IDEX MUTUAL FUNDS
IDEX JCC GROWTH
IDEX JCC GLOBAL
IDEX JCC BALANCED
IDEX JCC CAPITAL APPRECIATION
IDEX JCC FLEXIBLE INCOME
IDEX T. ROWE PRICE DIVIDEND GROWTH
IDEX T. ROWE PRICE SMALL CAP
IDEX GOLDMAN SACHS GROWTH
IDEX SALOMON ALL CAP
IDEX ALGER AGGRESSIVE GROWTH
IDEX PILGRIM BAXTER MID CAP GROWTH
IDEX AEGON INCOME PLUS
IDEX AEGON TAX EXEMPT
IDEX GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
IDEX DEAN ASSET ALLOCATION
IDEX LKCM STRATEGIC TOTAL RETURN
IDEX NWQ VALUE EQUITY
IDEX C.A.S.E. GROWTH
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1999
IDEX MUTUAL FUNDS
570 Carillon Parkway
St. Petersburg, Florida 33716
Customer Service (888) 233-4339 (toll free)
The funds listed above are series of IDEX Mutual Funds (the "Fund"), an open-end
management investment company that offers a selection of investment funds. The
Fund is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). All funds, other than the IDEX JCC Capital Appreciation and IDEX
Salomon All Cap, are diversified.
This Statement of Additional Information is not a prospectus, and should be read
in conjunction with the Fund's prospectus dated November 1, 1999 which may be
obtained free of charge by writing or calling the Fund at the above address or
telephone number. This Statement of Additional Information ("SAI") contains
additional and more detailed information about the Fund's operations and
activities than that set forth in the prospectus. The Fund's annual report and
semi-annual report to shareholders are incorporated by reference into this SAI.
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TABLE OF CONTENTS
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INVESTMENT OBJECTIVES ............................................................... 1
Investment Restrictions, Policies and Practices ..................................... 1
Investment Restrictions of IDEX JCC Growth and IDEX JCC Flexible Income ............ 1
Investment Restrictions of IDEX JCC Global ......................................... 2
Investment Restrictions of IDEX JCC Capital Appreciation and IDEX JCC Balanced ..... 3
Investment Restrictions of IDEX T. Rowe Price Small Cap and IDEX T. Rowe Price
Dividend Growth .................................................................. 5
Investment Restrictions of IDEX Goldman Sachs Growth ............................... 6
Investment Restrictions of IDEX Salomon All Cap .................................... 7
Investment Restrictions of IDEX Alger Aggressive Growth ............................ 7
Investment Restrictions of IDEX Pilgrim Baxter Mid Cap Growth ...................... 8
Investment Restrictions of IDEX AEGON Income Plus .................................. 9
Investment Restrictions of IDEX AEGON Tax Exempt ................................... 10
Investment Restrictions of IDEX GE/Scottish Equitable International Equity ......... 12
Investment Restrictions of IDEX Dean Asset Allocation .............................. 13
Investment Restrictions of IDEX LKCM Strategic Total Return ........................ 14
Investment Restrictions of IDEX NWQ Value Equity ................................... 15
Investment Restrictions of IDEX C.A.S.E. Growth .................................... 16
OTHER POLICIES AND PRACTICES OF THE FUND ............................................ 18
Futures, Options and Other Derivative Instruments .................................. 18
Futures Contracts ................................................................. 18
Options on Futures Contracts ...................................................... 20
Options on Securities ............................................................. 21
Options on Foreign Currencies ..................................................... 24
Forward Contracts ................................................................. 25
Swaps and Swap-Related Products ................................................... 26
Index Options ..................................................................... 27
WEBS and Other Index-Related Securities ........................................... 28
Euro Instruments .................................................................. 28
Special Investment Considerations and Risks ....................................... 28
Additional Risks of Options on Foreign Currencies,
Forward Contracts and Foreign Instruments ....................................... 29
Other Investment Companies ......................................................... 29
When-Issued, Delayed Settlement and Forward Delivery Securities .................... 30
Zero Coupon, Pay-In-Kind and Step Coupon Securities ................................ 30
Income Producing Securities ........................................................ 31
Lending of Fund Securities ......................................................... 31
Joint Trading Accounts ............................................................. 32
Illiquid Securities ................................................................ 32
Repurchase and Reverse Repurchase Agreements ....................................... 32
Pass-Through Securities ............................................................ 33
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High-Yield/High-Risk Bonds ............................................... 34
Warrants and Rights ...................................................... 34
U.S. Government Securities ............................................... 34
Money Market Reserves (IDEX T. Rowe Price Small Cap and IDEX T. Rowe Price
Dividend Growth) ....................................................... 35
Turnover Rate ............................................................ 35
Investment Advisory and Other Services ................................... 36
DISTRIBUTOR ............................................................... 41
ADMINISTRATIVE SERVICES ................................................... 42
CUSTODIAN, TRANSFER AGENT AND OTHER AFFILIATES ............................ 42
FUND TRANSACTIONS AND BROKERAGE ........................................... 43
TRUSTEES AND OFFICERS ..................................................... 45
PURCHASE OF SHARES ........................................................ 48
DEALER REALLOWANCES ....................................................... 48
DISTRIBUTION PLANS ........................................................ 50
DISTRIBUTION FEES ......................................................... 51
NET ASSET VALUE DETERMINATION ............................................. 53
DIVIDENDS AND OTHER DISTRIBUTIONS ......................................... 54
SHAREHOLDER ACCOUNTS ...................................................... 54
RETIREMENT PLANS .......................................................... 55
REDEMPTION OF SHARES ...................................................... 55
TAXES ..................................................................... 56
PRINCIPAL SHAREHOLDERS .................................................... 58
MISCELLANEOUS ............................................................. 59
Organization ............................................................. 59
Shares of Beneficial Interest ............................................ 59
Legal Counsel and Auditors ............................................... 60
Registration Statement ................................................... 60
PERFORMANCE INFORMATION ................................................... 60
FINANCIAL STATEMENTS ...................................................... 65
APPENDIX A-CERTAIN SECURITIES IN WHICH THE FUNDS MAY INVEST ............... A-1
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INVESTMENT OBJECTIVES
The prospectus discusses the investment objective of each fund of the IDEX
Mutual Funds, the principal types of securities in which each fund will invest,
and the policies and practices of each fund. The following discussion of
Investment Restrictions, Policies and Practices supplements that set forth in
the prospectus.
There can be no assurance that a fund will, in fact, achieve its objective. A
fund's investment objective may be changed by the Board of Trustees without
shareholder approval. A change in the investment objective of a fund may result
in the fund having an investment objective different from that which the
shareholder deemed appropriate at the time of investment. A fund will not change
its objective without 30 days prior notice to its shareholders, nor will it
charge shareholders an exchange fee or redemption fee after such notice and
prior to the expiration of such 30-day notice period. However, should a
shareholder decide to redeem fund shares because of a change in the objective,
the shareholder may realize a taxable gain or loss.
INVESTMENT RESTRICTIONS, POLICIES AND PRACTICES
As indicated in the prospectus, each fund is subject to certain fundamental
policies and restrictions which as such may not be changed without shareholder
approval. Shareholder approval would be the approval by the lesser of (i) more
than 50% of the outstanding voting securities of a fund, or (ii) 67% or more of
the voting securities present at a meeting if the holders of more than 50% of
the outstanding voting securities of a fund are present or represented by proxy.
INVESTMENT RESTRICTIONS OF IDEX JCC GROWTH AND IDEX JCC FLEXIBLE INCOME
(FORMERLY GROWTH PORTFOLIO AND FLEXIBLE INCOME PORTFOLIO)
IDEX JCC Growth and IDEX JCC Flexible Income each may not, as a matter of
fundamental policy:
1. With respect to 75% of the fund's total assets, purchase the securities
of any one issuer (other than cash items and "government securities" as defined
under the 1940 Act), if immediately after and as a result of such purchase (a)
the value of the holdings of the fund in the securities of such issuer exceeds
5% of the value of the fund's total assets, or (b) the fund owns more than 10%
of the outstanding voting securities of such issuer;
2. Invest more than 25% of the value of its assets in any particular
industry (other than government securities);
3. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this restriction
shall not prevent the fund from purchasing or selling options, futures
contracts, caps, floors and other derivative instruments, engaging in swap
transactions or investing in securities or other instruments backed by physical
commodities);
4. Invest directly in real estate or interests in real estate, including
limited partnership interests; however, the fund may own debt or equity
securities issued by companies engaged in those businesses;
5. Act as underwriter of securities issued by others, except to the extent
that it may be deemed an underwriter in connection with the disposition of
portfolio securities of the fund;
6. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or to repurchase
agreements);
7. The fund may borrow money only for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 25% of the value of the
fund's total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 25% of the value of the fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 25% limitation. This
policy shall not prohibit reverse repurchase agreements or deposits of assets to
provide margin or guarantee positions in connection with transactions in
options, futures contracts, swaps, forward contracts, and other derivative
instruments or the segregation of assets in connection with such transactions;
and
8. Issue senior securities, except as permitted by the 1940 Act.
As a fundamental policy governing concentration, the fund will not invest 25% or
more of its total assets in any one particular industry, other than U.S.
government securities.
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Furthermore, each fund has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Trustees without shareholder
approval:
(A) A fund may not: (i) enter into any futures contracts or options on
futures contracts for purposes other than bona fide hedging transactions within
the meaning of Commodity Futures Trading Commission regulations if the aggregate
initial margin deposits and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions would exceed 5% of the fair market value of the fund's
net assets, after taking into account unrealized profits and losses on such
contracts it has entered into; and (ii) enter into any futures contracts or
options on futures contracts if the aggregate amount of the fund's commitments
under outstanding futures contracts positions and options on futures contracts
would exceed the market value of its total assets;
(B) A fund may not mortgage or pledge any securities owned or held by the
fund in amounts that exceed, in the aggregate, 15% of the fund's net assets,
provided that this limitation does not apply to reverse repurchase agreements or
in the case of assets deposited to provide margin or guarantee positions in
options, futures contracts, swaps, forward contracts or other derivative
instruments or the segregation of assets in connection with such transactions;
(C) A fund may not sell securities short, unless it owns or has the right
to obtain securities equivalent in kind and amount to the securities sold short,
and provided that transactions in options, futures contracts, swaps, forward
contracts, and other derivative instruments are not deemed to constitute selling
securities short;
(D) A fund may not purchase securities on margin, except that each fund
may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits made in
connection with transactions in options, futures contracts, swaps, forward
contracts, and other derivative instruments shall not be deemed to constitute
purchasing securities on margin;
(E) A fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933 (the "1933 Act"), or any successor to
such Rule, Section 4(2) commercial paper or any securities which the Board of
Trustees or the investment sub-adviser, as appropriate, has made a determination
of liquidity, as permitted under the 1940 Act;
(F) A fund may not invest in companies for the purpose of exercising
control or management;
(G) A fund may not (i) purchase securities of other investment companies,
except in the open market where no commission except the ordinary broker's
commission is paid, or (ii) purchase or retain securities issued by other
open-end investment companies. Limitations (i) and (ii) do not apply to money
market funds or to securities received as dividends, through offers of exchange,
or as a result of consolidation, merger or other reorganization; and
(H) A fund may not invest directly in oil, gas or other mineral
development or exploration programs or leases; however, the funds may own debt
or equity securities of companies engaged in those businesses. In making all
investments for IDEX JCC Flexible Income, the sub-adviser will emphasize
economic or financial factors or circumstances of the issuer, rather than
opportunities for short-term arbitrage.
INVESTMENT RESTRICTIONS OF IDEX JCC GLOBAL
(FORMERLY GLOBAL PORTFOLIO)
IDEX JCC Global may not, as a matter of fundamental policy:
1. Own more than 10% of the outstanding voting securities of any one
issuer and, as to seventy-five percent (75%) of the value of its total assets,
purchase the securities of any one issuer (except cash items and "government
securities" as defined under the 1940 Act), if immediately after and as a result
of such purchase, the value of the holdings of the fund in the securities of
such issuer exceeds 5% of the value of the fund's total assets;
2. Invest more than 25% of the value of its assets in any particular
industry (other than government securities);
3. Invest directly in real estate or interests in real estate; however,
the fund may own debt or equity securities issued by companies engaged in those
businesses;
4. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this shall not
prevent the fund from purchasing or selling options, futures, swaps and forward
contracts or from investing in securities or other instruments backed by
physical commodities);
5. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to
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other parties (but this limitation does not apply to purchases of commercial
paper, debt securities or to repurchase agreements);
6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities;
7. The fund may borrow money only for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 25% of the value of the
fund's total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 25% of the value of the fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 25% limitation. This
policy shall not prohibit reverse repurchase agreements or deposits of assets to
margin or guarantee positions in futures, options, swaps or forward contracts,
or the segregation of assets in connection with such contracts; and
8. Issue senior securities, except as permitted by the 1940 Act.
Furthermore, the fund has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Trustees without shareholder
approval:
(A) The fund may not (i) enter into any futures contracts or options on
futures contracts for purposes other than bona fide hedging transactions within
the meaning of Commodity Futures Trading Commission regulations if the aggregate
initial margin deposits and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions would exceed 5% of the fair market value of the fund's
net assets, after taking into account unrealized profits and losses on such
contracts it has entered into; and (ii) enter into any futures contracts or
options on futures contracts if the aggregate amount of the fund's commitments
under outstanding futures contracts positions and options on futures contracts
would exceed the market value of its total assets;
(B) The fund may not sell securities short, unless it owns or has the
right, without the payment of any additional compensation, to obtain securities
equivalent in kind and amount to the securities sold short, and provided that
transactions in options, swaps and forward futures contracts are not deemed to
constitute selling securities short;
(C) The fund may not purchase securities on margin, except that the fund
may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits in connection
with transactions in options, futures, swaps and forward contracts shall not be
deemed to constitute purchasing securities on margin;
(D) The fund may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of a consolidation, merger or other reorganization;
(E) The fund may not mortgage or pledge any securities owned or held by
the fund in amounts that exceed, in the aggregate, 15% of the fund's net assets,
provided that this limitation does not apply to reverse repurchase agreements or
in the case of assets deposited to provide margin or guarantee positions in
options, futures contracts, swaps, forward contracts or other derivative
instruments or the segregation of assets in connection with such transactions;
(F) The fund may not invest directly in oil, gas or other mineral
development or exploration programs or leases; however, the fund may own debt or
equity securities of companies engaged in those businesses;
(G) The fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the 1933 Act, or any successor to such Rule, Section 4(2)
commercial paper or any other securities as to which the Board of Trustees have
made a determination as to liquidity, as permitted under the 1940 Act; and
(H) The fund may not invest in companies for the purpose of exercising
control or management.
INVESTMENT RESTRICITONS OF IDEX JCC CAPITAL APPRECIATION AND IDEX JCC BALANCED
(FORMERLY CAPITAL APPRECIATION PORTFOLIO AND BALANCED PORTFOLIO)
IDEX JCC Capital Appreciation and IDEX JCC Balanced each may not, as a matter of
fundamental policy:
1. With respect to 75% of its total assets in the case of IDEX JCC
Balanced, and 50% of its total assets in the case of IDEX JCC Capital
Appreciation, purchase the securities of any one issuer (except cash items and
"government securities" as defined under the 1940 Act,
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if immediately after and as a result of such purchase the value of the holdings
of the fund in the securities of such issuer exceeds 5% of the value of such
fund's total assets or the fund owns more than 10% of the outstanding voting
securities of such issuer. With respect to the remaining 50% of the value of its
total assets, IDEX JCC Capital Appreciation may invest in the securities of as
few as two issuers;
2. Invest more than 25% of the value of its assets in any particular
industry (other than U.S. government securities);
3. Invest directly in real estate or interests in real estate; however, a
fund may own debt or equity securities issued by companies engaged in those
businesses;
4. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this limitation
shall not prevent a fund from purchasing or selling options, futures, swaps and
forward contracts or from investing in securities or other instruments backed by
physical commodities);
5. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or repurchase
agreements);
6. Act as underwriter of securities issued by others, except to the extent
that a fund may be deemed an underwriter in connection with the disposition of
portfolio securities of that fund;
7. The fund may borrow money for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 25% of the value of the
fund's total assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 25% of the value of the fund's total assets by
reason of a decline in net assets, the fund will reduce its borrowings within
three business days to the extent necessary to comply with the 25% limitation.
This policy shall not prohibit reverse repurchase agreements, or deposits of
assets to margin or guarantee positions in futures, options, swaps or forward
contracts, and the segregation of assets in connection with such contracts; and
8. Issue senior securities, except as permitted by the 1940 Act.
Furthermore, the funds have adopted the following non-fundamental investment
restrictions which may be changed by the Board of Trustees without shareholder
approval:
(A) A fund may not: (i) enter into any futures contracts and related
options for purposes other than bona fide hedging transactions within the
meaning of Commodity Futures Trading Commission regulations if the aggregate
initial margin and premiums required to establish positions in futures contracts
and related options that do not fall within the definition of bona fide hedging
transactions will exceed 5% of the fair market value of a fund's net assets,
after taking into account unrealized profits and unrealized losses on any such
contracts it has entered into; and (ii) enter into any futures contracts if the
aggregate amount of such fund's commitments under outstanding futures contracts
positions of that fund's would exceed the market value of its total assets;
(B) A fund may not sell securities short, unless it owns or has the right
to obtain securities equivalent in kind and amount to the securities sold short
without the payment of any additional consideration therefore, and provided that
transactions in futures, options, swaps and forward contracts are not deemed to
constitute selling securities short;
(C) A fund may not purchase securities on margin, except that a fund may
obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits in connection
with transactions in futures, options, contracts, swaps, and forward contracts,
shall not be deemed to constitute purchasing securities on margin;
(D) A fund may not (i) purchase securities of other investment companies,
except in the open market where no commission except the ordinary broker's
commission is paid, or (ii) purchase or retain securities issued by other
open-end investment companies. Limitations (i) and (ii) do not apply to money
market funds or to securities received as dividends, through offers of exchange,
or as a result of consolidation, merger or other reorganization;
(E) A fund may not mortgage or pledge any securities owned or held by a
fund in amounts that exceed, in the aggregate, 15% of that fund's net asset
value, provided that this limitation does not apply to reverse repurchase
agreements, deposits of assets to margin, guarantee positions in futures,
options, swaps or forward contracts or segregation of assets in connection with
such contracts;
(F) A fund may not invest directly in oil, gas or other mineral
development or exploration programs or leases; however, the fund may own debt or
equity securities of companies engaged in those businesses;
(G) A fund may not purchase any security or enter into a repurchase
agreement, if as a result, more than
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15% of its net assets would be invested in repurchase agreements not entitling
the holder to payment of principal and interest within seven days and in
securities that are illiquid by virtue of legal or contractual restrictions on
resale or the absence of a readily available market. The Trustees, or the fund's
investment adviser or sub-adviser acting pursuant to authority delegated by the
Trustees, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the 1933 Act, or any successor
to such Rule, Section 4(2) commercial paper and municipal lease obligations.
Accordingly, such securities may not be subject to the foregoing limitation;
(H) A fund may not invest in companies for the purpose of exercising
control or management; and
(I) With respect to IDEX JCC Balanced only, at least 25% of the total
assets of that fund will normally be invested in fixed-income senior securities,
which include corporate debt securities and preferred stock.
INVESTMENT RESTRICTIONS OF IDEX T. ROWE PRICE SMALL CAP AND IDEX T. ROWE PRICE
DIVIDEND GROWTH
IDEX T. Rowe Price Small Cap and IDEX T. Rowe Price Dividend Growth each may
not, as a matter of fundamental policy:
1. With respect to 75% of the fund's total assets, purchase the securities
of any one issuer (other than government securities as defined in the 1940 Act)
if immediately after and as a result of such purchase (a) the value of the
holdings of the fund in the securities of such issuer exceeds 5% of the value of
the fund's total assets, or (b) the fund owns more than 10% of the outstanding
voting securities of any one class of securities of such issuer;
2. Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount exceeding 33 1/3 of the value of the
fund's total assets (including amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 33 1/3 of the value of the fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 33 1/3 limitation. This
policy shall not prohibit reverse repurchase agreements or deposits of assets to
margin or guarantee positions in futures, options, swaps or forward contracts,
or the segregation of assets in connection with such contracts;
3. Purchase or sell physical commodities (but this shall not prevent the
fund from entering into future contracts and options thereon);
4. Invest more than 25% of the fund's total assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services; for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, or of certificates of deposit;
5. Make loans, although the funds may lend fund securities provided that
the aggregate of such loans do not exceed 33 1/3 of the value of the fund's
total assets. The fund may purchase money market securities, enter into
repurchase agreements and acquire publicly distributed or privately placed debt
securities, and purchase debt;
6. Purchase or sell real estate (but this shall not prevent the fund from
investing in securities or other instruments backed by real estate, including
mortgage-backed securities, or securities of companies engaged in the real
estate business);
7. Issue senior securities, except as permitted by the 1940 Act; and
8. Underwrite securities issued by other persons, except to the extent
that the fund may be deemed to be an underwriter within the meaning of the 1933
Act in connection with the purchase and sale of its fund securities in the
ordinary course of pursuing its investment objective.
Furthermore, the funds have adopted the following non-fundamental restrictions
which may be changed by the Board of Trustees of the funds without shareholder
approval:
(A) A fund may not purchase additional securities when money borrowed
exceeds 5% of its total assets. This restriction shall not apply to temporary
borrowings until the fund's net assets exceed $40,000,000;
(B) A fund may not purchase a futures contract or an option thereon, if,
with respect to positions in futures or options on futures which do not
represent bona fide hedging, the aggregate initial margin and premiums on such
options would exceed 5% of the fund's net asset value;
(C) A fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the 1933 Act or any other securities as to which a determination
as to liquidity has been made pursuant to guidelines adopted by the Board of
Trustees, as permitted under the 1940 Act;
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(D) A fund may not invest in companies for the purpose of exercising
control or management;
(E) A fund may not purchase securities of open-end or closed-end
investment companies except (i) in compliance with the 1940 Act; or (ii)
securities of the T. Rowe Price Reserve Investment or Government Reserve
Investment Funds;
(F) A fund may not purchase securities on margin, except (i) for use of
short-term credit necessary for clearance of purchases of fund securities; and
(ii) it may make margin deposits in connection with futures contracts or other
permissible investments;
(G) A fund may not mortgage, pledge, hypothecate or, in any manner,
transfer any security owned by the fund as security for indebtedness except as
may be necessary in connection with permissible borrowings or investments and
then such mortgaging, pledging or hypothecating may not exceed 33 1/3 of the
fund's total assets at the time of borrowing or investment; and
(H) A fund may not sell securities short, except short sales "against the
box."
