, and it may assist you in
reporting the gain or loss on your shares sold.
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 to use for sales of shares in that Portfolio. To determine
which cost basis 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 you may receive in order to determine gain or loss on
the sale of Portfolio shares. Additionally, your tax adviser should determine
the accuracy and utility of this information according to your situation.
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, should be subject to the same tax rates as
if you sell shares and realize a gain (see above). The United States Treasury
Department has been given authority to write regulations regarding the effect of
the Taxpayer Relief Act of 1997 on capital gain distributions.
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.
Taxable Income Dividends. Some securities held by the Tax-Exempt Portfolio may
pay interest that is taxable as ordinary income.
Capital Gains. Any "long-term" capital gains distributions from the Tax-Exempt
Portfolio are taxable as capital gains. "Short-term" capital gain distributions
are taxable as ordinary income.
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.
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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 may 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, depending on the
particular state. Some states may also impose an intangible tax on the value of
shares you own. Consult your tax adviser.
Tax Statements
Tax forms related to dividends, distributions and redemptions of shares paid by
a Portfolio are mailed annually in January for the preceding year. 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.
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.
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APPENDIX A
BRIEF EXPLANATION OF RATING CATEGORIES
BOND RATING EXPLANATION
STANDARD & POOR'S AAA Highest rating; extremely strong capacity to
CORPORATION 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
CCC, CC, C issuer's capacity to meet required interest
and principal payments. BB - lowest degree of
speculation; C - 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 Aaa Highest quality, smallest degree of
SERVICE, INC. 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 investment;
potentiallylow 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
defalut or have other marked shortcomings.
C Lowest-rated; extremely poor aspects of ever
attaining investment standing.
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SECURITIES HOLDINGS BY RATING CATEGORY
During the period ended October 31, 1997, the percentage of security holdings
by rating category based upon a weighted average was:
BONDS - S&P RATING FLEXIBLE INCOME PORTFOLIO INCOME PLUS PORTFOLIO
- ----------------------------------------------------------------------------
AAA 5.8% --
AA 3.0% --
A 14.0% 10.1%
BBB 13.2% 47.1%
BB 15.6% 10.0%
B 23.0% 19.1%
CCC 3.2% --
CC -- --
C/NR 3.3% 0.5%
Preferred Stock/NR 13.6% 6.6%
Cash, Equivalents and 5.3% 6.6%
Assets Less Liabilities
Total 100% 100%
- ----------------------------------------------------------------------------
No other Portfolio held 5% or more of its assets in bonds rated below investment
grade, including unrated bonds deemed to be the equivalent of non-investment
grade securities, for the period ended October 31, 1997. 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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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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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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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).
INTEREST RATE CAPS entitle 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.
INTEREST RATE FLOORS entitle 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.
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