INVESTMENT RESTRICTIONS OF IDEX GOLDMAN SACHS GROWTH
IDEX Goldman Sachs Growth may not, as a matter of fundamental policy:
1. With respect to 75% of the fund's total assets, purchase the securities
of any one issuer (other than government securities as defined in the 1940 Act)
if immediately after and as a result of such purchase (a) the value of the
holdings of the fund in the securities of such issuer exceeds 5% of the value of
the fund's total assets, or (b) the fund owns more than 10% of the outstanding
voting securities of any one class of securities of such issuer;
2. Borrow money except (a) the fund may borrow from banks (as defined in
the 1940 Act) or through reverse repurchase agreements in amounts up to 33 1/3
of its total assets (including the amount borrowed), (b) the fund may, to the
extent permitted by applicable law, borrow up to an additional 5% of its total
assets for temporary purposes, (c) the fund may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of fund securities,
(d) the fund may purchase securities on margin to the extent permitted by
applicable law and (e) the fund may engage in mortgage dollar rolls which are
accounted for as financings;
3. Purchase or sell physical commodities (but this shall not prevent the
fund from investing in currency and financial instruments and contracts that
are commodities or commodity contracts);
4. Invest more than 25% of the fund's assets in the securities of issuers
primarily engaged in the same industry. Utilities will be divided according to
their services; for example, gas, gas transmission, electric and telephone, and
each will be considered a separate industry for purposes of this restriction,
provided that there shall be no limitation on the purchase of obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities, or of
certificates of deposit and bankers' acceptances;
5. Make loans, except through (a) the purchase of debt obligations in
accordance with the fund's investment objective and policies, (b) repurchase
agreements with banks, brokers, dealers and other financial institutions, and
(c) loans of securities as permitted by applicable law;
6. Purchase or sell real estate (but this shall not prevent the fund from
investing in securities or other instruments backed by real estate, including
mortgage-backed securities, or securities of companies engaged in the real
estate business);
7. Issue senior securities, except as permitted by the 1940 Act; and
8. Underwrite securities issued by other persons, except to the extent
that the fund may be deemed to be an underwriter within the meaning of the 1933
Act in connection with the purchase and sale of its fund securities in the
ordinary course of pursuing its investment objective.
Furthermore, the fund has adopted the following non-fundamental
restrictions which may be changed by the Board of Trustees without shareholder
approval:
(A) The fund may not invest in companies for the purpose of exercising
control or management;
(B) The fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the 1933 Act or any other securities as to which a
determination as to liquidity has been made pursuant to guidelines adopted by
the Board of Trustees, as permitted under the 1940 Act;
(C) The fund may not purchase additional securities when money borrowed
exceeds 5% of its total assets. This restriction shall not apply to temporary
borrowings until the fund's assets exceed $40,000,000; and
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<PAGE>
(D) The fund may not make short sales of securities, except short sales
"against the box."
INVESTMENT RESTRICTIONS OF
IDEX SALOMON ALL CAP
IDEX Salomon All Cap may not, as a matter of fundamental policy:
1. Purchase or sell real estate, real estate mortgages, commodities or
commodity contracts; however, the fund may: (a) purchase interests in real
estate investment trusts or companies which invest in or own real estate if the
securities of such trusts or companies are registered under the 1933 Act and are
readily marketable or holding or selling real estate received in connection with
securities it holds; and (b) may enter into futures contracts, including futures
contracts on interest rates, stock indices and currencies, and options thereon,
and may engage in forward currency contracts and buy, sell and write options on
currencies. This policy shall not prohibit reverse repurchase agreements or
deposits of assets to margin or guarantee positions in futures, options, swaps
or forward contracts, or the segregation of assets in connection with such
contracts;
2. Invest more than 25% of the fund's assets in the securities of issuers
primarily engaged in the same industry. Utilities will be divided according to
their services; for example, gas, gas transmission, electric and telephone, and
each will be considered a separate industry for purposes of this restriction. In
addition, there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, or of
certificates of deposit and bankers' acceptances;
3. Borrow money, except that the fund may borrow from banks for investment
purposes up to an aggregate of 15% of the value of its total assets taken at the
time of borrowing. The fund may borrow for temporary or emergency purposes an
aggregate amount not to exceed 5% of the value of its total assets at the time
of borrowing;
4. Issue senior securities, except as permitted by the 1940 Act;
5. Underwrite securities issued by other persons, except to the extent
that the fund may be deemed to be an underwriter within the meaning of the 1933
Act in connection with the purchase and sale of its fund securities in the
ordinary course of pursuing its investment objective; and
6. Make loans, except that the fund may purchase debt obligations in which
the fund may invest consistent with its investment objectives and policies or
enter into, and make loans of, its portfolio securities, as permitted under the
1940 Act.
Furthermore, the fund has adopted the following non-fundamental restrictions
that may be changed by the Board of Trustees without shareholder approval:
(A) The fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the 1933 Act or any other securities as to which a determination
as to liquidity has been made pursuant to guidelines adopted by the Board of
Trustees, as permitted under the 1940 Act;
(B) The fund may not invest in companies for the purpose of exercising
control or management; and
(C) The fund may not sell securities short except shart sales "against
the box".
INVESTMENT RESTRICTIONS OF IDEX ALGER AGGRESSIVE GROWTH
(FORMERLY AGGRESSIVE GROWTH PORTFOLIO)
IDEX Alger Aggressive Growth may not, as a matter of fundamental policy:
1. With respect to 75% of the fund's total assets, purchase the
securities of any one issuer (other than government securities as defined in
the 1940 Act), if immediately after and as a result of such purchase (a) the
value of the holdings of the fund in the securities of such issuer exceeds 5%
of the value of the fund's total assets, or (b) the fund owns more than 10% of
the outstanding voting securities of any one class of securities of such
issuer;
2. Purchase any securities that would cause more than 25% of the value of
the fund's total assets to be invested in the securities of issuers conducting
their principal business activities in the same industry; provided that there
shall be no limit on the purchase of U.S. government securities;
3. Purchase or sell real estate or real estate limited partnerships,
except that the fund may purchase and sell securities secured by real estate,
mortgages or interests therein and securities that are issued by companies that
invest or deal in real estate;
4. Invest in commodities, except that the fund may purchase or sell stock
index futures contracts and related options thereon if thereafter no more than
5% of its total assets are invested in aggregate initial margin and premiums;
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<PAGE>
5. Make loans to others, except through purchasing qualified debt
obligations, lending fund securities or entering into repurchase agreements;
6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its fund securities;
7. Borrow money, except that the fund may borrow from banks for
investment purposes as set forth in the prospectus and may also engage in
reverse repurchase agreements. Immediately after any borrowing, including
reverse repurchase agreements, the fund will maintain asset coverage of not
less than 300% with respect to all borrowings; and
8. Issue senior securities, except that the fund may borrow from banks
for investment purposes so long as the fund maintains the required coverage.
Furthermore, the fund has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Trustees of the funds without
shareholder approval:
(A) The fund may not sell securities short or purchase securities on
margin, except that the fund may obtain any short-term credit necessary for the
clearance of purchases and sales of securities. These restrictions shall not
apply to transactions involving selling securities "short against the box";
(B) The fund may not pledge, hypothecate, mortgage or otherwise encumber
more than 15% of the value of the fund's total assets except in connection with
borrowings described in number 7 above. These restrictions shall not apply to
transactions involving reverse repurchase agreements or the purchase of
securities subject to firm commitment agreements or on a when-issued basis;
(C) The fund may not invest directly in oil, gas, or other mineral
development or exploration programs or leases; however, the fund may own debt
or equity securities of companies engaged in those businesses;
(D) The fund may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of consolidation, merger or other reorganization;
(E) The fund may not invest in companies for the purpose of exercising
control or management; and
(F) The fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the 1933 Act, or any successor to such Rule, Section 4(2)
commercial paper or any other securities as to which the Board of Trustees has
made a determination as to liquidity, as permitted under the 1940 Act.
INVESTMENT RESTRICTIONS OF IDEX PILGRIM BAXTER MID CAP GROWTH
IDEX Pilgrim Baxter Mid Cap Growth may not, as a matter of fundamental policy:
1. With respect to 75% of the fund's total assets, purchase the securities
of any one issuer (other than government securities as defined in the 1940 Act)
if immediately after and as a result of such purchase (a) the value of the
holdings of the fund in the securities of such issuer exceeds 5% of the value of
the fund's total assets, or (b) the fund owns more than 10% of the outstanding
voting securities of any one class of securities of such issuer;
2. Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount exceeding 10% of the value of the fund's
total assets. This borrowing provision is included solely to facilitate the
orderly sale of fund securities to accommodate substantial redemption requests
if they should occur and is not for investment purposes. All borrowings in
excess of 5% of the fund's total assets will be repaid before making
investments;
3. Make loans, except that the fund, in accordance with its investment
objectives and policies, may purchase or hold debt securities, and enter into
repurchase agreements as described in the fund's prospectus and this SAI;
4. Purchase or sell real estate, real estate limited partnership
interests, futures contracts, commodities or commodity contracts, except that
this shall not prevent the fund from (i) investing in readily marketable
securities of issuers which can invest in real estate or commodities,
institutions that issue mortgages, or real estate investment trusts which deal
in real estate or interests therein, pursuant to the fund's investment objective
and policies, and (ii) entering into futures contracts and options thereon that
are listed on a national securities or commodities exchange where, as a result
thereof, no more than 5% of the fund's total assets (taken at market value at
the time of entering into the futures contracts)
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<PAGE>
would be committed to margin deposits on such futures contracts and premiums
paid for unexpired options on such futures contracts; provided that, in the case
of an option that is "in-the-money" at the time of purchase, the "in-the-money"
amount, as defined under the Commodities Futures Trading Commission regulations,
may be excluded in computing the 5% limit. The fund (as a matter of operating
policy) will utilize only listed futures contracts and options thereon;
5. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a fund security;
6. Issue senior securities, except as permitted by the 1940 Act; and
7. Invest more than 25% of the fund's assets in the securities of issuers
primarily engaged in the same industry. Utilities will be divided according to
their services, for example, gas, gas transmission, electric and telephone, and
each will be considered a separate industry for purposes of this restriction. In
addition, there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, or of
certificates of deposit and bankers' acceptances.
Furthermore, the fund has adopted the following non-fundamental restrictions
which may be changed by the Board of Trustees without shareholder approval:
(A) The fund may not invest in companies for the purpose of exercising
control;
(B) The fund may not pledge, mortgage or hypothecate assets, except (i) to
secure temporary borrowings as permitted by the fund's limitation on permitted
borrowings, or (ii) in connection with permitted transactions regarding options
and futures contracts;
(C) The fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the 1933 Act, or any successor to such Rule, Section 4(2)
commercial paper or any other securities as to which the Board of Trustees has
made a determination as to liquidity, as permitted under the 1940 Act; and
(D) The fund may not purchase securities of other investment companies
except as permitted by the 1940 Act and the rules and regulations thereunder.
INVESTMENT RESTRICITONS OF IDEX AEGON INCOME PLUS
(FORMERLY INCOME PLUS PORTFOLIO)
IDEX AEGON Income Plus may not, as a matter of fundamental policy:
1. Borrow money, except from a bank for temporary or emergency purposes
(not for leveraging or investment) in an amount not to exceed one-third of the
current value of the fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made. If at any time the fund's borrowings exceed this limitation due to a
decline in net assets, such borrowings will be reduced within 3 business days
to the extent necessary to comply with the limitation. The fund will borrow
only to facilitate redemptions requested by shareholders which might otherwise
require untimely disposition of portfolio securities and will not purchase
securities while borrowings are outstanding;
2. Pledge assets, except that the fund may pledge not more than one-third
of its total assets (taken at current value) to secure borrowings made in
accordance with paragraph 1 above. Initial margin deposits under interest rate
futures contracts, which are made to guarantee the fund's performance under such
contracts, shall not be deemed a pledging of fund assets for the purpose of this
investment restriction. As a matter of non-fundamental operating policy, in
order to permit the sale of shares of the fund under certain state laws, the
fund will not pledge its assets in excess of an amount equal to 10% of its net
assets unless such state restrictions are changed;
3. Invest more than 25% of its assets, measured at the time of investment,
in a single industry (which term shall not include governments or their
political subdivisions), outside the industries of the fund's public utilities
portfolio concentration, except that the fund may, for temporary defensive
purposes, invest more than 25% of its total assets in the obligations of banks;
4. Purchase the securities (other than government securities) of any
issuer if, as a result, more than 5% of the fund's total assets would be
invested in the securities of such issuer, provided that up to 25% of the fund's
total net assets may be invested without regard to this 5% limitation and in the
case of certificates of deposit, time deposits and bankers' acceptances, up to
25% of total fund assets may be invested without regard to such 5% limitation,
but shall instead be subject to a 10% limitation;
5. Invest in mineral leases;
6. Invest in bank time deposits with maturities of over 7 calendar days,
or invest more than 10% of the fund's total assets in bank time deposits with
maturities of from 2 business days through 7 calendar days;
9
<PAGE>
7. Issue senior securities, except to the extent that senior securities
may be deemed to arise from bank borrowings and purchases of government
securities on a "when-issued" or "delayed delivery" basis, as described in the
prospectus;
8. Underwrite any issue of securities, except to the extent the fund may
be deemed to be an underwriter in connection with the sale of its portfolio
securities, although the fund may purchase securities directly from the issuers
thereof for investment in accordance with the fund's investment objective and
policies;
9. Purchase or sell commodities or commodity contracts, except that the
fund may purchase and sell interest rate futures contracts for hedging purposes
as set forth in the prospectus;
10. Purchase securities on margin or sell "short," but the fund may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities. (Initial and maintenance margin deposits and
payment with respect to interest rate futures contracts are not considered the
purchase of securities on margin);
11. Purchase or retain the securities of any issuer, if, to the fund's
knowledge, those officers and directors of the manager and sub-adviser who
individually own beneficially more than 0.5% of the outstanding securities of
such issuer together own beneficially more than 5% of such outstanding
securities;
12. Invest in securities of other investment companies, except in the
event of merger or reorganization with another investment company;
13. Make loans, except to the extent the purchase of notes, bonds,
bankers' acceptances or other evidence of indebtedness or the entry into
repurchase agreements or deposits (including time deposits and certificates of
deposit) with banks may be considered loans;
14. Invest in companies for the purpose of exercising management control;
15. Invest in oil, gas or other mineral exploration or development
programs;
16. Purchase or hold any real estate or mortgage loans thereon, except
that the fund may invest in securities secured by real estate or interests
therein or issued by persons (such as real estate investment trusts) which deal
in real estate or interests therein; and
17. Purchase the securities (other than government securities) of any
issuer if, as a result, the fund would hold more than 10% of any class of
securities (including any class of voting securities) of such issuer; for this
purpose, all debt obligations of an issuer, and all shares of stock of an
issuer other than common stock, are treated as a single class of securities.
Furthermore, the fund has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Trustees without shareholder
approval:
(A) Write or purchase put, call, straddle or spread options, or
combinations thereof;
(B) Invest more than 10% of its net assets in illiquid securities;
(C) Invest in real estate limited partnerships;
(D) Invest more than 25% of its net assets at the time of purchase in the
securities of foreign issuers and obligors; and
(E) Purchase or sell interest rate futures contracts (a) involving
aggregate delivery or purchase obligations in excess of 30% of the fund's net
assets, or aggregate margin deposits made by the fund in excess of 5% of the
fund's net assets, (b) which are not for hedging purposes only, or (c) which are
executed under custodial, reserve and other arrangements inconsistent with
regulations and policies adopted or positions taken (i) by the Securities and
Exchange Commission for exemption from enforcement proceedings under Section
17(f) or 18(f) of the 1940 Act, (ii) by the Commodity Futures Trading Commission
("CFTC") for exemption of investment companies registered under the 1940 Act
from registration as "commodity pool operators" and from certain provisions of
Subpart B of Part 4 of the CFTC's regulations, or (iii) by state securities
commissioners or administrators in the states in which the fund's shares have
been qualified for public offering.
INVESTMENT RESTRICTIONS OF IDEX AEGON TAX EXEMPT
(FORMERLY TAX-EXEMPT PORTFOLIO)
IDEX AEGON Tax Exempt may not, as a matter of fundamental policy:
1. Underwrite any issue of securities, except to the extent the fund may
be deemed to be an underwriter in connection with the sale of its portfolio
securities, although the fund may purchase Municipal Obligations directly from
the issuers thereof for investment in accordance with the fund's investment
objective and policies;
2. Purchase the securities (other than government securities) of any
issuer if, as a result, more than 5% of
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<PAGE>
the fund's total assets would be invested in the securities of such issuer,
provided that up to 25% of the fund's total net assets may be invested without
regard to this 5% limitation;
3. Invest in any direct interest in an oil, gas or other mineral
exploration or development program;
4. Purchase securities on margin or sell "short," but the fund may obtain
such short-term credits as may be necessary for the clearance of purchases and
sales of securities;
5. Purchase or hold any real estate or mortgage loans thereon, except that
the fund may invest in securities secured by real estate or interests therein or
issued by persons (such as real estate investment trusts) which deal in real
estate or interests therein;
6. Purchase or retain the securities of any issuer, if, to the fund's
knowledge, those officers and directors of the manager or sub-adviser who
individually own beneficially more than 0.5% of the outstanding securities of
such issuer together own beneficially more than 5% of such outstanding
securities;
7. Invest in securities of other investment companies, except in the event
of merger or reorganization with another investment company;
8. Make loans, except to the extent the purchase of notes, bonds, or other
evidences of indebtedness or the entry into repurchase agreements or deposits
with banks may be considered loans;
9. Invest in companies for the purpose of exercising management or
control;
10. Write, purchase or sell put, call, straddle or spread options, except
for hedging purposes only, in accordance with such non-fundamental policies that
the Board of Trustees may from time to time adopt;
11. Purchase or sell commodities or commodity contracts; and
12. The fund may borrow money only for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding one-third of the
current value of the fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed at the time the borrowing is
made). For purposes of this limitation, reverse repurchase agreements would not
constitute borrowings.
As a fundamental policy governing concentration, the fund will not invest 25% or
more of its total assets in any one particular industry, other than U.S.
government securities.
Furthermore, the fund has adopted the following non-fundamental restrictions
which may be changed by the Board of Trustees without shareholder approval:
(A) The fund may not invest more than 10% of its net assets in illiquid
securities;
(B) The fund may not invest in oil, gas or mineral leases;
(C) The fund may not invest in real estate limited partnerships; and
(D) For hedging purposes only, the fund may adopt policies permitting:
(1) the purchase and sale of interest rate futures contracts, the
purchase of put and call options thereon, and the writing of
covered call or secured put options thereon, not involving
delivery or purchase obligations in excess of 30% of the fund's
net assets, and
(2) the purchase of put and call options related to portfolio
securities and securities to be purchased for the fund, the
writing of secured put and covered call options, and the entering
into of closing purchase transactions with respect to such
options, where such transactions will not involve futures
contract margin deposits and premiums on option purchases which,
in the aggregate, exceed 5% of the fund's net assets, in the
judgment of the sub-adviser are economically appropriate to the
reduction of risks inherent in the ongoing management of the
fund, and are executed under custodial, reserve and other
arrangements consistent with regulations and policies adopted or
positions taken (i) by the Securities and Exchange Commission
("SEC") for exemption from enforcement proceedings under Section
17(f) or 18(f) of the 1940 Act, (ii) by the Commodity Futures
Trading Commission (the "CFTC") for exemption of investment
companies registered under the 1940 Act from registration as
"commodity pool operators" and from certain provisions of Subpart
B of Part 4 of the CFTC's regulations, and (iii) by state
securities commissioners or administrators in the states in which
the fund's shares have been qualified for public offering.
The fund does not intend in the foreseeable future to adopt the foregoing
investment policies to permit trading
11
<PAGE>
in interest rate futures contracts, options thereon, and options on portfolio
securities.
As a matter of fundamental policy, the fund will invest 80% of its assets in tax
exempt securities that are not subject to alternate minimum tax. Except with
respect to borrowing money, if a percentage limitation set forth above is
complied with at the time of the investment, a subsequent change in the
percentage resulting from any change in value of the net assets of any of the
funds will not result in a violation of such restriction. Additional limitations
on borrowing that are imposed by state law and regulations may apply.
INVESTMENT RESTRICITONS OF
IDEX GE/SCOTTISH EQUITABLE
INTERNATIONAL EQUITY
(FORMERLY INTERNATIONAL EQUITY PORTFOLIO)
IDEX GE/Scottish Equitable International Equity may not, as a matter of
fundamental policy:
1. With respect to 75% of the fund's total assets, purchase the securities
of any one issuer (other than government securities as defined in the 1940 Act)
if immediately after and as a result of such purchase (a) the value of the
holdings of the fund in the securities of such issuer exceeds 5% of the value of
the fund's total assets, or (b) the fund owns more than 10% of the outstanding
voting securities of any one class of securities of such issuer. All securities
of a foreign government and its agencies will be treated as a single issuer for
purposes of this restriction;
2. Invest 25% or more of the value of the fund's total assets in any
particular industry (other than U.S. government securities). For purposes of
this restriction, the term industry shall include (a) the government of any one
country other than the U.S., but not the U.S. government and (b) all
supranational organizations;
3. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this restriction
shall not prevent the fund from purchasing or selling options, futures
contracts, caps, floors and other derivative instruments, engaging in swap
transactions or investing in securities or other instruments backed by physical
commodities);
4. Invest directly in real estate or interests in real estate, including
limited partnership interests; however, the fund may own securities or other
instruments backed by real estate, including mortgage-backed securities, or debt
or equity securities issued by companies engaged in those businesses;
5. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of portfolio securities of the fund;
6. Lend any security or make any other loan if, as a result, more than 30%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or to repurchase
agreements);
7. The fund may borrow money only for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 33 1/3 of the value of
the fund's total assets (including the amount borrowed) less liabilities (other
than borrowings). Any borrowings that exceed 33 1/3 of the value of the fund's
total assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 33 1/3 limitation. This
policy shall not prohibit reverse repurchase agreements or deposits of assets to
provide margin or guarantee positions in connection with transactions in
options, futures contracts, swaps, forward contracts, or other derivative
instruments or the segregation of assets in connection with such transactions;
and
8. Issue senior securities, except as permitted by the 1940 Act.
Furthermore, the fund has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Trustees without shareholder
approval:
(A) The fund may not, as a matter of non-fundamental policy (i) enter into
any futures contracts or options on futures contracts for purposes other than
bona fide hedging transactions within the meaning of Commodity Futures Trading
Commission regulations if the aggregate initial margin deposits and premiums
required to establish positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions would exceed 5%
of the fair market value of the fund's net assets, after taking into account
unrealized profits and losses on such contracts it has entered into and (ii)
enter into any futures contracts or options on futures contracts if the
aggregate amount of the fund's commitments under outstanding futures contracts
positions and options on futures contracts would exceed the market value of its
total assets;
(B) The fund may not mortgage or pledge any securities owned or held by
the fund in amounts that exceed, in the aggregate, 15% of the fund's net assets,
provided that this limitation does not apply to reverse repurchase agreements or
in the case of assets deposited to provide margin or guarantee positions in
options,
12
<PAGE>
futures contracts, swaps, forward contracts or other derivative instruments or
the segregation of assets in connection with such transactions;
(C) The fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that transactions in options, futures contracts, swaps,
forward contracts and other derivative instruments are not deemed to constitute
selling securities short;
(D) The fund may not purchase securities on margin, except that the fund
may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits made in
connection with transactions in options, futures contracts, swaps, forward
contracts, and other derivative instruments shall not be deemed to constitute
purchasing securities on margin;
(E) The fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the 1933 Act, or any successor to such Rule, Section 4(2)
commercial paper or other securities for which the Board of Trustees has made a
determination of liquidity, as permitted under the 1940 Act;
(F) The fund may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of consolidation, merger or other reorganization. The
fund may also invest in the GEI Short-Term Investment Fund, an investment fund
advised by GE Investment Management Incorporated ("GEIM"), created specifically
to serve as a vehicle for the collective investment of cash balances of the fund
and other accounts advised by GEIM or General Electric Investment Corporation.
Investments in GEI Short-Term Investment Fund are not considered investments in
another investment company for the purposes of this restriction;
(G) The fund may not invest directly in oil, gas or other mineral
development or exploration programs or leases; however, the fund may own debt or
equity securities of companies engaged in those businesses; and
(H) The fund may not invest in companies for the purpose of exercising
control or management.
With respect to investment restriction No. 2 above, the fund may use the
industry classifications reflected by the S&P 500 Composite Stock Index, if
applicable at the time of determination. For all other fund holdings the fund
may use the Directory of Companies Required to File Annual Reports with the SEC
and Bloomberg, Inc. In addition, the fund may select its own industry
classifications, provided such classifications are reasonable.
INVESTMENT RESTRICTIONS OF IDEX DEAN ASSET ALLOCATION
(FORMERLY TACTICAL ASSET ALLOCATION PORTFOLIO)
IDEX Dean Asset Allocation may not, as a matter of fundamental policy:
1. With respect to 75% of the fund's total assets, purchase the securities
of any one issuer (other than government securities as defined in the 1940 Act)
if immediately after and as a result of such purchase (a) the value of the
holdings of the fund in the securities of such issuer exceeds 5% of the value of
the fund's total assets, or (b) the fund owns more than 10% of the outstanding
voting securities of such issuer;
2. Invest more than 25% of the fund's assets in the securities of issuers
primarily engaged in the same industry. Utilities will be divided according to
their services, for example, gas, gas transmission, electric and telephone, and
each will be considered a separate industry for purposes of this restriction. In
addition, there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, or of
certificates of deposit and bankers' acceptances;
3. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this limitation shall not
prevent the fund from investing in securities or other instruments backed by
physical commodities);
4. Purchase or sell real estate (but this shall not prevent the fund from
investing in securities or other instruments backed by real estate, including
mortgage-backed securities, or securities of companies engaged in the real
estate business);
5. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper or debt securities);
6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities;
7. The fund may borrow money only for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 25% of the value of
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the fund's total assets (including the amount borrowed) less liabilities (other
than borrowings). Any borrowings that exceed 25% of the value of the fund's
total assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 25% limitation; and
8. Issue senior securities, except as permitted by the 1940 Act.
Furthermore, the fund has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Trustees without shareholder
approval:
(A) The fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that margin payments and other deposits in connection with
transactions in options, swaps and forward and futures contracts are not deemed
to constitute selling securities short;
(B) The fund may not purchase securities on margin, except that the fund
may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits in connection
with transactions in options, futures, swaps and forward contracts shall not be
deemed to constitute purchasing securities on margin;
(C) The fund may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of a consolidation, merger or other reorganization;
(D) The fund may not mortgage or pledge any securities owned or held by
the fund in amounts that exceed, in the aggregate, 15% of the fund's net assets,
provided that this limitation does not apply to reverse repurchase agreements,
deposits of assets to margin, guarantee positions in futures, options, swaps or
forward contracts or segregation of assets in connection with such contracts;
(E) The fund may not invest directly in oil, gas, or other mineral
development or exploration programs or leases; however, the fund may own debt or
equity securities of companies engaged in those businesses;
(F) The fund may not invest in companies for the purpose of exercising
control or management; and
(G) The fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the 1933 Act, or any successor to such Rule, Section 4(2)
commercial paper or any other securities as to which the Board of Trustees has
made a determination as to liquidity, as permitted under the 1940 Act.
INVESTMENT RESTRICTIONS OF IDEX LKCM STRATEGIC TOTAL RETURN
(FORMERLY STRATEGIC TOTAL RETURN PORTFOLIO)
IDEX LKCM Strategic Total Return may not, as a matter of fundamental policy:
1. With respect to 75% of the fund's total assets, purchase the securities
of any one issuer (other than government securities as defined in the 1940 Act)
if immediately after and as a result of such purchase (a) the value of the
holdings of the fund in the securities of such issuer exceeds 5% of the value of
the fund's total assets, or (b) the fund owns more than 10% of the outstanding
voting securities of such issuer;
2. Invest more than 25% of the fund's assets in the securities of issuers
primarily engaged in the same industry. Utilities will be divided according to
their services; for example: gas, gas transmission, electric and telephone, and
each will be considered a separate industry for purposes of this restriction. In
addition, there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, or of
certificates of deposit and bankers' acceptances;
3. Purchase or sell real estate (but this shall not prevent the fund from
investing in securities or other instruments backed by real estate, including
mortgage-backed securities, or securities of companies engaged in the real
estate business);
4. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
fund from investing in securities or other instruments backed by physical
commodities);
5. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper or debt securities);
6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities;
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7. The fund may borrow money only for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 25% of the value of the
fund's total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 25% of the value of the fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 25% limitation; and
8. Issue senior securities, except as permitted by the 1940 Act.
Furthermore, the fund has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Trustees without shareholder
approval:
(A) The fund may not mortgage or pledge any securities owned or held by
the fund in amounts that exceed, in the aggregate, 15% of the fund's net assets,
provided that this limitation does not apply in the case of assets deposited to
margin or guarantee positions in options, futures contracts and options on
futures contracts or placed in a segregated account in connection with such
contracts;
(B) The fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that margin payments and other deposits in connection with
transactions in options, swaps and forward futures contracts are not deemed to
constitute selling securities short;
(C) The fund may not purchase securities on margin, except that the fund
may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits in connection
with transactions in options, futures, swaps and forward contracts shall not be
deemed to constitute purchasing securities on margin;
(D) The fund may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of a consolidation, merger or other reorganization;
(E) The fund may not invest directly in oil, gas, or other mineral
development or exploration programs or leases; however, the fund may own debt or
equity securities of companies engaged in those businesses;
(F) The fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the 1933 Act, or any successor to such Rule, Section 4(2)
commercial paper or any other securities as to which the Board of Trustees has
made a determination as to liquidity, as permitted under the 1940 Act;
(G) The fund may not invest in companies for the purpose of exercising
control or management; and
(H) The fund may not invest in securities of foreign issuers denominated
in foreign currency and not publicly traded in the United States if at the time
of acquisition more than 10% of the fund's total assets would be invested in
such securities.
INVESTMENT RESTRICTIONS OF IDEX NWQ VALUE EQUITY
(FORMERLY VALUE EQUITY PORTFOLIO)
IDEX NWQ Value Equity may not, as a matter of fundamental policy:
1. With respect to 75% of the fund's total assets, purchase the securities
of any one issuer (other than government securities as defined in the 1940 Act)
if immediately after and as a result of such purchase (a) the value of the
holdings of the fund in the securities of such issuer exceeds 5% of the value of
the fund's total assets, or (b) the fund owns more than 10% of the outstanding
voting securities of any one class of securities of such issuer;
2. Invest 25% or more of the value of the fund's total assets in any
particular industry (other than U.S. government securities);
3. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this restriction
shall not prevent the fund from purchasing or selling options, futures
contracts, caps, floors and other derivative instruments, engaging in swap
transactions or investing in securities or other instruments backed by physical
commodities);
4. Invest directly in real estate or interests in real estate, including
limited partnership interests; however, the fund may own debt or equity
securities issued by companies engaged in those businesses;
5. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of portfolio securities of the fund;
6. Lend any security or make any other loan if, as a result, more than
25% of its total assets would be lent to
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other parties (but this limitation does not apply to purchases of commercial
paper, debt securities or to repurchase agreements);
7. The fund may borrow money only for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 10% of the value of the
fund's total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 10% of the value of the fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 10% limitation. The
fund may not purchase additional securities when borrowings exceed 5% of total
assets. This policy shall not prohibit reverse repurchase agreements or deposits
of assets to provide margin or guarantee positions in connection with
transactions in options, futures contracts, swaps, forward contracts, or other
derivative instruments or the segregation of assets in connection with such
transactions; and
8. Issue senior securities, except as permitted by the 1940 Act.
Furthermore, the fund has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Trustees without shareholder
approval:
(A) The fund may not, as a matter of non-fundamental policy (i) enter into
any futures contracts or options on futures contracts for purposes other than
bona fide hedging transactions within the meaning of Commodity Futures Trading
Commission regulations if the aggregate initial margin deposits and premiums
required to establish positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions would exceed 5%
of the fair market value of the fund's net assets, after taking into account
unrealized profits and losses on such contracts it has entered into and (ii)
enter into any futures contracts or options on futures contracts if the
aggregate amount of the fund's commitments under outstanding futures contracts
positions and options on futures contracts would exceed the market value of its
total assets;
(B) The fund may not mortgage or pledge any securities owned or held by
the fund in amounts that exceed, in the aggregate, 15% of the fund's net assets,
provided that this limitation does not apply to reverse repurchase agreements or
in the case of assets deposited to provide margin or guarantee positions in
options, futures contracts, swaps, forward contracts or other derivative
instruments or the segregation of assets in connection with such transactions;
(C) The fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that transactions in options, futures contracts, swaps,
forward contracts and other derivative instruments are not deemed to constitute
selling securities short;
(D) The fund may not purchase securities on margin, except that the fund
may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits made in
connection with transactions in options, futures contracts, swaps, forward
contracts, and other derivative instruments shall not be deemed to constitute
purchasing securities on margin;
(E) The fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the 1933 Act, or any successor to such Rule, Section 4(2)
commercial paper or other securities for which the Board of Trustees has made a
determination of liquidity, as permitted under the 1940 Act;
(F) The fund may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of consolidation, merger or other reorganization;
(G) The fund may not invest directly in oil, gas or other mineral
development or exploration programs or leases; however, the fund may own debt or
equity securities of companies engaged in those businesses;
(H) The fund may not invest more than 25% of its net assets at the time of
purchase in the securities of foreign issuers and obligors; and
(I) The fund may not invest in companies for the purpose of exercising
control or management.
INVESTMENT RESTRICTIONS OF IDEX C.A.S.E. GROWTH
(FORMERLY C.A.S.E. PORTFOLIO)
IDEX C.A.S.E. Growth may not, as a matter of fundamental policy:
1. With respect to 75% of the fund's total assets, purchase the securities
of any one issuer (other than
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cash items and "government securities" as defined in the 1940 Act) if
immediately after and as a result of such purchase (a) the value of the holdings
of the fund in the securities of such issuer exceeds 5% of the value of the
fund's total assets, or (b) the fund owns more than 10% of the outstanding
voting securities of any one class of securities of such issuer;
2. Invest 25% or more of the value of the fund's assets in any particular
industry (other than government securities);
3. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this restriction
shall not prevent the fund from purchasing or selling options, futures
contracts, caps, floors and other derivative instruments, engaging in swap
transactions or investing in securities or other instruments backed by physical
commodities);
4. Invest directly in real estate or interests in real estate, including
limited partnership interests; however, the fund may own debt or equity
securities issued by companies engaged in those businesses;
5. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of portfolio securities of the fund;
6. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or to repurchase
agreements);
7. The fund may borrow money only for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 25% of the value of the
fund's total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 25% of the value of the fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 25% limitation. This
policy shall not prohibit reverse repurchase agreements or deposits of assets to
provide margin or guarantee positions in connection with transactions in
options, futures contracts, swaps, forward contracts, or other derivative
instruments or the segregation of assets in connection with such transactions;
and
8. Issue senior securities, except as permitted by the 1940 Act.
Furthermore, the fund has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Trustees without shareholder
approval:
(A) The fund may not, as a matter of non-fundamental policy (i) enter into
any futures contracts or options on futures contracts for purposes other than
bona fide hedging transactions within the meaning of Commodity Futures Trading
Commission regulations if the aggregate initial margin deposits and premiums
required to establish positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions would exceed 5%
of the fair market value of the fund's net assets, after taking into account
unrealized profits and losses on such contracts it has entered into and (ii)
enter into any futures contracts or options on futures contracts if the
aggregate amount of the fund's commitments under outstanding futures contracts
positions and options on futures contracts would exceed the market value of its
total assets;
(B) The fund may not mortgage or pledge any securities owned or held by
the fund in amounts that exceed, in the aggregate, 15% of the fund's net assets,
provided that this limitation does not apply to reverse repurchase agreements or
in the case of assets deposited to provide margin or guarantee positions in
options, futures contracts, swaps, forward contracts or other derivative
instruments or the segregation of assets in connection with such transactions;
(C) The fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that transactions in options, futures contracts, swaps,
forward contracts and other derivative instruments are not deemed to constitute
selling securities short;
(D) The fund may not purchase securities on margin, except that the fund
may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits made in
connection with transactions in options, futures contracts, swaps, forward
contracts, and other derivative instruments shall not be deemed to constitute
purchasing securities on margin;
(E) The fund may not invest more than 15% of its net assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the 1933 Act, or any successor to such Rule, Section 4(2)
commercial paper or other securities for which the Board of Trustees has made a
determination of liquidity, as permitted under the 1940 Act;
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(F) The fund may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of consolidation, merger or other reorganization;
(G) The fund may not invest directly in oil, gas or other mineral
development or exploration programs or leases; however, the fund may own debt or
equity securities of companies engaged in those businesses;
(H) The fund may not invest more than 25% of its net assets at the time of
purchase in the securities of foreign issuers and obligors; and
(I) The fund may not invest in companies for the purpose of exercising
control or management.
In addition to the above, as a fundamental policy, each of the funds, other than
IDEX AEGON Tax Exempt and IDEX AEGON Income Plus, may, notwithstanding any other
investment policy or limitation (whether or not fundamental), invest all of its
assets in the securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
limitations as such fund.
OTHER POLICIES AND PRACTICES OF THE FUNDS
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
The following investments are subject to limitations as set forth in each fund's
investment restrictions and policies.
FUTURES CONTRACTS. A fund may enter into futures contracts. Futures contracts
are for the purchase or sale, for future delivery, of equity or fixed-income
securities, foreign currencies or contracts based on financial indices,
including indices of U.S. government securities, foreign government securities
and equity or fixed-income securities. The IDEX AEGON Income Plus may enter into
interest rate futures contracts. These contracts are for the purchase or sale of
fixed-income securities. U.S. futures contracts are traded on exchanges which
have been designated "contract markets" by the Commodity Futures Trading
Commission ("CFTC") and must be executed through a Futures Trading Commission
merchant ("FTCM"), or brokerage firm, which is a member of the relevant contract
market. Through their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.
When a fund buys or sells a futures contract, it must receive or deliver the
underlying instrument (or a cash payment based on the difference between the
underlying instrument's closing price and the price at which the contract was
entered into) at a specified price on a specified date. Transactions in futures
contracts may be made to attempt to hedge against potential changes in interest
or currency exchange rates, or the price of a security or a securities index
which might correlate with, or otherwise adversely affect, either the value of
the fund's securities or the prices of securities which the fund is considering
buying at a later date.
The buyer or seller of a futures contract is not required to deliver or pay for
the underlying instrument unless the contract is held until the delivery date.
However, both the buyer and seller are required to deposit "initial margin" for
the benefit of the FTCM when the contract is entered into. Initial margin
deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
liquid assets by the fund's custodian for the benefit of the FTCM. Initial
margin payments are similar to good faith deposits or performance bonds.
Unlike margin extended by a securities broker, initial margin payments do not
constitute purchasing securities on margin for purposes of a fund's investment
limitations. If the value of either party's position declines, that party will
be required to make additional "variation margin" payments with the FTCM to
settle the change in value on a daily basis. The party that has a gain may be
entitled to receive all or a portion of this amount. In the event of the
bankruptcy of the FTCM that holds margin on behalf of a fund, that fund may be
entitled to return of the margin owed to such fund only in proportion to the
amount received by the FTCM's other customers. The fund's sub-adviser will
attempt to minimize the risk by careful monitoring of the creditworthiness of
the FTCMs
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with which a fund does business and by segregating margin payments with the
custodian.
Although a fund would segregate with the custodian cash and liquid assets in an
amount sufficient to cover its open futures obligations, the segregated assets
would be available to that fund immediately upon closing out the futures
position, while settlement of securities transactions could take several days.
However, because a fund's cash that may otherwise be invested would be held
uninvested or invested in liquid assets so long as the futures position remains
open, such fund's return could be diminished due to the opportunity losses of
foregoing other potential investments.
The acquisition or sale of a futures contract may occur, for example, when a
fund holds or is considering purchasing equity or debt securities and seeks to
protect itself from fluctuations in prices or interest rates without buying or
selling those securities. For example, if stock or debt prices were expected to
decrease, a fund might sell equity index futures contracts, thereby hoping to
offset a potential decline in the value of equity securities in the fund by a
corresponding increase in the value of the futures contract position held by
that fund and thereby preventing the fund's net asset value from declining as
much as it otherwise would have.
Similarly, if interest rates were expected to rise, a fund might sell bond index
futures contracts, thereby hoping to offset a potential decline in the value of
debt securities in the fund by a corresponding increase in the value of the
futures contract position held by the fund. A fund also could seek to protect
against potential price declines by selling fund securities and investing in
money market instruments. However, since the futures market is more liquid than
the cash market, the use of futures contracts as an investment technique allows
a fund to maintain a defensive position without having to sell fund securities.
Likewise, when prices of equity securities are expected to increase, or interest
rates are expected to fall, futures contracts may be bought to attempt to hedge
against the possibility of having to buy equity securities at higher prices.
This technique is sometimes known as an anticipatory hedge. Since the
fluctuations in the value of futures contracts should be similar to those of
equity securities, a fund could take advantage of the potential rise in the
value of equity or debt securities without buying them until the market has
stabilized. At that time, the futures contracts could be liquidated and such
fund could buy equity or debt securities on the cash market. To the extent a
fund enters into futures contracts for this purpose, the segregated assets
maintained to cover such fund's obligations (with respect to futures contracts)
will consist of liquid assets from its portfolio in an amount equal to the
difference between the contract price and the aggregate value of the initial and
variation margin payments made by that fund.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal price relationship between the cash
and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced and prices in the futures market distorted.
Third, from the point of view of speculators, the margin deposit requirements in
the futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may cause temporary price distortions.
Due to the possibility of the foregoing distortions, a correct forecast of
general price trends by the fund manager still may not result in a successful
use of futures contracts.
Futures contracts entail risks. Although each of the funds that invests in such
contracts believes that their use will benefit the fund, if the fund
sub-adviser's investment judgment proves incorrect, the fund's overall
performance could be worse than if the fund had not entered into futures
contracts.
For example, if a fund has hedged against the effects of a possible decrease in
prices of securities held in its fund and prices increase instead, that fund may
lose part or all of the benefit of the increased value of the securities because
of offsetting losses in the fund's futures positions. In addition, if a fund has
insufficient cash, it may have to sell securities from its fund to meet daily
variation margin requirements. Those sales may, but will not necessarily, be at
increased prices which reflect the rising market and may occur at a time when
the sales are disadvantageous to the fund.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are
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a limited number of types of futures contracts, it is possible that the
standardized futures contracts available to a fund will not exactly match that
fund's current or potential investments. A fund may buy and sell futures
contracts based on underlying instruments with different characteristics from
the securities in which it typically invests. For example, by hedging
investments in fund securities with a futures contract based on a broad index of
securities may involve a risk that the futures position will not correlate
precisely with such performance of the fund's investments.
Futures prices can also diverge from the prices of their underlying instruments,
even if the underlying instruments correlate with a fund's investments. Futures
prices are affected by factors such as: current and anticipated short-term
interest rates; changes in volatility of the underlying instruments; and the
time remaining until expiration of the contract. Those factors may affect
securities prices differently from futures prices.
Imperfect correlations between a fund's investments and its futures positions
may also result from: differing levels of demand in the futures markets and the
securities markets; from structural differences in how futures and securities
are traded; and from imposition of daily price fluctuation limits for futures
contracts.
A fund may buy or sell futures contracts with a greater or lesser value than the
securities it wishes to hedge or is considering purchasing in order to attempt
to compensate for differences in historical volatility between the futures
contract and the securities. This may not be successful in all cases. If price
changes in a fund's futures positions are poorly correlated with its other
investments, its futures positions may fail to produce desired gains or may
result in losses that are not offset by the gains in that fund's other
investments.
Because futures contracts are generally settled within a day from the date they
are closed out, compared with a settlement period of seven days for some types
of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance a liquid secondary
market will exist for any particular futures contract at any particular time.
In addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for a fund to enter
into new positions or close out existing positions. If the secondary market for
a futures contract is not liquid because of price fluctuation limits or
otherwise, the fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until the delivery date, regardless of changes in its value. As a
result, such fund's access to other assets held to cover its futures positions
also could be impaired.
Although futures contracts by their terms call for the delivery or acquisition
of the underlying commodities, or a cash payment based on the value of the
underlying commodities, in most cases the contractual obligation is offset
before the delivery date of the contract. This is accomplished by buying, in the
case of a contractual obligation to sell, or selling, in the case of a
contractual obligation to buy, an identical futures contract on a commodities
exchange. Such a transaction cancels the obligation to make or take delivery of
the commodities.
If applicable, each fund intends to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator" with the
CFTC and the National Futures Association, which regulate trading in the futures
markets. The funds will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC regulations. In addition,
the funds may hold positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions, provided that
the aggregate initial margin and premiums required to establish such positions
will not exceed 5% of the fair market value of a fund's net assets, after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into.
IDEX Alger Aggressive Growth may not enter into a futures contract or related
option (except for closing transactions) if, immediately thereafter, the sum of
the amount of its initial margin and premiums on open futures contracts and
options thereon would exceed 5% of IDEX Alger Aggressive Growth's total assets
(taken at current value); however, in the case of an option that is
"in-the-money" at the time of the purchase, the "in-the-money" amount may be
excluded in calculating the 5% limitation.
OPTIONS ON FUTURES CONTRACTS. A fund may buy and write put and call options on
futures contracts. An option on a futures contract gives a fund the right (but
not the obligation) to buy or sell the contract at a specified price on or
before a specified date. Transactions in options on futures contracts may be
made to attempt to hedge against potential changes in interest rates or currency
exchange rates, or the price of a security or a securities index which might
correlate with, or otherwise adversely affect, either the value of the fund's
securities or the
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prices of securities which the fund is considering buying at a later date.
Transactions in options on future contracts will not be made for speculation.
The purchase of a call option on a futures contract is similar in some respects
to the purchase of a call option on an individual security. Depending on the
pricing of the option compared to either the price of the futures contract upon
which it is based or the price of the underlying instrument, ownership of the
option may or may not be less risky than ownership of the futures contract or
the underlying instrument. As with the purchase of futures contracts, when a
fund is not fully invested it may buy a call option on a futures contract to
hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, a
fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in such fund's holdings.
The writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at expiration of the option is higher than the exercise price, a
fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which that fund is
considering buying.
If a call or put option a fund has written is exercised, such fund will incur a
loss which will be reduced by the amount of the premium it received. Depending
on the degree of correlation between the change in the value of its fund
securities and changes in the value of the futures positions, that fund's losses
from existing options on futures may to some extent be reduced or increased by
changes in the value of fund securities.
The purchase of a put option on a futures contract is similar in some respects
to the purchase of protective put options on fund securities. For example, a
fund may buy a put option on a futures contract to hedge its fund securities
against the risk of falling prices or rising interest rates.
The amount of risk a fund assumes when it buys an option on a futures contract
is the premium paid for the option plus related transaction costs. In addition
to the correlation risks discussed above, the purchase of an option also entails
the risk that changes in the value of the underlying futures contract will not
be fully reflected in the value of the options bought.
OPTIONS ON SECURITIES. In an effort to increase current income and to reduce
fluctuations in net asset value, each of the funds, other than IDEX AEGON Tax
Exempt and IDEX AEGON Income Plus, may write covered put and call options and
buy put and call options on securities that are traded on United States and
foreign securities exchanges, and over-the-counter. A fund also may write call
options that are not covered for cross-hedging purposes. A fund may write and
buy options on the same types of securities that the fund may purchase directly.
There are no specific limitations on a fund's writing and buying of options on
securities.
A put option gives the holder the right, upon payment of a premium, to deliver a
specified amount of a security to the writer of the option on or before a fixed
date at a predetermined price. A call option gives the holder the right, upon
payment of a premium, to call upon the writer to deliver a specified amount of a
security on or before a fixed date at a predetermined price.
A put option written by a fund is "covered" if the fund: (i) segregates cash not
available for investment or other liquid assets with a value equal to the
exercise price with its custodian; or (ii) continues to own an equivalent number
of puts of the same "series" (that is, puts on the same underlying securities
having the same exercise prices and expiration dates as those written by the
fund), or an equivalent number of puts of the same "class" (that is, puts on the
same underlying securities) with exercise prices greater than those it has
written (or if the exercise prices of the puts it holds are less than the
exercise prices of those it has written, the difference is segregated with the
custodian).
The premium paid by the buyer of an option will reflect, among other things, the
relationship of the exercise price to the market price and the volatility of the
underlying security, the remaining term of the option, supply and demand and
interest rates.
A call option written by a fund is "covered" if the fund owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or has segregated
additional cash with its custodian) upon conversion or exchange of other
securities held in its fund. A call option written by a fund is also deemed to
be covered: (i) if that fund holds a call at the same exercise price for the
same exercise period and on the same securities as the call
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written; (ii) in the case of a call on a stock index, if the fund owns a fund of
securities substantially replicating the movement of the index underlying the
call option; or (iii) if at the time the call is written an amount of cash, U.S.
government securities or other liquid assets equal to the fluctuating market
value of the optioned securities is segregated with the custodian.
A fund may also write call options that are not covered for cross-hedging
purposes. A fund collateralizes its obligation under a written call option for
cross-hedging purposes by segregating cash or other liquid assets in an amount
not less than the market value of the underlying security, marked-to-market
daily. A fund would write a call option for cross-hedging purposes, instead of
writing a covered call option, when the premium to be received from the
cross-hedge transaction would exceed that which would be received from writing a
covered call option and the fund manager believes that writing the option would
achieve the desired hedge.
If a put or call option written by a fund were exercised, the fund would be
obligated to buy or sell the underlying security at the exercise price. Writing
a put option involves the risk of a decrease in the market value of the
underlying security, in which case the option could be exercised and the
underlying security would then be sold by the option holder to the fund at a
higher price than its current market value. Writing a call option involves the
risk of an increase in the market value of the underlying security, in which
case the option could be exercised and the underlying security would then be
sold by the fund to the option holder at a lower price than its current market
value. Those risks could be reduced by entering into an offsetting transaction.
A fund retains the premium received from writing a put or call option whether or
not the option is exercised.
The writer of an option may have no control when the underlying security must be
sold, in the case of a call option, or bought, in the case of a put option,
since with regard to certain options, the writer may be assigned an exercise
notice at any time prior to the termination of the obligation. Whether or not an
option expires unexercised, the writer retains the amount of the premium.
This amount, of course, may, in the case of a covered call option, be offset by
a decline in the market value of the underlying security during the option
period. If a call option is exercised, the writer experiences a profit or loss
from the sale of the underlying security. If a put option is exercised, the
writer must fulfill the obligation to buy the underlying security at the
exercise price, which will usually exceed the then market value of the
underlying security.
The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing corporation. However, a
writer may not effect a closing purchase transaction after being notified of the
exercise of an option. Likewise, an investor who is the holder of an option may
liquidate its position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option previously
bought. There is no guarantee that either a closing purchase or a closing sale
transaction can be effected.
In the case of a written call option, effecting a closing transaction will
permit a fund to write another call option on the underlying security with
either a different exercise price or expiration date or both. In the case of a
written put option, such transaction will permit the fund to write another put
option to the extent that the exercise price thereof is secured by other
deposited liquid assets. Effecting a closing transaction also will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other fund investments. If a fund desires to sell a
particular security on which the fund has written a call option, such fund will
effect a closing transaction prior to or concurrent with the sale of the
security.
A fund will realize a profit from a closing transaction if the price of a
purchase transaction is less than the premium received from writing the option
or the price received from a sale transaction is more than the premium paid to
buy the option. The fund will realize a loss from a closing transaction if the
price of the purchase transaction is more than the premium received from writing
the option or the price received from a sale transaction is less than the
premium paid to buy the option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by the fund.
An option position may be closed out only where a secondary market for an option
of the same series exists. If a secondary market does not exist, a fund may not
be able to effect closing transactions in particular options and that fund would
have to exercise the options in order
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to realize any profit. If a fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market may include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by a national securities exchange on which the
option is traded ("Exchange") on opening or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an Exchange; (v)
the facilities of an Exchange or the Options Clearing Corporation ("OCC") may
not at all times be adequate to handle current trading volume; or (vi) one or
more Exchanges could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a particular class or
series of options). In that case, the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the OCC as a result of trades
on that Exchange would continue to be exercisable in accordance with their
terms.
A fund may, subject to its investment restrictions, write options in connection
with buy-and-write transactions. In other words, the fund may buy a security and
then write a call option against that security. The exercise price of such call
will depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to
("at-the-money"), or above ("out-of-the-money") the current value of the
underlying security at the time the option is written.
Buy-and-write transactions using "in-the-money" call options may be used when it
is expected that the price of the underlying security will remain flat or
decline moderately during the option period. Buy-and-write transactions using
"at-the-money" call options may be used when it is expected that the price of
the underlying security will remain fixed or advance moderately during the
option period. Buy-and-write transactions using "out-of-the-money" call options
may be used when it is expected that the premiums received from writing the call
option plus the appreciation in the market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone.
If the call options are exercised in such transactions, the fund's maximum gain
will be the premium received by it for writing the option, adjusted upwards or
downwards by the difference between that fund's purchase price of the security
and the exercise price. If the options are not exercised and the price of the
underlying security declines, the amount of such decline will be offset by the
amount of premium received.
The writing of covered put options is similar in terms of risk and return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and a fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, a fund may elect to close the position or take
delivery of the security at the exercise price and that fund's return will be
the premium received from the put options minus the amount by which the market
price of the security is below the exercise price.
A fund may buy put options to hedge against a decline in the value of its fund.
By using put options in this way, a fund will reduce any profit it might
otherwise have realized in the underlying security by the amount of the premium
paid for the put option and by transaction costs.
A fund may buy call options to hedge against an increase in the price of
securities that it may buy in the future. The premium paid for the call option
plus any transaction costs will reduce the benefit, if any, realized by such
fund upon exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire worthless to that fund.
In purchasing an option, a fund would be in a position to realize a gain if,
during the option period, the price of the underlying security increased (in the
case of a call) or decreased (in the case of a put) by an amount in excess of
the premium paid. The fund would realize a loss if the price of the underlying
security did not increase (in the case of a call) or decrease (in the case of a
put) during the period by more than the amount of the premium. If a put or call
option purchased by a fund were permitted to expire without being sold or
exercised, the fund would lose the amount of the premium.
Although they entitle the holder to buy equity securities, warrants on and
options to purchase equity securities do not entitle the holder to dividends or
voting rights with
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respect to the underlying securities, nor do they represent any rights in the
assets of the issuer of those securities.
In addition to options on securities, a fund may also purchase and sell call and
put options on securities indexes. A stock index reflects in a single number the
market value of many different stocks. Relative values are assigned to the
stocks included in an index and the index fluctuates with changes in the market
values of the stocks. The options give the holder the right to receive a cash
settlement during the term of the option based on the difference between the
exercise price and the value of the index. By writing a put or call option on a
securities index, a fund is obligated, in return for the premium received, to
make delivery of this amount. A fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
Use of options on securities indexes entails the risk that trading in the
options may be interrupted if trading in certain securities included in the
index is interrupted. A fund will not purchase these options unless a fund's
sub-adviser is satisfied with the development, depth and liquidity of the market
and believes the options can be closed out.
Price movements in a fund's securities may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indexes
cannot serve as a complete hedge and will depend, in part, on the ability of its
sub-adviser to predict correctly movements in the direction of the stock market
generally or of a particular industry. Because options on securities indexes
require settlement in cash, a fund's sub-adviser may be forced to liquidate fund
securities to meet settlement obligations.
The amount of risk a fund assumes when it buys an option on a futures contract
is the premium paid for the option plus related transaction costs. In addition
to the correlation risks discussed above, the purchase of an option also entails
the risk that changes in the value of the underlying futures contract will not
be fully reflected in the value of the options bought.
OPTIONS ON FOREIGN CURRENCIES. Subject to any investment restrictions, a fund
may buy and write options on foreign currencies in a manner similar to that in
which futures contracts or forward contracts on foreign currencies will be
utilized. For example, a decline in the U.S. dollar value of a foreign currency
in which fund securities are denominated will reduce the U.S. dollar value of
such securities, even if their value in the foreign currency remains constant.
In order to protect against such diminutions in the value of fund securities, a
fund may buy put options on the foreign currency. If the value of the currency
declines, such fund will have the right to sell such currency for a fixed amount
in U.S. dollars and will offset, in whole or in part, the adverse effect on its
portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a fund may buy call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to a fund from purchases of foreign currency options will be reduced
by the amount of the premium and related transaction costs. In addition, if
currency exchange rates do not move in the direction or to the extent desired, a
fund could sustain losses on transactions in foreign currency options that would
require such fund to forego a portion or all of the benefits of advantageous
changes in those rates. In addition, in the case of other types of options, the
benefit to the fund from purchases of foreign currency options will be reduced
by the amount of the premium and related transaction costs.
A fund may also write options on foreign currencies. For example, in attempting
to hedge against a potential decline in the U.S. dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates, a
fund could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of fund securities will be offset
by the amount of the premium received.
Similarly, instead of purchasing a call option to attempt to hedge against a
potential increase in the U.S. dollar cost of securities to be acquired, a fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow that fund to hedge the
increased cost up to the amount of premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium. If exchange rates do not move
in the expected direction, the option may be exercised and a fund would be
required to buy or sell the underlying currency at a loss which may not be
offset by the amount of the premium. Through the writing of options on foreign
currencies, a fund also may lose all or a portion of the benefits
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which might otherwise have been obtained from favorable movements in exchange
rates.
A fund may write covered call options on foreign currencies. A call option
written on a foreign currency by a fund is "covered" if that fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration that is segregated by its custodian) upon
conversion or exchange of other foreign currency held in its fund. A call option
is also covered if: (i) the fund holds a call at the same exercise price for the
same exercise period and on the same currency as the call written; or (ii) at
the time the call is written, an amount of cash, U.S. government securities or
other liquid assets equal to the fluctuating market value of the optioned
currency is segregated with the custodian.
A fund may write call options on foreign currencies for cross-hedging purposes
that would not be deemed to be covered. A call option on a foreign currency is
for cross-hedging purposes if it is not covered but is designed to provide a
hedge against a decline due to an adverse change in the exchange rate in the
U.S. dollar value of a security which the fund owns or has the right to acquire
and which is denominated in the currency underlying the option. In such
circumstances, a fund collateralizes the option by segregating cash or other
liquid assets in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily.
FORWARD CONTRACTS. A forward contract is an agreement between two parties in
which one party is obligated to deliver a stated amount of a stated asset at a
specified time in the future, and the other party is obligated to pay a
specified invoice amount for the assets at the time of delivery. A fund may
enter into forward contracts to purchase and sell government securities, foreign
currencies or other financial instruments. Forward contracts generally are
traded in an interbank market conducted directly between traders (usually large
commercial banks) and their customers. Unlike futures contracts, which are
standardized contracts, forward contracts can be specifically drawn to meet the
needs of the parties that enter into them. The parties to a forward contract may
agree to offset or terminate the contract before its maturity, or may hold the
contract to maturity and complete the contemplated exchange.
The following discussion summarizes a fund's principal uses of forward foreign
currency exchange contracts ("forward currency contracts").
A fund may enter into forward currency contracts with stated contract values of
up to the value of that fund's assets. A forward currency contract is an
obligation to buy or sell an amount of a specified currency for an agreed upon
price (which may be in U.S. dollars or another currency). A fund will exchange
foreign currencies for U.S. dollars and for other foreign currencies in the
normal course of business.
They may buy and sell currencies through forward currency contracts in order to
fix a price for securities it has agreed to buy or sell ("transaction hedge"). A
fund also may hedge some or all of its investments denominated in foreign
currency, or exposed to foreign currency fluctuations against a decline in the
value of that currency relative to the U.S. dollar. This is accomplished by
entering into forward currency contracts to sell an amount of that currency (or
a proxy currency whose performance is expected to replicate or exceed the
performance of that currency relative to the U.S. dollar) approximating the
value of some or all of its fund securities denominated in that currency
("position hedge"), or by participating in options or futures contracts with
respect to the currency.
A fund also may enter into a forward currency contract with respect to a
currency where such fund is considering the purchase or sale of investments
denominated in that currency but has not yet selected the specific investments
("anticipatory hedge"). In any of these circumstances a fund may, alternatively,
enter into a forward currency contract to purchase or sell one foreign currency
for a second currency that is expected to perform more favorably relative to the
U.S. dollar if the fund's sub-adviser believes there is a reasonable degree of
correlation between movements in the two currencies ("cross-hedge").
These types of hedging seek to minimize the effect of currency appreciation as
well as depreciation, but do not eliminate fluctuations in the underlying U.S.
dollar equivalent value of the proceeds of, or rates of return on, a fund's
foreign currency denominated fund securities.
The matching of the increase in value of a forward currency contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. Shifting a
fund's currency exposure from one foreign currency to another removes that
fund's opportunity to profit from increases in the value of the original
currency and involves a risk of increased losses to such fund if the fund's
sub-adviser's position projection of future exchange rates is inaccurate. Proxy
hedges and cross-hedges may result in losses if the currency used
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to hedge does not perform similarly to the currency in which hedged securities
are denominated. Unforeseen changes in currency prices may result in poorer
overall performance for a fund than if it had not entered into such contracts.
A fund will cover outstanding forward currency contracts by maintaining liquid
fund securities denominated in the currency underlying the forward contract or
the currency being hedged. To the extent that a fund is not able to cover its
forward currency positions with underlying fund securities, its custodian will
segregate cash or other liquid assets having a value equal to the aggregate
amount of such fund's commitments under forward contracts entered into with
respect to position hedges, cross-hedges and anticipatory hedges. If the value
of the securities used to cover a position or the value of segregated assets
declines, the fund will find alternative cover or segregate additional cash or
other liquid assets on a daily basis so that the value of the covered and
segregated assets will be equal to the amount of a fund's commitments with
respect to such contracts.
As an alternative to segregating assets, a fund may buy call options permitting
the fund to buy the amount of foreign currency being hedged by a forward sale
contract, or a fund may buy put options permitting it to sell the amount of
foreign currency subject to a forward buy contract.
While forward currency contracts are not currently regulated by the CFTC, the
CFTC may in the future assert authority to regulate forward currency contracts.
In such event, a fund's ability to utilize forward currency contracts may be
restricted. In addition, a fund may not always be able to enter into forward
currency contracts at attractive prices and may be limited in its ability to
use these contracts to hedge its assets.
SWAPS AND SWAP-RELATED PRODUCTS. In order to attempt to protect the value of its
investments from interest rate or currency exchange rate fluctuations, a fund
may, subject to its investment restrictions, enter into interest rate and
currency exchange rate swaps, and may buy or sell interest rate and currency
exchange rate caps and floors. A fund's sub-adviser may enter into these
transactions primarily to attempt to preserve a return or spread on a particular
investment or portion of its portfolio. A fund also may enter into these
transactions to attempt to protect against any increase in the price of
securities the fund may consider buying at a later date.
The funds do not intend to use these transactions as a speculative investment.
Interest rate swaps involve the exchange by a fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The exchange commitments can
involve payments to be made in the same currency or in different currencies.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a contractually based principal amount from the party selling the
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a contractually based
principal amount from the party selling the interest rate floor.
A fund, subject to its investment restrictions, enters into interest rate swaps,
caps and floors on either an asset-based or liability-based basis, depending
upon whether it is hedging its assets or its liabilities, and will usually enter
into interest rate swaps on a net basis (I.E., the two payment streams are
netted out, with a fund receiving or paying, as the case may be, only the net
amount of the two payments). The net amount of the excess, if any, of a fund's
obligations over its entitlements with respect to each interest rate swap, will
be calculated on a daily basis. An amount of cash or other liquid assets having
an aggregate net asset at least equal to the accrued excess will be segregated
by its custodian.
If a fund enters into an interest rate swap on other than a net basis, it will
maintain a segregated account in the full amount accrued on a daily basis of its
obligations with respect to the swap. A fund will not enter into any interest
rate swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in one of the three
highest rating categories of at least one nationally recognized statistical
rating organization at the time of entering into such transaction. A fund's
sub-adviser will monitor the creditworthiness of all counterparties on an
ongoing basis. If there is a default by the other party to such a transaction,
the fund will have contractual remedies pursuant to the agreements related to
the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. The sub-advisers have determined
that, as a result, the swap market has become relatively liquid. Caps and floors
are more recent innovations for which standardized documentation has not yet
been developed and, accordingly, they are less liquid than swaps. To the extent
a fund
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sells (I.E., writes) caps and floors, it will segregate cash or other liquid
assets having an aggregate net asset value at least equal to the full amount,
accrued on a daily basis, of its obligations with respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions that may be
entered into by a fund, unless so stated in its investment objectives, although
none of the funds presently intends to engage in such transactions in excess of
5% of its total assets. These transactions may in some instances involve the
delivery of securities or other underlying assets by a fund or its counterparty
to collateralize obligations under the swap.
Under the documentation currently used in those markets, the risk of loss with
respect to interest rate swaps is limited to the net amount of the interest
payments that a fund is contractually obligated to make. If the other party to
an interest rate swap that is not collateralized defaults, a fund would risk
the loss of the net amount of the payments that it contractually is entitled to
receive. A fund may buy and sell (I.E., write) caps and floors without
limitation, subject to the segregation requirement described above.
In addition to the instruments, strategies and risks described in this SAI and
in the prospectus, there may be additional opportunities in connection with
options, futures contracts, forward currency contracts and other hedging
techniques that become available as a fund's sub-adviser develops new
techniques, as regulatory authorities broaden the range of permitted
transactions, and as new instruments are developed. The funds' sub-advisers may
use these opportunities to the extent they are consistent with each fund's
investment objective and as are permitted by a fund's investment limitations and
applicable regulatory requirements.
INDEX OPTIONS. In seeking to hedge all or a portion of its investments, a fund
may purchase and write put and call options on securities indices listed on U.S.
or foreign securities exchanges or traded in the over-the-counter market, which
indices include securities held in the funds. The funds with such option writing
authority may write only covered options. A fund may also use securities index
options as a means of participating in a securities market without making direct
purchases of securities.
A securities index measures the movement of a certain group of securities by
assigning relative values to the securities included in the index. Options on
securities indices are generally similar to options on specific securities.
Unlike options on securities, however, options on securities indices do not
involve the delivery on an underlying security; the option in the case of an
option on a securities index represents the holder's right to obtain from the
writer in cash a fixed multiple of the amount by which the exercise price
exceeds (in the case of a call) or is less than (in the case of a put) the
closing value of the underlying securities index on the exercise date. A fund
may purchase and write put and call options on securities indices or securities
index futures contracts that are traded on a U.S. exchange or board of trade or
a foreign exchange, to the extent permitted under rules and interpretations of
the CFTC, as a hedge against changes in market conditions and interest rates,
and for duration management, and may enter into closing transactions with
respect to those options to terminate existing positions. A securities index
fluctuates with changes in the market values of the securities included in the
index. Securities index options may be based on a broad or narrow market index
or on an industry or market segment.
The delivery requirements of options on securities indices differ from options
on securities. Unlike a securities option, which contemplates the right to take
or make delivery of securities at a specified price, an option on a securities
index gives the holder the right to receive a cash "exercise settlement amount"
equal to (i) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by
(ii) a fixed "index multiplier." Receipt of this cash amount will depend upon
the closing level of the securities index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The amount of cash received will be equal to the
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple. The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount. The writer may offset its position in securities index options prior to
expiration by entering into a closing transaction on an exchange or it may allow
the option to expire unexercised.
The effectiveness of purchasing or writing securities index options as a hedging
technique will depend upon the extent to which price movements in the portion of
a securities portfolio being hedged correlate with price movements of the
securities index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular
security, whether a fund realizes a gain or loss from
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the purchase of writing of options on an index depends upon movements in the
level of prices in the market generally or, in the case of certain indices, in
an industry or market segment, rather than movements in the price of a
particular security. As a result, successful use by a fund of options on
securities indices is subject to the sub-adviser's ability to predict correctly
movements in the direction of the market generally or of a particular industry.
This ability contemplates different skills and techniques from those used in
predicting changes in the price of individual securities.
Securities index options are subject to position and exercise limits and other
regulations imposed by the exchange on which they are traded. The ability of a
fund to engage in closing purchase transactions with respect to securities index
options depends on the existence of a liquid secondary market. Although a fund
will generally purchase or write securities index options only if a liquid
secondary market for the options purchased or sold appears to exist, no such
secondary market may exist, or the market may cease to exist at some future
date, for some options. No assurance can be given that a closing purchase
transaction can be effected when the sub-adviser desires that a fund engage in
such a transaction.
WEBS AND OTHER INDEX-RELATED SECURITIES. A fund may invest in shares of an
investment company whose shares are known as "World Equity Benchmark Shares" or
"WEBS." WEBS have been listed for trading on the American Stock Exchange, Inc.
The funds also may invest in the CountryBaskets Index Fund, Inc., or another
fund the shares of which are the substantial equivalent of WEBS. A fund may
invest in S&P Depositary Receipts, or "SPDRs." SPDRs are securities that
represent ownership in a long-term unit investment trust that holds a portfolio
of common stocks designed to track the performance of the S&P 500 Index. A fund
investing in a SPDR would be entitled to the dividends that accrue to the S&P
500 stocks in the underlying portfolio, less trust expenses.
EURO INSTRUMENTS. The funds may each make investments in Euro instruments. Euro
instruments are U.S. dollar-denominated futures contracts, or options thereon,
which are linked to the London Interbank Offered Rate (the "LIBOR"), although
foreign currency-denominated instruments are available from time to time. Euro
futures contracts enable purchasers to obtain a fixed rate for the lending of
funds, and sellers to obtain a fixed rate for borrowings. A fund might use Euro
futures contracts and options thereon to hedge against changes in LIBOR, which
may be linked to many interest rate swaps and fixed income instruments.
SPECIAL INVESTMENT CONSIDERATIONS AND RISKS. The successful use of the
investment practices described above with respect to futures contracts, options
on futures contracts, forward contracts, options on securities, options on
foreign currencies and swaps and swap-related products draws upon skills and
experience which are different from those needed to select the other instruments
in which a fund may invest. Should interest or exchange rates, or the prices of
securities or financial indices move in an unexpected manner, a fund may not
achieve the desired benefits of the foregoing instruments or may realize losses
and thus be in a worse position than if such strategies had not been used.
Unlike many exchange-traded futures contracts and options on futures contracts,
there are no daily price fluctuation limits with respect to options on
currencies, forward contracts and other negotiated or over-the-counter
instruments, and adverse market movements could therefore continue to an
unlimited extent over a period of time. In addition, the correlation between
movements in the price of the securities and currencies hedged or used for cover
will not be perfect and could produce unanticipated losses.
A fund's ability to dispose of its positions in the foregoing instruments will
depend on the availability of liquid markets in the instruments. Markets in a
number of the instruments are relatively new and still developing, and it is
impossible to predict the amount of trading interest that may exist in those
instruments in the future.
Particular risks exist with respect to the use of each of the foregoing
instruments and could result in such adverse consequences to a fund as: the
possible loss of the entire premium paid for an option bought by a fund; the
inability of the fund, as the writer of a covered call option, to benefit from
the appreciation of the underlying securities above the exercise price of the
option; and the possible need to defer closing out positions in certain
instruments to avoid adverse tax consequences. As a result, no assurance can be
given that a fund will be able to use those instruments effectively for their
intended purposes.
In connection with certain of its hedging transactions, a fund must segregate
assets with the fund's custodian bank to ensure that such fund will be able to
meet its obligations pursuant to these instruments. Segregated assets generally
may not be disposed of for so long as a fund maintains the positions giving rise
to the segregation requirement. Segregation of a large percentage of a fund's
assets could impede implementation of that fund's investment policies or its
ability to meet redemption requests or other current obligations.
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ADDITIONAL RISKS OF OPTIONS ON FOREIGN CURRENCIES, FORWARD CONTRACTS AND FOREIGN
INSTRUMENTS. Unlike transactions entered into by a fund in futures contracts,
options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign currency
options) by the SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation.
Options on currencies may be traded over-the-counter. In an over-the-counter
trading environment, many of the protections afforded to exchange participants
will not be available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to an unlimited
extent over a period of time. Although the buyer of an option cannot lose more
than the amount of the premium plus related transaction costs, this entire
amount could be lost. Moreover, an option writer and a buyer or seller of
futures or forward contracts could lose amounts substantially in excess of any
premium received or initial margin or collateral posted due to the potential
additional margin and collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the OCC, thereby reducing the risk of counterparty
default. Further, a liquid secondary market in options traded on a national
securities exchange may be more readily available than in the over-the-counter
market, potentially permitting a fund to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events.
In addition, exchange-traded options on foreign currencies involve certain risks
not presented by the over-the-counter market. For example, exercise and
settlement of such options must be made exclusively through the OCC, which has
established banking relationships in applicable foreign countries for this
purpose. As a result, the OCC may, if it determines that foreign government
restrictions or taxes would prevent the orderly settlement of foreign currency
option exercises, or would result in undue burdens on the OCC or its clearing
member, impose special procedures on exercise and settlement. These include such
things as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts, options
on futures contracts, forward contracts and options on foreign currencies may be
traded on foreign exchanges and over-the-counter in foreign countries. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) less availability than that available in
the United States of data on which to make trading decisions; (iii) delays in a
fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) low trading volume.
OTHER INVESTMENT COMPANIES
Subject to its investment restrictions, a fund may invest in securities issued
by other investment companies as permitted. A fund may indirectly bear a portion
of any investment advisory fees and expenses paid by funds in which it invests,
in addition to the advisory fees and expenses paid by the fund.
GEI SHORT-TERM INVESTMENT FUND
The IDEX GE/Scottish Equitable Internation Equity fund may 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 accounts advised by GEIM or its affiliate, General Electric
Investment Corporation. The Investment Fund invests exclusively in certain money
market instruments. More particularly, the Investment Fund may invest in: (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
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obligations of 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 advised by GEIM. No advisory fee
is charged by GEIM to the Investment Fund, nor will the IDEX GE/Scottish
Equitable International Equity fund incur any sales charge, redemption fee,
distribution fee or service fee in connection with its investments in the
Investment Fund.
WHEN-ISSUED, DELAYED SETTLEMENT AND
FORWARD DELIVERY SECURITIES
Securities may be purchased and sold on a "when-issued," "delayed settlement,"
or "forward (delayed) delivery" basis.
"When-issued" or "forward delivery" refers to securities whose terms are
available, and for which a market exists, but which are not available for
immediate delivery. When-issued or forward delivery transactions may be expected
to occur a month or more before delivery is due.
A fund may engage in when-issued transactions to obtain what is considered to
be an advantageous price and yield at the time of the transaction. When a fund
engages in when-issued or forward delivery transactions, it will do so for the
purpose of acquiring securities consistent with its investment objective and
policies and not for the purpose of investment leverage.
"Delayed settlement" is a term used to describe settlement of a securities
transaction in the secondary market which will occur sometime in the future. No
payment or delivery is made by a fund until it receives payment or delivery from
the other party for any of the above transactions.
The fund will segregate with its custodian cash, U.S. government securities or
other liquid assets at least equal to the value or purchase commitments until
payment is made. The segregated securities will either mature or, if necessary,
be sold on or before the settlement date. Typically, no income accrues on
securities purchased on a delayed delivery basis prior to the time delivery of
the securities is made, although a fund may earn income on securites it has
segregated to collateralize its delayed delivery purchases.
New issues of stocks and bonds, private placements and U.S. government
securities may be sold in this manner.
RISK FACTORS
At the time of settlement, the market value of the security may be more or less
than the purchase price. A fund bears the risk of such market value
fluctuations. These transactions also involve the risk that the other party to
the transaction may default on its obligation to make payment or delivery. As a
result, the fund may be delayed or prevented from completing the transaction and
may incur additional costs as a consequence of the delay.
ZERO COUPON, PAY-IN-KIND AND STEP COUPON SECURITIES
Subject to its investment restrictions, a fund may invest in zero coupon,
pay-in-kind and step-coupon securities. Zero-coupon bonds are issued and traded
at a discount from their face value. They do not entitle the holder to any
periodic payment of interest prior to maturity. Step coupon bonds trade at a
discount from their face value and pay coupon interest. The coupon rate is low
for an initial period and then increases to a higher coupon rate thereafter. The
discount from the face amount or par value depends on the time remaining until
cash payments begin, prevailing interest rates, liquidity of the security and
the perceived credit quality of the issuer. Pay-in-kind bonds give the issuer an
option to pay cash at a coupon payment date or give the holder of the security a
similar bond with the same coupon rate and a face value equal to the amount of
the coupon payment that would have been made. The IDEX JCC Flexible Income may
also invest in "strips," which are debt securities that are stripped of their
interest after the securities are issued, but otherwise are comparable to zero
coupon bonds.
Current federal income tax law requires holders of zero-coupon securities and
step-coupon securities to report the portion of the original issue discount on
such securities that accrues that year as interest income, even though the
holders receive no cash payments of interest during the year. In order to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986 ("Code"), a fund must distribute its investment company taxable income,
including the original issue discount accrued on zero-coupon or step-coupon
bonds. Because it will not receive cash payments on a current basis in respect
of accrued original-issue discount on zero-coupon bonds or step-coupon bonds
during the period before interest payments begin, in some years a fund may have
to distribute cash obtained from other sources in order to satisfy the
distribution requirements under the Code. A fund might obtain such cash from
selling other portfolio holdings. These actions may
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reduce the assets to which fund expenses could be allocated and may reduce the
rate of return for such fund. In some circumstances, such sales might be
necessary in order to satisfy cash distribution requirements even though
investment considerations might otherwise make it undesirable for a fund to sell
the securities at the time.
Generally, the market prices of zero-coupon bonds and strip securities are more
volatile than the prices of securities that pay interest periodically in cash
and they are likely to respond to changes in interest rates to a greater degree
than other types of debt securities having similar maturities and credit
quality.
INCOME PRODUCING SECURITIES
IDEX JCC Flexible Income focuses its investments in income-producing
securities.
IDEX JCC Flexible Income will purchase defaulted securities only when the
sub-adviser believes, based upon analysis of the financial condition, results
of operations and economic outlook of an issuer, that there is potential for
resumption of income payments and that the securities offer an unusual
opportunity for capital appreciation. Notwithstanding the sub-adviser's belief
as to the resumption of income payments, however, the purchase of any security
on which payment of interest or dividends is suspended involves a high degree
of risk. Such risk includes, among other things, the following:
FINANCIAL AND MARKET RISKs. Investments in securities that are in default
involve a high degree of financial and market risks that can result in
substantial, or at times even total, losses. Issuers of defaulted
securities may have substantial capital needs and may become involved in
bankruptcy or reorganization proceedings. Among the problems involved in
investments in such issuers is the fact that it may be difficult to obtain
information about the condition of such issuers. The market prices of such
securities also are subject to abrupt and erratic movements and above
average price volatility, and the spread between the bid and asked prices
of such securities may be greater than normally expected.
DISPOSITION OF FUND SECURITIEs. IDEX JCC Flexible Income generally intends
to purchase securities for which its sub-adviser expects an active market
to be maintained, defaulted securities may be less actively traded than
other securities making it more difficult to dispose of substantial
holdings of such securities at prevailing market prices. IDEX JCC Flexible
Income will limit its holdings of any such securities to amounts that the
sub-adviser believes could be readily sold, and its holdings of such
securities would, in any event, be limited so as not to limit IDEX JCC
Flexible Income's ability to readily dispose of its securities to meet
redemptions.
OTHER. Defaulted securities require active monitoring and may, at times,
require participation in bankruptcy or receivership proceedings on behalf
of the IDEX JCC Flexible Income.
Other types of income producing securities that the funds may purchase include,
but are not limited to, the following:
VARIABLE AND FLOATING RATE OBLIGATIONS. These types of securities are
relatively long-term instruments that often carry demand features
permitting the holder to demand payment of principal at any time or at
specified intervals prior to maturity.
STANDBY COMMITMENTS. These instruments, which are similar to a put, give a
fund the option to obligate a broker, dealer or bank to repurchase a
security held by a fund at a specified price.
TENDER OPTION BONDS. Tender option bonds are relatively long-term bonds
that are coupled with the agreement of a third party (such as a broker,
dealer or bank) to grant the holders of such securities the option to
tender the securities to the institution at periodic intervals.
INVERSE FLOATERs. Inverse floaters are instruments whose interest bears an
inverse relationship to the interest rate on another security. The funds
will not invest more than 5% of their respective assets in inverse
floaters.
The funds will purchase instruments with demand features, standby commitments
and tender option bonds primarily for the purpose of increasing the liquidity of
their portfolios.
LENDING OF FUND SECURITIES
Subject to any applicable investment restriction relating to lending, a fund may
lend securities from its portfolio. Under applicable regulatory requirements
(which are subject to change), the following conditions apply to securities
loans: a) the loan must be continuously secured by liquid assets maintained on a
current basis in an amount at least equal to the market value of the securities
loaned; b) a fund must receive any dividends or interest paid by the issuer on
such securities; c) a fund must have the right to call the loan and obtain the
securities loaned at any time upon notice of not more
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than five business days, including the right to call the loan to permit voting
of the securities; and d) a fund must receive either interest from the
investment of collateral or a fixed fee from the borrower. Securities loaned by
a fund remain subject to fluctuations in market value. A fund may pay reasonable
finders, custodian and administrative fees in connection with a loan. Securities
lending, as with other extensions of credit, involves the risk that the borrower
may default. Although securities loans will be fully collateralized at all
times, a fund may experience delays in, or be prevented from, recovering the
collateral. During a period that a fund seeks to enforce its rights against the
borrower, the collateral and the securities loaned remain subject to
fluctuations in market value. A fund may also incur expenses in enforcing its
rights. If a fund has sold the loaned security, it may not be able to settle the
sale of the security and may incur potential liability to the buyer of the
security on loan for its costs to cover the purchase. A fund will not lend
securities to any adviser or sub-adviser to the funds or their affiliates. By
lending its securities, a fund can increase its income by continuing to receive
interest or dividends on the loaned securities as well as by either investing
the cash collateral in short-term securities or by earning income in the form of
interest paid by the borrower when U.S. government securities are used as
collateral.
JOINT TRADING ACCOUNTS
IDEX JCC Growth, IDEX JCC Global, IDEX JCC Flexible Income, IDEX JCC Balanced
and IDEX JCC Capital Appreciation, and other clients of Janus and its
affiliates, may place assets in joint trading accounts for the purpose of making
short-term investments in money market instruments. The Board of Trustees must
approve the participation of each of these funds in these joint trading accounts
and procedures pursuant to which the joint accounts will operate. The joint
trading accounts are to be operated pursuant to an exemptive order issued to
Janus and certain of its affiliates by the SEC. All joint account participants,
including these funds, will bear the expenses of the joint trading accounts in
proportion to their investments. Financial difficulties of other participants in
the joint accounts could cause delays or other difficulties for the funds in
withdrawing their assets from joint trading accounts.
ILLIQUID SECURITIES
Subject to its investment restrictions, a fund may invest its assets in illiquid
securities (I.E., securities that are not readily marketable). The Board of
Trustees has authorized the sub-advisers to make liquidity determinations with
respect to its securities, including Rule 144A securities, commercial paper and
municipal lease obligations in accordance with the guidelines established by the
Board of Trustees. Under the guidelines, the sub- adviser will consider the
following factors in determining whether a Rule 144A security or a municipal
lease obligation is liquid: 1) the frequency of trades and quoted prices for the
security; 2) the number of dealers willing to purchase or sell the security and
the number of other potential purchasers; 3) the willingness of dealers to
undertake to make a market in the security; and 4) the nature of the marketplace
trades, including the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer. With respect to municipal
lease obligations, the sub-adviser of IDEX AEGON Tax Exempt and IDEX JCC
Flexible Income will also consider factors unique to municipal lease obligations
including the general creditworthiness of the municipality, the importance of
the property covered by the lease obligation and the likelihood that the
marketability of the obligation will be maintained throughout the time the
obligation is held by the fund. The sale of illiquid securities often requires
more time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. A fund may be
restricted in its ability to sell such securities at a time when the sub-adviser
deems it advisable to do so. In addition, in order to meet redemption requests,
a fund may have to sell other assets, rather than such illiquid securities, at a
time which is not advantageous.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Subject to its investment restrictions, a fund may enter into repurchase and
reverse repurchase agreements. In a repurchase agreement, a fund purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon price on an agreed upon date within a number of days (usually not
more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon incremental amount which is unrelated to the
coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value (at least equal to the amount of
the agreed upon resale price and marked-to-market daily) of the underlying
security or collateral. A fund may engage in a repurchase agreement with respect
to any security in which it is authorized to invest. While it does not presently
appear possible to eliminate all risks from these transactions (particularly the
possibility of a decline in the market value of the underlying securities, as
well as delays
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and costs to a fund in connection with bankruptcy proceedings), it is the policy
of each fund to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by the sub-adviser for
that fund and approved by the Board of Trustees. In addition, the funds
currently intend to invest primarily in repurchase agreements collateralized by
cash, U.S. government securities, or money market instruments whose value equals
at least 100% of the repurchase price, marked-to-market daily.
In a reverse repurchase agreement, a fund sells a portfolio instrument to
another party, such as a bank or broker-dealer, in return for cash and agrees
to repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, a fund will segregate with its custodian
cash and appropriate liquid assets with the funds' custodian to cover its
obligation under the agreement. The funds will enter into reverse repurchase
agreements only with parties the investment sub-adviser for each fund deems
creditworthy and that have been reviewed by the Board of Trustees.
The IDEX Goldman Sachs Growth may, together with other registered investment
companies managed by GSAM or its affiliates, transfer uninvested cash balances
into a single joint account, the daily aggregate balance of which will be
invested in one or more repurchase agreements.
PASS-THROUGH SECURITIES
Each of the funds may, in varying degrees, invest in various types of
pass-through securities, such as mortgage-backed securities, asset-backed
securities and participation interests. A pass-through security is a share or
certificate of interest in a pool of debt obligations that has been repackaged
by an intermediary, such as a bank or broker-dealer. The purchaser receives an
undivided interest in the underlying pool of securities. The issuers of the
underlying securities make interest and principal payments to the intermediary
which are passed through to purchasers, such as the funds.
The most common type of pass-through securities are mortgage-backed securities.
Government National Mortgage Association ("GNMA") Certificates are mortgage-
backed securities that evidence an undivided interest in a pool of mortgage
loans. GNMA Certificates differ from traditional bonds in that principal is paid
back monthly by the borrowers over the term of the loan rather than returned in
a lump sum at maturity. A fund will generally purchase "modified pass-through"
GNMA Certificates, which entitle the holder to receive a share of all interest
and principal payments paid and owned on the mortgage pool, net of fees paid to
the "issuer" and GNMA, regardless of whether or not the mortgagor actually makes
the payment. GNMA Certificates are backed as to the timely payment of principal
and interest by the full faith and credit of the U.S. government.
The Federal Home Loan Mortgage Corporation ("FHLMC") issues two types of
mortgage pass-through securities: mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. FHLMC guarantees timely payments of
interest on PCs and the full return of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay interest
semi-annually and return principal once a year in guaranteed minimum payments.
This type of security is guaranteed by FHLMC as to timely payment of principal
and interest, but is not backed by the full faith and credit of the U.S.
government.
The Federal National Mortgage Association ("FNMA") issues guaranteed mortgage
pass-through certificates ("FNMA Certificates"). FNMA Certificates resemble GNMA
Certificates in that each FNMA Certificate represents a pro rata share of all
interest and principal payments made and owned on the underlying pool. This type
of security is guaranteed by FNMA as to timely payment of principal and
interest, but it is not backed by the full faith and credit of the U.S.
government.
Each of the mortgage-backed securities described above is characterized by
monthly payments to the holder, reflecting the monthly payments made by the
borrowers who received the underlying mortgage loans. The payments to the
security holders (such as a fund), like the payments on the underlying loans,
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as 20 or 30 years, the borrowers can,
and typically do, pay them off sooner. Thus, the security holders frequently
receive prepayments of principal in addition to the principal that is part of
the regular monthly payments. A borrower is more likely to prepay a mortgage
that bears a relatively high rate of interest. This means that in times of
declining interest rates, some of a fund's higher yielding mortgage-backed
securities may be converted to cash. That fund will then be forced to accept
lower interest rates when that cash is used to purchase additional securities
in the mortgage-backed securities sector or in other investment sectors.
Mortgage and asset-backed securities may have periodic income payments or may
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pay interest at maturity (as is the case with Treasury bills or zero-coupon
bonds).
Asset-backed securities represent interests in pools of consumer loans and are
backed by paper or accounts receivables originated by banks, credit card
companies or other providers of credit. Generally, the originating bank or
credit provider is neither the obligor or guarantor of the security and interest
and principal payments ultimately depend upon payment of the underlying loans by
individuals. Tax-exempt asset-backed securities include units of beneficial
interests in pools of purchase contracts, financing leases, and sales agreements
that may be created when a municipality enters into an installment purchase
contract or lease with a vendor. Such securities may be secured by the assets
purchased or leased by the municipality; however, if the municipality stops
making payments, there generally will be no recourse against the vendor. The
market for tax-exempt asset-backed securities is still relatively new. These
obligations are likely to involve unscheduled prepayments of principal.
HIGH YIELD/HIGH-RISK BONDS
High-yield/high-risk bonds, below investment grade securities (commonly known as
"junk bonds") involve significant credit and liquidity concerns and fluctuating
yields, and are not suitable for short-term investing. Higher yields are
ordinarily available on fixed-income securities which are unrated or are rated
in the lower rating categories of recognized rating services such as Moody's and
Standard & Poor's.
Lower rated bonds also involve the risk that the issuer will not make interest
or principal payments when due. In the event of an unanticipated default, a fund
owning such bonds would experience a reduction in its income, and could expect a
decline in the market value of the securities so affected. Such funds,
furthermore, may incur additional costs in seeking the recovery of the defaulted
securities. More careful analysis of the financial condition of each issuer of
lower rated securities is therefore necessary. During an economic downturn or
substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payments obligations, to meet projected
business goals and to obtain additional financing.
The market prices of lower grade securities are generally less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic or political changes or individual developments specific to the
issuer. Periods of economic or political uncertainty and change can be expected
to result in volatility of prices of these securities. Since the last major
economic recession, there has been a substantial increase in the use of
high-yield debt securities to fund highly leveraged corporate acquisitions and
restructurings, so past experience with high-yield securities in a prolonged
economic downturn may not provide an accurate indication of future performance
during such periods. Lower rated securities also may have less liquid markets
than higher rated securities, and their liquidity as well as their value may be
more severely affected by adverse economic conditions. Adverse publicity and
investor perceptions as well as new or proposed laws may also have a greater
negative impact on the market for lower rated bonds.
Unrated securities are not necessarily of lower quality than rated securities,
but the markets for lower rated and nonrated securities are more limited than
those in which higher rated securities are traded. In addition, an economic
downturn or increase in interest rates is likely to have a greater negative
effect on: (i) the market for lower rated and nonrated securities; (ii) the
value of high yield debt securities held by a fund; (iii) the new asset value of
a fund holding such securities; and (iv) the ability of the bonds' issuers to
repay principal and interest, meet projected business goals and obtain
additional financing than on higher rated securities.
WARRANTS AND RIGHTS
Subject to its investment restrictions, a fund may invest in warrants and
rights. A warrant is a type of security that entitles the holder to buy a
proportionate amount of common stock at a specified price, usually higher than
the market price at the time of issuance, for a period of years or to
perpetuity. In contrast, rights, which also represent the right to buy common
shares, normally have a subscription price lower than the current market value
of the common stock and a life of two to four weeks.
U.S. GOVERNMENT SECURITIES
Examples of the types of U.S. government securities that a fund may hold
include, in addition to those described in the prospectus and direct obligations
of the U.S. Treasury, the obligations of the Federal Housing Administration,
Farmers Home Administration, Small Business Administration, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Bank, Federal Intermediate Credit Banks, Federal Land Banks
and Maritime Administration. U.S. government securities may be supported by the
full faith and credit of the U.S. government (such as securities of the Small
Business Administration); by
34
<PAGE>
the right of the issuer to borrow from the Treasury (such as securities of the
Federal Home Loan Bank); by the discretionary authority of the U.S. government
to purchase the agency's obligations (such as securities of the Federal National
Mortgage Association); or only by the credit of the issuing agency.
MONEY MARKET RESERVES
(IDEX T. ROWE PRICE SMALL CAP AND IDEX T. ROWE PRICE DIVIDEND GROWTH)
It is expected that these funds will invest their cash reserves primarily in a
money market fund established for the exclusive use of the T. Rowe Price family
of mutual funds and other clients of T. Rowe Price and Price-Fleming. The
Reserve Investment Fund ("RIF") is a series of Reserve Investment Funds, Inc.
Additional series may be created in the future. The RIF was created and is
operated pursuant to an Exemptive Order issued by the SEC (Investment Company
Act Release No. IC-22770, July 29, 1997).
The RIF must comply with the requirements of Rule 2a-7 under the 1940 Act
governing money market funds. To that end, the RIF invests at least 95% of its
total assets in prime money market instruments receiving the highest credit
rating from at least one Nationally Recognized Statistical Rating Organization.
The RIF provides a very efficient means of managing the cash reserves of the
funds. While the RIF does not pay an advisory fee to the investment manager, it
will incur other expenses. However, the RIF is expected by T. Rowe Price to
operate at a very low expense ratio. The funds will only invest in the RIF to
the extent it is consistent with their objectives and programs and the terms of
the Exemptive Order issued by the SEC.
The RIF is not insured or guaranteed by the U.S. government, and there is no
assurance it will maintain a stable net asset value of $1.00 per share.
TURNOVER RATE
<TABLE>
<CAPTION>
FUND* OCTOBER 31,1998 OCTOBER 31, 1997
- ------------------------------------------------- ----------------- -----------------
<S> <C> <C>
IDEX Alger Aggressive Growth 142.08% 120.96%
IDEX GE/Scottish Equitable International Equity 50.01% 21.85%
IDEX JCC Capital Appreciation 136.59% 130.48%
IDEX JCC Global 87.68% 91.02%
IDEX JCC Growth 27.19% 91.52%
IDEX C.A.S.E. Growth 147.01% 183.06%
IDEX NWQ Value Equity 30.43% 6.40%
IDEX LKCM Strategic Total Return 32.12% 51.44%
IDEX Dean Asset Allocation 55.45% 71.63%
IDEX JCC Balanced 61.50% 127.08%
IDEX JCC Flexible Income 90.63% 135.53%
IDEX AEGON Income Plus 53.09% 62.28%
IDEX AEGON Tax Exempt 42.42% 71.29%
</TABLE>
- ------------------------------
* No information is included for IDEX Goldman Sachs Growth, IDEX T. Rowe Price
Dividend Growth, IDEX Salomon All Cap, IDEX Pilgrim Baxter Mid Cap Growth or
IDEX T. Rowe Price Small Cap as these funds commenced operations on March 1,
1999.
As stated in the prospectus, each of the funds generally intends to purchase and
sell securities as deemed appropriate by the fund's sub-adviser to further a
fund's stated investment objective, and the rate of fund turnover is not
expected to be a limiting factor when changes are deemed to be appropriate. Fund
transactions for IDEX AEGON Tax Exempt and IDEX AEGON Income Plus are ordinarily
undertaken to achieve each fund's investment objective in light of anticipated
movements in the level of interest rates. The investment policies of IDEX AEGON
Tax Exempt and IDEX AEGON Income Plus may lead to frequent changes in
investments, particularly in periods of rapidly fluctuating interest rates.
These percentages are calculated by dividing the lesser of purchases or sales of
fund securities during the fiscal year by the monthly average of the value of
such securities (excluding from the computation all securities, including
options, with maturities at the time of acquisition of one year or less). For
example, a fund turnover rate of 100% would mean that all of a fund's securities
(except those excluded from the calculation) were replaced once in a period of
one year. A high rate of fund turnover generally involves correspondingly
greater brokerage commission expenses.
Turnover rates may vary greatly from year to year, as well as within a
particular year, and may also be affected
35
<PAGE>
by cash requirements for redemptions of a fund's shares and by requirements, the
satisfaction of which enable the fund to receive favorable tax treatment.
Because the rate of fund turnover is not a limiting factor, particular holdings
may be sold at any time if investment judgment or fund operations make a sale
advisable. As a result, the annual fund turnover rate in future years may exceed
the percentage shown above.
INVESTMENT ADVISORY AND OTHER SERVICES
IDEX Mutual Funds has entered into a Management and Investment Advisory
Agreement ("Advisory Agreement") on behalf of each fund with Idex Management,
Inc. ("IMI"), located at 570 Carillon Parkway, St. Petersburg, Florida 33716.
IMI supervises each respective fund's investments and conducts its investment
program.
The Advisory Agreement provides that IMI will perform the following services or
cause them to be performed by others: (i) furnish to the fund investment advice
and recommendations; (ii) supervise the purchase and sale of securities as
directed by appropriate fund officers, and (iii) be responsible for the
administration of each fund. For services to IDEX JCC Capital Appreciation, IDEX
JCC Global, IDEX JCC Growth and IDEX JCC Balanced, IMI receives an annual fee,
computed daily and paid monthly, equal to 1.00% of the first $750 million of
each fund's average daily net assets, 0.90% of the next $250 million of each
fund's average daily net assets, and 0.85% of the average daily net assets of
that fund in excess of $1 billion. For services to IDEX JCC Flexible Income, IMI
receives 0.90% of the first $100 million, 0.80% of the next $150 million and
0.70% of the fund's average daily net assets over $250 million; for IDEX AEGON
Income Plus and IDEX AEGON Tax Exempt, IMI receives 0.60% of each fund's average
daily net assets; and for IDEX Alger Aggressive Growth, IDEX GE/Scottish
Equitable International Equity, IDEX C.A.S.E. Growth, IDEX NWQ Value Equity,
IDEX LKCM Strategic Total Return, IDEX Dean Asset Allocation, IDEX Goldman Sachs
Growth, IDEX T. Rowe Price Dividend Growth, IDEX Salomon All Cap, IDEX Pilgrim
Baxter Mid Cap Growth, and IDEX T. Rowe Price Small Cap, IMI receives 0.80% of
the first $500 million of each fund's average daily net assets and 0.70% of each
fund's average daily net assets over $500 million.
The duties and responsibilities of the investment adviser are specified in the
Advisory Agreement. The Advisory Agreement was approved by the Board of Trustees
(including a majority of trustees who are not parties to the Advisory Agreement
or interested persons, as defined by the 1940 Act, of any such party). The
Advisory Agreement is not assignable and may be terminated without penalty upon
60 days' written notice at the option of either the Fund, IMI or by a vote of
shareholders of each fund. The Advisory Agreement provides that it can be
continued from year to year so long as such continuance is specifically approved
annually (a) by the Board of Trustees or by a majority of the outstanding shares
of each fund and (b) by a majority vote of the Trustees who are not parties to
the Advisory Agreement or interested persons of any such party cast in person at
a special meeting called for such purposes. Prior to March 1, 1999,
InterSecurities, Inc. served as investment adviser to IDEX AEGON Tax Exempt,
IDEX AEGON Income Plus, IDEX GE/Scottish Equitable International Equity, IDEX
C.A.S.E. Growth, IDEX NWQ Value Equity, IDEX LKCM Strategic Total Return, IDEX
Dean Asset Allocation and IDEX Alger Aggressive Growth.
The Advisory Agreement also provides that IMI shall not be liable to the funds
or to any shareholder for any error of judgment or mistake of law or for any
loss suffered by a fund or by any shareholder in connection with matters to
which the Advisory Agreement relates, except for a breach of fiduciary duty or a
loss resulting from willful misfeasance, bad faith, gross negligence, or
reckless disregard on the part of IMI in the performance of its duties
thereunder.
The Advisory Agreement became effective as follows: IDEX AEGON Tax Exempt -
April 22, 1991; IDEX AEGON Income Plus - April 22, 1992; IDEX Alger Aggressive
Growth and IDEX LKCM Strategic Total Return - September 30, 1994; IDEX Dean
Asset Allocation - June 1, 1995; IDEX C.A.S.E. Growth - November 15, 1995; IDEX
NWQ Value Equity - October 30, 1996; IDEX GE/Scottish Equitable International
Equity - February 1, 1997; IDEX JCC Capital Appreciation, IDEX JCC Global, IDEX
JCC Growth, IDEX JCC Balanced and IDEX JCC Flexible Income - June 25, 1998; IDEX
Pilgrim Baxter Mid Cap Growth, IDEX T. Rowe Price Small Cap, IDEX Goldman Sachs
Growth, IDEX T. Rowe Price Dividend Growth, and IDEX Salomon All Cap. - March 1,
1999.
Each fund pays its allocable share of the fees and expenses of a fund's
non-interested trustees, custodian and transfer agent fees, brokerage
commissions and all other expenses in connection with the execution of its
portfolio transactions, administrative, clerical, recordkeeping, bookkeeping,
legal, auditing and accounting expenses, interest and taxes, expenses of
preparing tax returns, expenses of shareholders' meetings and preparing,
printing and mailing proxy statements (unless otherwise agreed to by the funds
or IMI,
36
<PAGE>
expenses of preparing and typesetting periodic reports to shareholders (except
for those reports the funds permit to be used as sales literature), and the
costs, including filing fees, of renewing or maintaining registration of fund
shares under federal and state law. The investment adviser will reimburse a
fund, or waive fees, or both, whenever, in any fiscal year, the total cost to a
fund of normal operating expenses chargeable to its income account, including
the investment advisory fee but excluding brokerage commissions, interest,
taxes and 12b-1 fees, exceeds, in the case of the IDEX JCC Capital
Appreciation, IDEX JCC Growth, IDEX JCC Balanced and IDEX JCC Flexible Income,
1.50% of each fund's average daily net assets; in the case of IDEX GE/Scottish
Equitable International Equity 1.45% of average daily net assets; in the case
of IDEX AEGON Income Plus, 1.25% of average daily net assets; in the case of
the IDEX AEGON Tax Exempt, 1.00% of average daily net assets; and 1.20% of a
fund's average daily net assets for all other funds. The IDEX JCC Global does
not have an expense limitation.
<TABLE>
<CAPTION>
ADVISORY FEE AFTER REIMBURSEMENT
----------------------------------------------------------------------------
OCTOBER 31 SEPTEMBER 30
------------------------------------------------------- --------------------
FUND ADVISER 1998 1997 1996 1996
- ------------------------- --------- ------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
IDEX Alger Aggressive
Growth** IMI $ 344,018 $ 130,896 $ 5,163 $ 56,761
IDEX GE/Scottish
Equitable
International Equity** IMI $ (64,180) $ (110,543) N/A N/A
IDEX JCC Capital
Appreciation IMI $ 167,150 $ 45,071 $ 7,502 $ 19,350
IDEX JCC Global IMI $3,907,062 $ 2,224,062 $126,856 $1,130,757
IDEX JCC Growth IMI $1,352,188 $11,676,637 $952,996 $5,459,981
IDEX C.A.S.E.
Growth** IMI $ 36,124 $ (96,157) $(11,137) $ (36,998)
IDEX NWQ Value
Equity** IMI $ 46,140 $ (63,589) N/A N/A
IDEX LKCM Strategic
Total Return** IMI $ 380,273 $ 127,630 $ 1,140 $ 5,591
IDEX Dean Asset
Allocation** IMI $ 325,285 $ 120,873 $ 2,983 $ 53,542
IDEX JCC Balanced IMI $ 206,736 $ (4,940) $ (4,993) $ (21,773)
IDEX JCC Flexible
Income IMI $ 151,489 $ 60,744 $ (3,566) $ 133,035
IDEX AEGON Income
Plus** IMI $ 441,912 $ 416,928 $ 35,332 $ 414,023
IDEX AEGON Tax
Exempt** IMI $ 136,481 $ (7,330) $ (6,243) $ 35,970
<CAPTION>
ADVISORY FEE REIMBURSEMENTS
---------------------------------------------------------
OCTOBER 31 SEPTEMBER 30
-------------------------------------- ------------------
FUND 1998 1997 1996 1996
- ------------------------- ----------- ----------- -------------- ------------------
<S> <C> <C> <C> <C>
IDEX Alger Aggressive
Growth** $173,443 $192,695 $17,394 $169,995
IDEX GE/Scottish
Equitable
International Equity** $117,653 $128,291 N/A N/A
IDEX JCC Capital
Appreciation $107,861 $193,491 $12,709 $122,710
IDEX JCC Global 0 0 0 0
IDEX JCC Growth 0 0 0 0
IDEX C.A.S.E.
Growth** $ 51,462 $150,161 $13,949 $ 55,165
IDEX NWQ Value
Equity** $ 93,563 $104,638 N/A N/A
IDEX LKCM Strategic
Total Return** $ 30,860 $ 96,214 $11,492 $ 92,079
IDEX Dean Asset
Allocation** $ 8,119 $ 99,277 $11,829 $ 28,453
IDEX JCC Balanced $ 50,820 $139,247 $13,490 $106,223
IDEX JCC Flexible
Income $ 186 $ 95,242 $17,675 $ 41,410
IDEX AEGON Income
Plus** 0 0 0 0
IDEX AEGON Tax
Exempt** $ 10,071 $155,172 $19,367 $123,530
</TABLE>
- ------------------------------
* No information is included for the IDEX Goldman Sachs Growth, IDEX T. Rowe
Price Dividend Growth, IDEX Salomon All Cap, IDEX Pilgrim Baxter Mid Cap
Growth or IDEX T. Rowe Price Small Cap as they did not commence operations
until March 1, 1999.
** Prior to March 1, 1999, ISI served as investment adviser to these funds.
Janus Capital Corporation ("JCC"), 100 Fillmore Street, Denver, CO 80206,
serves as sub-adviser to the IDEX JCC Capital Appreciation, IDEX JCC Global,
IDEX JCC Growth, IDEX JCC Balanced and IDEX JCC Flexible Income pursuant to an
Investment Counsel Agreement dated June 25, 1998 with IMI.
Fred Alger Management, Inc. ("Alger"), 1 World Trade Center, Suite 9333, New
York, NY 10048, serves as sub-adviser to IDEX Alger Aggressive Growth pursuant
to an Investment Counsel Agreement dated September 30, 1994 with IMI.
Luther King Capital Management Corporation ("LKCM"), 301 Commerce Street, Suite
1600, Fort Worth, TX 76102, serves as sub-adviser to IDEX LKCM Strategic Total
Return pursuant to an Investment Counsel Agreement dated as of September 30,
1994.
Dean Investment Associates ("Dean"), a Division of C.H. Dean and Associates,
Inc., 2480 Kettering Tower, Dayton, Ohio 45423-2480 serves as sub-adviser to
IDEX Dean Asset Allocation pursuant to an Investment Counsel Agreement dated as
of June 30, 1995.
C.A.S.E. Management, Inc. ("C.A.S.E."), 5355 Town Center Road, Suite 701, Boca
Raton, FL 33486, serves as sub-adviser to IDEX C.A.S.E. Growth pursuant to an
Investment Counsel Agreement dated November 15, 1995.
37
<PAGE>
NWQ Investment Management Company, Inc. ("NWQ"), 2049 Century Park East, 4th
Floor,Los Angeles, CA 90067, serves as sub-adviser to IDEX NWQ Value Equity
pursuant to an Investment Counsel Agreement dated October 30, 1996.
Scottish Equitable Investment Management Limited ("SEIM"), Edinburgh Park,
Edinburgh EH12 9SE, Scotland, and GE Investment Management Inc. ("GEIM"), 3003
Summer Street, Stamford, CT 06905, serve as sub-advisers to the IDEX
GE/Scottish Equitable International Equity pursuant to respective Investment
Counsel Agreements dated February 1, 1997.
T. Rowe Price Associates, Inc. ("T. Rowe Price"), 100 E. Pratt Street,
Baltimore, MD 21202 serves as sub-adviser to the IDEX T. Rowe Price Dividend
Growth and IDEX T. Rowe Price Small Cap pursuant to an Investment Counsel
Agreement dated March 1, 1999.
Salomon Brothers Asset Management Inc. ("SBAM"), 7 World Trade Center, New
York, NY 10048 serves as sub-adviser to IDEX Salomon All Cap pursuant to an
Investment Counsel Agreement dated March 1, 1999.
Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter") 825 Dupportrail, Wayne, PA
19087 serves as sub-adviser to IDEX Pilgrim Baxter Mid Cap Growth pursuant to
an Investment Counsel Agreement dated March 1, 1999.
Goldman Sachs Asset Management ("GSAM") One New York Plaza, New York, NY 10004
serves as sub-adviser to the IDEX Goldman Sachs Growth pursuant to an
Investment Counsel Agreement dated March 1, 1999.
AEGON USA Investment Management, Inc. ("AIMI"), 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499, serves as sub-adviser to IDEX AEGON Tax Exempt and IDEX
AEGON Income Plus pursuant to an Investment Counsel Agreement dated April 22,
1992.
The sub-advisers also serve as sub-advisers to certain portfolios of the WRL
Series Fund, Inc., a registered investment company. They may be referred to
herein collectively as the "sub-advisers" and individually as a "sub-adviser."
<TABLE>
<CAPTION>
FUND SUB-ADVISER SUB-ADVISORY FEE
- ------------------------------- -------------------------------- -------------------------------------------------
<S> <C> <C>
IDEX GE/Scottish Equitable GE Investment Management 50% of the fees received by IMI under the
International Equity Incorporated and Scottish Advisory Agreement, less 50% of any amount
Equitable Investment Manage- reimbursed pursuant to its expense limitation
ment Limited
IDEX JCC Global Janus Capital Corporation 0.50% of the first $750 million of average daily
net assets; 0.45% of the next $250 million in
assets; and 0.4250% of assets in excess of $1
billion
IDEX T. Rowe Price Small Cap T. Rowe Price Associates, Inc. 0.35% of average daily net assets
IDEX Pilgrim Baxter Mid Cap Pilgrim Baxter & Associates, 0.50% of the first $100 million of average daily
Ltd. net assets; 0.40% of assets in excess of $100
million (from first dollar)
IDEX JCC Capital Appreciation Janus Capital Corporation 0.50% of the first $750 million of average daily
net assets; 0.45% of the next $250 million in
assets; and 0.4250% of assets in excess of $1
billion, less 50% of any amount reimbursed
pursuant to the fund's expense limitation*
IDEX C.A.S.E. Growth C.A.S.E. Management, Inc. 50% of the fees received by IMI under the
Advisory Agreement, less 50% of any amount
reimbursed pursuant to its expense limitation
IDEX NWQ Value Equity NWQ Investment Management 50% of the fees received by IMI under the
Company, Inc. Advisory Agreement, less 50% of any amount
reimbursed pursuant to its expense limitation
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
FUND SUB-ADVISER SUB-ADVISORY FEE
- ------------------------------ -------------------------------- --------------------------------------------------
<S> <C> <C>
IDEX Salomon All Cap Salomon Brothers Asset 0.30% of the first $20 million of average daily
Management Inc net assets; 0.50% of the next $20-$100 million
of average daily net assets; and 0.40% of
average daily net assets over $100 million
IDEX Alger Aggressive Growth Fred Alger Management, Inc. 50% of the fees received by IMI under the
Advisory Agreement, less 40% of any amount
reimbursed pursuant to its expense limitation
IDEX JCC Growth Janus Capital Corporation 0.50% of the first $750 million of average daily
net assets; 0.45% of the next $250 million; and
0.4250% of assets in excess of $1 billion, less
50% of any amount reimbursed pursuant to the
fund's expense limitation*
IDEX Goldman Sachs Growth Goldman Sachs Asset 0.50% of the first $50 million of average daily
Management net assets; 0.45% of the next $50-$100 million
in assets; and 0.40% of assets in excess of
$100 million
IDEX T. Rowe Price Dividend T. Rowe Price Associates, Inc. 0.50% of the first $100 million of average daily
Growth net assets and 0.40% of assets over $100
million (from first dollar)
IDEX Dean Asset Allocation Dean Investment Associates 50% of the fees received by IMI under the
Advisory Agreement, less 50% of any amount
reimbursed pursuant to its expense limitation
IDEX LKCM Strategic Total Luther King Capital 50% of the fees received by IMI under the
Return Management Corporation Advisory Agreement, less 50% of any amount
reimbursed pursuant to its expense limitation
IDEX JCC Balanced Janus Capital Corporation 0.50% of the first $750 million of average daily
net assets; 0.45 of next $250 million in assets;
and 0.4250% of assets in excess of $1 billion,
less 50% of any amount reimbursed pursuant
to the fund's expense limitation*
IDEX JCC Flexible Income Janus Capital Corporation 0.45% of the first $100 million of average daily
net assets; 0.40% of the next $150 million in
assets; and 0.35% of assets in excess of $250
million, less 50% of any amount reimbursed
pursuant to the fund's expense limitation*
IDEX AEGON Income Plus AEGON USA Investment 50% of the fees received by IMI under the
Management, Inc. Advisory Agreement, less 50% of any amount
reimbursed pursuant to its expense limitation
IDEX AEGON Tax Exempt AEGON USA Investment 50% of the fees received by IMI under the
Management, Inc. Advisory Agreement, less 50% of any amount
reimbursed pursuant to its expense limitation
</TABLE>
- --------------
* Janus has voluntarily agreed to reduce each sub-advisory fee as follows: IDEX
JCC Growth, IDEX JCC Balanced and IDEX JCC Capital Appreciation: first $100
million - none, next $400 million ($100 - $500 million) 0.0125%, next $250
million ($500 - $750 million) 0.0625%, next $250 million ($750 million - $1
billion) 0.0125%, above $1 billion 0.0125%; IDEX JCC Flexible Income:
0.0125% of sub-advisory fee based on average daily net assets.
39
<PAGE>
SUB-ADVISORY FEES PAID*
(NET OF FEES REIMBURSED)
<TABLE>
<CAPTION>
OCTOBER 31 SEPTEMBER 30
----------------------------------------- ------------
FUND 1998 1997 1996 1996
- ----------------------------------------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
IDEX Alger Aggressive Growth $ 137,607 $ 52,325 $ 2,065 $ 22,704
IDEX GE/Scottish Equitable International
Equity $ 0 0 N/A N/A
IDEX JCC Capital Appreciation $ 83,575 $ 22,536 $ 3,751 $ 9,675
IDEX JCC Global $1,953,531 $1,112,031 $ 63,428 $ 565,378
IDEX JCC Growth $6,769,684 $5,838,319 $476,498 $2,729,990
IDEX C.A.S.E. Growth $ 14,450 0 0 0
IDEX NWQ Value Equity $ 18,456 0 N/A N/A
IDEX LKCM Strategic Total Return $ 152,109 $ 50,944 $ 456 $ 2,236
IDEX Dean Asset Allocation $ 130,114 $ 48,349 $ 1,193 $ 21,417
IDEX JCC Balanced $ 103,368 0 0 0
IDEX JCC Flexible Income $ 75,745 $ 30,372 0 $ 66,517
IDEX AEGON Income Plus $ 220,956 $ 208,464 $ 17,666 $ 207,011
IDEX AEGON Tax Exempt $ 68,241 0 0 $ 17,985
</TABLE>
- ------------------------------
* No information is included for the IDEX Goldman Sachs Growth, IDEX T. Rowe
Price Dividend Growth, IDEX Salomon All Cap, IDEX Pilgrim Baxter Mid Cap
Growth and IDEX T. Rowe Price Small Cap as they did not commence operations
until March 1, 1999.
AUSA Holding Company ("AUSA") owns 100% of the outstanding stock of IMI. AUSA
also owns 100% of the outstanding shares of the Fund's distributor and transfer
agent. AUSA is wholly-owned by AEGON USA, Inc., a financial services holding
company located at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499. AEGON
USA, Inc. is a wholly-owned indirect subsidiary of AEGON N.V., a Netherlands
corporation and publicly traded international insurance group.
Janus Capital has agreed that it will, until June 25, 2000, provided that it
continues to serve as sub-adviser to the funds it currently sub-advises,
compensate ISI for its services in connection with promotion, marketing, and
distribution in an amount equal to 0.0375% of the average daily net assets of
each of IDEX JCC Capital Appreciation, IDEX JCC Growth, IDEX JCC Balanced and
IDEX JCC Flexible Income at certain levels.
Each of the sub-advisers also serves as investment adviser or sub-adviser to
other funds and/or private accounts which may have investment objectives
identical or similar to that of the funds. Securities frequently meet the
investment objectives of one or all of these funds, the other funds and the
private accounts. In such cases, a sub-adviser's decision to recommend a
purchase to one fund or account rather than another is based on a number of
factors. The determining factors in most cases are the amounts available for
investment by each fund or account, the amount of securities of the issuer then
outstanding, the value of those securities and the market for them. Another
factor considered in the investment recommendations is other investments which
each fund or account presently has in a particular industry.
It is possible that at times identical securities will be held by more than one
fund or account. However, positions in the same issue may vary and the length of
time that any fund or account may choose to hold its investment in the same
issue may likewise vary. To the extent that more than one of the funds or
private accounts served by a sub-adviser seeks to acquire or sell the same
security at about the same time, either the price obtained by the funds or the
amount of securities that may be purchased or sold by a fund at one time may be
adversely affected. On the other hand, if the same securities are bought or sold
at the same time by more than one fund or account, the resulting participation
in volume transactions could produce better executions for the funds. In the
event more than one fund or account purchases or sells the same security on a
given date, the purchase and sale transactions are allocated among the fund(s),
the other funds and the private accounts in a manner believed by the
sub-advisers to be equitable to each.
40
<PAGE>
DISTRIBUTOR
IDEX Mutual Funds has entered into an Underwriting Agreement with
InterSecurities, Inc. ("ISI"), located at 570 Carillon Parkway, St. Petersburg,
Florida 33716 to act as the principal underwriter of the shares of the funds.
The Underwriting Agreement will continue from year to year so long as its
continuance is approved at least annually in the same manner as the Investment
Advisory Agreements discussed above. A discussion of ISI's responsibilities and
charges as principal underwriter of fund shares is set forth in the prospectus.
UNDERWRITING COMMISSIONS*
<TABLE>
<CAPTION>
COMMISSIONS RECEIVED FOR THE PERIOD ENDED
-----------------------------------------------------
OCTOBER 31 SEPTEMBER 30
-------------------------------------- --------------
FUND 1998 1997 1996 1996
- ---------------------------------- ------------- ------------- ---------- --------------
<S> <C> <C> <C> <C>
IDEX Alger Aggressive Growth $ 449,078 $ 330,689 $ 25,967 $ 479,802
IDEX GE/Scottish Equitable
International Equity $ 64,324 $ 48,603 N/A N/A
IDEX JCC Capital Appreciation $ 164,358 $ 271,016 $ 47,565 $ 395,205
IDEX JCC Global $2,784,651 $2,336,372 $150,015 $ 938,340
IDEX JCC Growth $2,848,238 $2,541,907 $191,780 $2,033,743
IDEX C.A.S.E. Growth $ 70,063 $ 69,637 $ 4,356 $ 36,903
IDEX NWQ Value Equity $ 172,567 $ 105,441 N/A N/A
IDEX LKCM Strategic Total Return $ 419,778 $ 260,944 $ 19,972 $ 234,546
IDEX Dean Asset Allocation $ 186,182 $ 208,715 $ 22,282 $ 200,817
IDEX JCC Balanced $ 344,872 $ 174,256 $ 13,157 $ 128,544
IDEX JCC Flexible Income $ 40,463 $ 28,133 $ 2,509 $ 36,139
IDEX AEGON Income Plus $ 165,033 $ 99,411 $ 7,845 $ 167,267
IDEX AEGON Tax Exempt $ 30,201 $ 25,760 $ 2,189 $ 50,307
<CAPTION>
COMMISSIONS RETAINED FOR THE PERIOD ENDED
---------------------------------------------
OCTOBER 31 SEPTEMBER 30
------------------------------- -------------
FUND 1998 1997 1996 1996
- ---------------------------------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
IDEX Alger Aggressive Growth $ 64,099 $ 47,828 $ 3,677 $ 65,924
IDEX GE/Scottish Equitable
International Equity $ 9,250 $ 7,335 N/A N/A
IDEX JCC Capital Appreciation $ 26,358 $ 42,668 $ 8,052 $ 60,768
IDEX JCC Global $401,257 $353,015 $20,964 $139,197
IDEX JCC Growth $424,803 $396,160 $28,146 $296,565
IDEX C.A.S.E. Growth $ 9,325 $ 10,625 $ 642 $ 5,443
IDEX NWQ Value Equity $ 25,433 $ 15,512 $ N/A N/A
IDEX LKCM Strategic Total Return $ 67,470 $ 41,330 $ 3,617 $ 35,552
IDEX Dean Asset Allocation $ 28,499 $ 34,415 $ 2,742 $ 30,970
IDEX JCC Balanced $ 34,919 $ 27,931 $ 2,118 $ 20,474
IDEX JCC Flexible Income $ 1,530 $ 4,862 $ 444 $ 5,837
IDEX AEGON Income Plus $ 21,369 $ 17,322 $ 1,393 $ 29,744
IDEX AEGON Tax Exempt $ 5,356 $ 4,591 $ 410 $ 8,771
</TABLE>
For the Period Ended October 31, 1998:
<TABLE>
<CAPTION>
NET UNDERWRITING COMPENSATION ON
DISCOUNTS AND REDEMPTIONS AND BROKERAGE OTHER
FUND COMMISSIONS REPURCHASES COMMISSIONS COMPENSATION
- ---------------------------------- ------------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C>
IDEX Alger Aggressive Growth $ 64,099 $12,460 -0- $ 173,265
IDEX GE/Scottish Equitable
International Equity 9,250 2,520 -0- 22,215
IDEX JCC Capital Appreciation 26,358 6,522 -0- 99,498
IDEX JCC Global 401,257 35,608 -0- 1,343,341
IDEX JCC Growth 424,803 29,057 -0- 1,766,004
IDEX C.A.S.E. Growth 9,325 7,348 -0- 38,334
IDEX NWQ Value Equity 25,433 5,644 -0- 71,951
IDEX LKCM Strategic Total Return 67,470 12,563 -0- 180,953
IDEX Dean Asset Allocation 28,499 22,720 -0- 197,410
IDEX JCC Balanced 34,919 5,585 -0- 104,253
IDEX JCC Flexible Income 1,530 4,657 -0- 52,529
IDEX AEGON Income Plus 21,369 4,122 -0- 214,585
IDEX AEGON Tax Exempt 5,356 1,679 -0- 61,155
</TABLE>
- --------------
* No information is included for the IDEX Goldman Sachs Growth, IDEX T. Rowe
Price Dividend Growth, IDEX Salomon All Cap, IDEX Pilgrim Baxter Mid Cap
Growth and IDEX T. Rowe Price Small Cap as they did not commence operations
until March 1, 1999.
41
<PAGE>
ADMINISTRATIVE SERVICES
IMI is responsible for the supervision all of the administrative functions,
providing office space, and paying its allocable portion of the salaries, fees
and expenses of all Fund officers and of those trustees who are affiliated with
IMI. The costs and expenses, including legal and accounting fees, filing fees
and printing costs in connection with the formation of a fund and the
preparation and filing of a fund's initial registration statements under the
1933 Act and 1940 Act are also paid by the adviser. IMI has entered into an
Administrative Services Agreement ("Administrative Agreement") with ISI
applicable to each fund. Under each Administrative Agreement, ISI carries out
and supervises all of the administrative functions of the funds and incurs IMI's
expenses related to such functions.
The administrative duties of ISI with respect to each fund include: providing
the fund with office space, telephones, office equipment and supplies; paying
the compensation of the Fund's officers for services rendered as such;
supervising and assisting in preparation of annual and semi-annual reports to
shareholders, notices of dividends, capital gain distributions and tax
information; supervising compliance by the Fund with the recordkeeping
requirements under the 1940 Act and regulations thereunder and with the state
regulatory requirements; maintaining books and records of the Fund (other than
those maintained by the Fund's custodian and transfer agent); preparing and
filing tax returns and reports; monitoring and supervising relationships with
the Fund's custodian and transfer agent; monitoring the qualifications of tax
deferred retirement plans providing for investment in shares of each fund;
authorizing expenditures and approving bills for payment on behalf of each fund;
and providing executive, clerical and secretarial help needed to carry out its
duties.
ADMINISTRATIVE FEES
ADMINISTRATIVE FEES FOR PERIOD ENDED
FUND OCTOBER 31, 1998
- ------------------------------- -------------------------------------
IDEX JCC Capital Appreciation $ 137,506
IDEX JCC Global $1,953,531
IDEX JCC Growth $6,812,504
IDEX JCC Balanced $ 128,778
IDEX JCC Flexible Income $ 75,838
CUSTODIAN, TRANSFER AGENT AND OTHER AFFILIATES
Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania, Kansas City,
Missouri 64105-1307, is custodian for the fund. The custodian is not responsible
for any of the investment policies or decisions of a fund, but holds its assets
in safekeeping, and collects and remits the income thereon subject to the
instructions of the funds.
Idex Investor Services, Inc. ("IIS"), P. O. Box 9015, Clearwater, Florida
33758-9015, is the transfer agent for each fund, withholding agent and dividend
disbursing agent. IIS is a wholly-owned subsidiary of AUSA Holding Company and
thus is an affiliate of IMI and AIMI. Each fund pays the transfer agent an
annual per-account charge of $15.55 for each of its shareholder accounts in
existence, $2.71 for each new account opened and $1.62 for each closed account.
DST Systems Inc. ("DST"), provider of data processing and recordkeeping services
for the Fund's transfer agent, is a partially-owned subsidiary of Kansas City
Southern Industries ("KCSI") and, thus, is an affiliate of Janus Capital. Each
fund may use another affiliate of DST as introducing broker for certain
portfolio transactions as a means to reduce expenses through a credit against
transfer agency fees with regard to commissions earned by such affiliate. (See
"Fund Transactions and Brokerage.") There were no brokerage credits received for
the periods ended October 31, 1997 and 1998 and September 30, 1996.
42
<PAGE>
TRANSFER AGENCY FEES*
<TABLE>
<CAPTION>
FEES AND EXPENSES NET OF BROKERAGE CREDITS FOR THE PERIOD ENDED
---------------------------------------------------------------
OCTOBER 31 SEPTEMBER 30
FUND 1998 1997 1996 1996
- ----------------------------------- ---------- ---------- -------- ------------
<S> <C> <C> <C> C>
IDEX Alger Aggressive Growth $ 311,310 $ 217,941 $ 15,460 $ 141,668
IDEX GE/Scottish Equitable
International Equity $ 25,385 $ 11,583 $ N/A N/A
IDEX JCC Capital Appreciation $ 128,201 $ 133,515 $ 9,740 $ 61,086
IDEX JCC Global $1,032,225 $ 628,833 $ 46,880 $ 379,409
IDEX JCC Growth $2,628,305 $2,811,027 $273,000 $1,537,321
IDEX C.A.S.E. Growth $ 46,730 $ 32,500 $ 2,660 $ 8,930
IDEX NWQ Value Equity $ 71,985 $ 20,957 N/A N/A
IDEX LKCM Strategic Total Return $ 145,685 $ 89,918 $ 5,772 $ 40,189
IDEX Dean Asset Allocation $ 107,100 $ 71,335 $ 6,084 $ 25,499
IDEX JCC Balanced $ 81,805 $ 48,876 $ 3,500 $ 26,374
IDEX JCC Flexible Income $ 32,859 $ 48,615 $ 8,624 $ 51,078
IDEX AEGON Income Plus $ 119,036 $ 86,126 $ 10,000 $ 113,654
IDEX AEGON Tax Exempt $ 21,690 $ 34,786 $ 4,250 $ 40,367
</TABLE>
- ------------------------------
* No information is included for the IDEX Goldman Sachs Growth, IDEX T. Rowe
Price Dividend Growth, IDEX Salomon All Cap, IDEX Pilgrim Baxter Mid Cap
Growth and IDEX T. Rowe Price Small Cap as they did not commence operations
until March 1, 1999.
FUND TRANSACTIONS AND BROKERAGE
Decisions as to the assignment of fund business for each of the funds and
negotiation of commission rates are made by a fund's sub-adviser, whose policy
is to obtain the "best execution" (prompt and reliable execution at the most
favorable security price) of all fund transactions. The Advisory Agreement and
Investment Counsel Agreement for each fund specifically provide that in placing
portfolio transactions for a fund, the fund's sub-adviser may agree to pay
brokerage commissions for effecting a securities transaction in an amount higher
than another broker or dealer would have charged for effecting that transaction
as authorized, under certain circumstances, by the Securities Exchange Act of
1934.
In selecting brokers and dealers and in negotiating commissions, a fund's
sub-adviser considers a number of factors, including but not limited to:
The sub-adviser's knowledge of currently available negotiated commission
rates or prices of securities and other current transaction costs;
The nature of the security being traded;
The size and type of the transaction;
The nature and character of the markets for the security to be purchased
or sold;
The desired timing of the trade;
The activity existing and expected in the market for the particular
security;
The quality of the execution, clearance and settlement services;
Financial stability;
The existence of actual or apparent operational problems of any broker or
dealer; and
Research products and services provided.
In recognition of the value of the foregoing factors, the sub-adviser may place
portfolio transactions with a broker with whom it has negotiated a commission
that is in excess of the commission another broker would have charged for
effecting that transaction. This is done if the sub-adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research provided by such broker viewed in terms of either
that particular transaction or of the overall responsibilities of the
sub-adviser. Research provided may include:
Furnishing advice, either directly or through publications or writings,
as to the value of securities, the advisability of purchasing or selling
specific securities and the availability of securities or purchasers or
sellers of securities;
Furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and
trends and portfolio strategy;
Access to research analysts, corporate management personnel, industry
experts, economists and government officials; and
Comparative performance evaluation and technical measurement services and
quotation services, and other services (such as third party publications,
reports and analyses, and computer and electronic
43
<PAGE>
access, equipment, software, information and accessories that deliver
process or otherwise utilize information, including the research
described above) that assist the sub-adviser in carrying out its
responsibilities.
Most of the brokers and dealers used by the funds' sub-advisers provide research
and other services described above.
A sub-adviser may use research products and services in servicing other accounts
in addition to the funds. If a sub-adviser determines that any research product
or service has a mixed use, such that it also serves functions that do not
assist in the investment decision-making process, a sub-adviser may allocate the
costs of such service or product accordingly. The portion of the product or
service that a sub-adviser determines will assist it in the investment
decision-making process may be paid for in brokerage commission dollars. Such
allocation may be a conflict of interest for a sub-adviser.
When a fund purchases or sells a security in the over-the-counter market, the
transaction takes place directly with a principal market-maker without the use
of a broker, except in those circumstances where better prices and executions
will be achieved through the use of a broker.
A sub-adviser may also consider the sale or recommendation of a fund's shares by
a broker or dealer to its customers as a factor in the selection of brokers or
dealers to execute portfolio transactions. In placing portfolio business with
brokers or dealers, a sub-adviser will seek the best execution of each
transaction, and all such brokerage placement must be consistent with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
A sub-adviser may place transactions for the purchase or sale of portfolio
securities with affiliates of IMI, ISI or the sub-adviser, including DST
Securities, Inc., or Fred Alger & Company, Incorporated. It is anticipated that
Fred Alger & Company, Incorporated, an affiliate of Alger, will serve as IDEX
Alger Aggressive Growth's broker in effecting substantially all of IDEX Alger
Aggressive Growth's transactions on securities exchanges and will retain
commissions in accordance with certain regulations of the SEC. A sub-adviser may
place transactions if it reasonably believes that the quality of the transaction
and the associated commission are fair and reasonable, and if overall the
associated transaction costs, net of any credits described above under
"Custodian, Transfer Agent and Other Affiliates," are lower than those that
would otherwise be incurred. Under rules adopted by the SEC, the Fund's Board of
Trustees will conduct periodic compliance reviews of such brokerage allocations
and review certain procedures adopted by the Board of Trustees to ensure
compliance with these rules and to determine their continued appropriateness.
For the fiscal year ended October 31, 1998, IDEX Alger Aggressive Growth paid
the following commissions to Fred Alger & Company, Incorporated:
COMMISSIONS PAID:
- -------------------------------------
Fiscal 1998 $154,866
Fiscal 1998 Percentages:
Commissions with affiliates to
total commissions 99%
Value of brokerage transactions
with affiliates to value of total
brokerage transactions 98%
As of October 31, 1998, IDEX JCC Balanced owned $1,001,510 and IDEX JCC Capital
Appreciation owned $380,959 of the common stock of Charles Schwab Corp. Charles
Schwab Corp. is one of the ten brokers or dealers that received the greatest
dollar amount of brokerage commissions from IDEX JCC Balanced and IDEX JCC
Capital Appreciation during the fiscal year ended October 31, 1998.
As of October 31, 1998, IDEX LKCM Strategic Total Return owned a total of
$291,500 of the common stock of Merrill Lynch and Company, Inc., which is one of
the ten brokers or dealers that received the greatest dollar amount of brokerage
commissions from IDEX LKCM Strategic Total Return during fiscal year ended
October 31, 1998.
44
<PAGE>
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
IDEX ALGER IDEX GE/SCOTTISH IDEX JCC
BROKERAGE COMMISSIONS PAID AGGRESSIVE INTERNATIONAL CAPITAL
(INCLUDING AFFILIATED BROKERAGE) GROWTH EQUITY APPRECIATION
- -------------------------------- ---------- ---------------- -------------
<S> <C> <C> <C>
October 31, 1998 $155,668 $17,998 $ 89,687
October 31, 1997 $ 79,346 $ 6,337 $108,748
October 31, 1996 $ 5,156 N/A $ 14,114
September 30, 1996 $ 43,591 N/A $109,526
AFFILIATED BROKERAGE PAID
- --------------------------
October 31, 1998 $154,866 $ 0 $ 0
October 31, 1997 $ 78,761 0 0
October 31, 1996 $ 4,711 N/A 0
September 30, 1996 $ 42,819 N/A 0
<CAPTION>
IDEX NWQ
BROKERAGE COMMISSIONS PAID IDEX JCC IDEX JCC IDEX C.A.S.E. VALUE
(INCLUDING AFFILIATED BROKERAGE) GLOBAL GROWTH GROWTH EQUITY
- -------------------------------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
October 31, 1998 $954,707 $ 843,937 $38,910 $15,539
October 31, 1997 $119,665 $1,301,654 $34,840 $10,553
October 31, 1996 $ 9,638 $ 34,732 $ 3,469 N/A
September 30, 1996 $109,328 $ 314,230 $50,714 N/A
AFFILIATED BROKERAGE PAID
- -------------------------
October 31, 1998 $ 0 $ 0 $ 0 $ 0
October 31, 1997 0 0 0 0
October 31, 1996 0 0 0 N/A
September 30, 1996 0 0 0 N/A
</TABLE>
<TABLE>
<CAPTION>
IDEX LKCM IDEX DEAN IDEX JCC IDEX AEGON
BROKERAGE COMMISSIONS PAID STRATEGIC ASSET IDEX JCC FLEXIBLE INCOME IDEX AEGON
(INCLUDING AFFILIATED BROKERAGE) TOTAL RETURN ALLOCATION BALANCED INCOME PLUS TAX EXEMPT
- -------------------------------- ------------ ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1998 $39,334 $43,487 $46,796 $ 23,653 $0 $0
October 31, 1997 $26,187 $48,786 $42,482 $101,213 0 0
October 31, 1996 $ 2,089 $ 2,800 $ 1,291 0 0 0
September 30, 1996 $16,340 $34,335 $37,881 $ 27,515 0 0
AFFILIATED BROKERAGE PAID
- -------------------------
October 31, 1998 $ 0 $ 0 $ 0 $ 0 $0 $0
October 31, 1997 0 0 0 0 0 0
October 31, 1996 0 0 0 0 0 0
September 30, 1996 0 0 0 0 0 0
</TABLE>
During the fiscal year ended October 31, 1998, IDEX JCC Growth, IDEX JCC Global,
IDEX JCC Balanced, IDEX JCC Capital Appreciation, IDEX LKCM Strategic Total
Return, IDEX Dean Asset Allocation, IDEX C.A.S.E. Growth, IDEX NWQ Value Equity
and IDEX GE/Scottish Equitable International Equity had transactions in the
amounts of $38,886,874, $21,547,796, $1,115,105, $898,856, $8,557,008,
$5,241,623.28, $26,946,774, $2,177,187.65 and $70,607.25, respectively, which
resulted in brokerage commission of $44,804, $36,315, $1,449, $760, $10,851,
$9,327, $14,537, $2,871 and $157, respectively, that were directed to brokers
for brokerage and research services provided.
TRUSTEES AND OFFICERS
The Fund is run by a Board of Trustees. Subject to the supervision of the Board
of Trustees, the assets of each fund are managed by an investment adviser and
sub-advisers, and by fund managers. 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 funds' assets by
the investment adviser and sub-advisers. Information about the Trustees and
officers of the Fund is as follows:
PETER R. BROWN (DOB 05/10/28), 1475 Belcher Road, South Largo, FL 33771. Trustee
of IDEX Mutual Funds; Director of WRL Series Fund, Inc. (investment
company); Chairman of the Board of Peter Brown Construction Co., Largo, FL
(construction, contractors and engineers); Rear Admiral (Retired), U.S. Navy
Reserve, Civil Engineer Corps.
DANIEL CALABRIA (DOB 03/05/36), 7068 S. Shore Drive S.,South Pasadena, FL
33707-4605.Trustee of IDEX Mutual Funds; Trustee (1993 - present) and
President (1993 - 1995) of The Florida Tax Free Funds (mutual funds);
currently retired; formerly President and Director (1995) of Sun
Chiropractic Clinics, Inc. (medical services); Executive Vice President
(1993 - 1995) of William R. Hough & Co. (investment adviser, municipal bond
and underwriting firm); President/CEO (1986 - 1992) of Templeton Funds
Management, Inc. (investment advisers); and Vice President (1986 - 1992) of
all U.S. Templeton Funds (mutual funds).
45
<PAGE>
JAMES L. CHURCHILL (DOB 05/07/30), 15 Hawthorne Road, Bluffington, SC
29910-4901. Trustee of IDEX Mutual Funds; currently retired 1990 to present.
THOMAS E. PIERPAN (1)((2)(DOB 10/18/43), Vice President, Associate General
Counsel and Secretary (December 1997 - present), of IDEX Mutual Funds; Vice
President, Associate General Counsel and Secretary (December 1997 -
present), Assistant Secretary (March 1995 - December 1997) of WRL Series
Fund, Inc. (investment company); Assistant Vice President, Counsel and
Assistant Secretary of InterSecurities, Inc. (November 1997 - present)
(broker-dealer); Vice President (November 1993 - present), Associate General
Counsel and Assistant Secretary (February 1995 - present), Assistant Vice
President (November 1992 - November 1993) Western Reserve Life Assurance Co.
of Ohio (life insurance).
CHARLES C. HARRIS (DOB) 07/15/30), 35 Winston Drive, Clearwater, FL 33756.
Trustee of IDEX Mutual Funds; Director (March 1994 - present) of WRL Series
Fund, Inc. (investment company); currently retired (1988 - present).
G. JOHN HURLEY(1)(2) (DOB 09/12/48), President and Chief Executive Officer
(September 1990 to present) and Trustee (June 1990 to present) of IDEX
Mutual Funds; Executive Vice President (June 1993 to present) and Director
(March 1994 to present) of WRL Series Fund, Inc. (investment company);
Chairman of the Board (July 1999 to present); President, Chief Executive
Officer and Director (May 1988 to July 1999) of InterSecurities, Inc.
(broker-dealer); President (September 1992 to present) of ISI Insurance
Agency, Inc.; Executive Vice President (April 1993 to present) of Western
Reserve Life Assurance Co. of Ohio (life insurance); President, Chief
Executive Officer and Director (September 1990 to present) and Executive
Vice President and Director (May 1988 to September 1990) of Idex Management,
Inc. (investment adviser); President and Director (May 1988 to present) of
Idex Investor Services, Inc. (transfer agent).
JOHN E. KENNEY(1)(2) (DOB 02/08/38), Trustee (1987 to present) and Chairman
(December 1989 to present), of IDEX Mutual Funds; Chairman of the Board
(1986 to present) of WRL Series Fund, Inc. (investment company); Director
(December 1990 to present) of Idex Management, Inc. (investment adviser);
Chairman (1988 to July 1999) and Director (1985 to July 1999) of
InterSecurities, Inc. (broker-dealer); Director (October 1992 to present) of
ISI Insurance Agency, Inc.; Chairman, President and Chief Executive Officer
(1992 to present) of Western Reserve Life Assurance Co. of Ohio (life
insurance); Senior Vice President (May 1992 to present) of AEGON USA, Inc.
(financial services holding company). Mr. Kenney is also the brother-in-law
of Jack Zimmerman, a Trustee of the Fund.
JULIAN A. LERNER (DOB 11/12/24), One Spurling Plaza, Suite 208, 12850 Spurling
Road, Dallas, TX 75230. Trustee of IDEX Mutual Funds; currently retired;
Trustee of American Skandia Trust; Director of American Skandia Advisory
Funds; Trustee of American Skandia Master Trust; formerly Investment
Consultant (1995 - 1996) and Sr. Vice President (1987 - 1995) of Aim Capital
Management (investment adviser).
THOMAS R. MORIARTY(1)(2) (DOB 05/03/51), Senior Vice President (March 1995 to
present), Treasurer and Principal Financial Officer (December 1996 to
present) and Vice President and Principal Accounting Officer (November 1990
to March 1995) of IDEX Mutual Funds; Director, Chief Executive Officer and
President (July 1999 to present) Senior Vice President (June 1991 to July
1999) of InterSecurities, Inc. (broker-dealer); Senior Vice President
(September 1992 to present) of ISI Insurance Agency, Inc.; President
(November 1990 to present) of PW Securities, Inc. (broker-dealer); Senior
Vice President (June 1991 to present) of Idex Investor Services, Inc.
(transfer agent); Vice President (November 1990 to present) of Idex
Management, Inc. (investment adviser); Vice President (June 1993 to present)
of Western Reserve Life Assurance Co. of Ohio (life insurance).
CHRISTOPHER G. ROETZER(1)(2) (DOB 01/11/63), Vice President, Assistant
Treasurer and Principal Accounting Officer (March 1997 to Present);
Principal Accounting Officer (March 1995 to March 1997) and Assistant Vice
President (November 1990 to March 1997) of IDEX Mutual Funds; Assistant
Vice President and Controller (May 1988 to present) of InterSecurities,
Inc. (broker-dealer); Assistant Vice President (September 1992 to present)
of ISI Insurance Agency, Inc.; Assistant Vice President and Controller (May
1988 to present) of Idex Investor Services, Inc. (transfer agent);
Assistant Vice President (November 1990 to present) of Idex Management,
Inc. (investment adviser).
WILLIAM W. SHORT, JR. (DOB 02/25/36), 12420 73rd Court, Largo, FL 33773.
Trustee of IDEX Mutual Funds; President and sole shareholder of Shorts,
Inc. (men's retail apparel); Chairman of Southern Apparel Corporation and
S.A.C. Apparel Corporation and S.A.C. Distributors (nationwide wholesale
apparel distributors), Largo, Florida; Member of Advisory Board of
46
<PAGE>
Barnett Banks of Pinellas County; Trustee of Morton Plant Hospital
Foundation; former Chairman of Advisory Board of First Florida Bank,
Pinellas County, Florida.
JACK E. ZIMMERMAN (DOB 02/03/28), 507 Saint Michel Circle, Kettering, OH 45429.
Trustee of IDEX Mutual Funds; Director (1987 to present), Western Reserve
Life Assurance Co. of Ohio (life insurance); currently retired; formerly,
Director, Regional Marketing (September 1986 to January 1993) Martin
Marietta Corporation, Dayton (aerospace industry).
- --------------
(1) The principal business address of each person listed, unless otherwise
indicated, is P.O. Box 9015, Clearwater, FL 33758-9015.
(2) Interested Person (as defined in the 1940 Act) of the Fund.
The Fund pays no salaries or compensation to any of its officers, all of whom
are officers or employees of either ISI, IMI or their affiliates. Disinterested
Trustees (I.E., Trustees who are not affiliated with ISI, IMI or any of the
sub-advisers) receive for each regular Board meeting: (a) a total annual
retainer fee of $20,000 from the funds, of which the funds pay a pro rata share
allocable to each fund based on the relative assets of the fund; plus (b) $4,000
and incidental expenses per meeting attended. Three of the Disinterested
Trustees have been elected to serve on the Fund's Audit Committee, which meets
twice annually. Each Audit Committee member receives a total of $2,500 per Audit
Committee meeting attended in addition to the regular meetings attended. In the
case of a Special Board Meeting, each of the Disinterested Trustees receives a
fee of $2,500 plus incidental expenses per special meeting attended, in addition
to the regular meetings attended. Any fees and expenses paid to Trustees who are
affiliates of IMI or ISI are paid by IMI and/or ISI and not by the funds.
Commencing on January 1, 1996, a non-qualified deferred compensation plan (the
"Plan") became available to Trustees who are not interested persons of the Fund.
Under the Plan, compensation may be deferred that would otherwise be payable by
the Fund and/or WRL Series Fund, Inc., to a Disinterested Trustee or Director on
a current basis for services rendered as Trustee or Director. Deferred
compensation amounts will accumulate based on the value of Class A shares of a
fund (without imposition of sales charge), as elected by the Trustee. It is not
anticipated that the Plan will have any impact on the funds.
The following table provides compensation amounts paid to Disinterested Trustees
of the Fund for the fiscal year ended October 31, 1998.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT TOTAL COMPENSATION PAID TO
COMPENSATION FROM BENEFITS ACCRUED AS PART OF TRUSTEES FROM FUND
NAME OF PERSON, POSITION IDEX MUTUAL FUNDS * FUND EXPENSES COMPLEX**
- -------------------------------- ------------------------- ----------------------------- ---------------------------
FOR YEAR ENDED 10/31/98 AS OF 10/31/98 10/31/98
<S> <C> <C> <C>
Peter R. Brown, Trustee $ 23,000 $23,000 $ 32,500
Daniel Calabria, Trustee $ 22,500 $ 5,625 $ 22,500
James L. Churchill, Trustee $ 22,500 $18,000 $ 22,500
Charles C. Harris, Trustee $ 23,000 $ -0- $ 32,500
Julian A. Lerner, Trustee $ 22,500 $ -0- $ 22,500
William W. Short, Jr., Trustee $ 23,000 $ -0- $ 23,000
Jack E. Zimmerman, Trustee $ 22,500 $22,500 $ 22,500
Total $159,000 $69,125 $178,000
</TABLE>
- --------------
* Of this aggregate compensation, the total amounts deferred (including
earnings) and accrued for the benefit of the participating Trustees for the
year ended October 31, 1998 were as follows: Peter R. Brown, $29,368; Daniel
Calabria, $6,682; James L. Churchill, $20,581; and Jack E. Zimmerman,
$27,112.
** The Fund Complex consists of IDEX Mutual Funds (including IDEX Fund and IDEX
Fund 3 prior to their reorganization into IDEX Mutual Funds on September 20,
1996) and WRL Series Fund, Inc.
47
<PAGE>
The Board of Trustees has adopted a policy whereby any Disinterested Trustee of
the Fund in office on September 1, 1990 who has served at least three years as a
trustee may, subject to certain limitations, elect upon his resignation to serve
as a trustee emeritus for a period of two years. A trustee emeritus has no
authority, power or responsibility with respect to any matter of the Fund. While
serving as such, a trustee emeritus is entitled to receive from the Fund an
annual fee equal to one-half the fee then payable per annum to Disinterested
Trustees of the Fund, plus reimbursement of expenses incurred for attendance at
Board meetings.
The Fund has an Executive Committee whose members currently are John R. Kenney,
G. John Hurley and Peter R. Brown. The executive committee may perform all of
the functions which may be performed by the Board of Trustees, except as set
forth in the Declaration of Trust and By-Laws of the Fund or as prohibited by
applicable law.
During the fiscal year ended October 31, 1998, the Fund paid $167,404 in
trustees fees and expenses, and no trustee emeritus fees or expenses. As of
January 30, 1999, the trustees and officers held in the aggregate less than 1%
of the outstanding shares of each of the funds.
PURCHASE OF SHARES
As stated in the prospectus, each fund offers investors a choice of four
classes of shares. (IDEX JCC Growth also includes a fifth class, Class T
shares, which are not available for new investors.) Class A, Class B, Class C
or Class M shares of a fund can be purchased through ISI or through
broker-dealers or other financial institutions that have sales agreements with
ISI. Shares of each fund are sold at the net asset value per share as
determined at the close of the regular session of business on the New York
Stock Exchange next occurring after a purchase order is received and accepted
by the fund. (The applicable sales charge is added in the case of Class A,
Class M and Class T shares.) The prospectus contains detailed information about
the purchase of fund shares.
DEALER REALLOWANCES
IDEX sells shares of its funds both directly and through authorized dealers.
When you buy shares, your fund receives the entire NAV of the shares you
purchase. 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 1933 Act.
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 or
administrative services for larger accounts.
48
<PAGE>
CLASS A SHARE DEALER REALLOWANCES
(all funds except IDEX JCC Flexible Income, IDEX AEGON Income Plus
and IDEX AEGON Tax Exempt)
REALLOWANCE TO DEALERS AS A %
AMOUNT OF PURCHASE OF OFFERING PRICE
- -------------------------------- ------------------------------
Under $50,000 4.75%
$50,000 to under $100,000 4.00%
$100,000 to under $250,000 2.75%
$250,000 to under $500,000 2.25%
$500,000 to under $1,000,000 1.75%
$1,000,000 to under $2,500,000 1.00%
$2,500,000 to under $4,000,000 0.75%
$4,000,000 to under $5,000,000 0.50%
$5,000,000 and over 0.25%
CLASS A SHARE DEALER REALLOWANCES
(IDEX JCC Flexible Income, IDEX AEGON Income Plus
and IDEX AEGON Tax Exempt)
REALLOWANCE TO DEALERS AS A %
AMOUNT OF PURCHASE OF OFFERING PRICE
- -------------------------------- ------------------------------
Under $50,000 4.00%
$50,000 to under $100,000 3.25%
$100,000 to under $250,000 2.75%
$250,000 to under $500,000 1.75%
$500,000 to under $1,000,000 1.00%
$1,000,000 to under $2,500,000 0.50%
$2,500,000 to under $4,000,000 0.35%
$4,000,000 to under $5,000,000 0.20%
$5,000,000 and over 0.15%
CLASS B SHARE DEALER REALLOWANCES
DEALER REALLOWANCES
---------------------
All purchases 5.00%
49
<PAGE>
CLASS T SHARE DEALER REALLOWANCES
(IDEX JCC Growth)
REALLOWANCE TO DEALERS AS A %
AMOUNT OF PURCHASE OF OFFERING PRICE
- --------------------- ------------------------------
$1,000,000 and over 1.00%
DISTRIBUTION PLANS
As stated in the prospectus under "Investment Advisory and Other Services," each
fund has adopted a separate Distribution Plan pursuant to Rule 12b-1 under the
1940 Act (individually, a "Plan" and collectively, the "Plans"), applicable to
Class A, Class B, Class C and Class M shares of the fund. CLASS T SHARES OF IDEX
JCC GROWTH ARE NOT SUBJECT TO ANNUAL DISTRIBUTION AND SERVICE FEES.
In determining whether to approve the Distribution Plan and the Distribution
Agreements, the Trustees considered the possible advantages afforded
shareholders from adopting the Distribution Plans and Distribution Agreements.
The Trustees were informed by representatives of ISI that reimbursements of
distribution-related expenses by the Fund under the Distribution Plans would
provide incentives to ISI to establish and maintain an enhanced distribution
system whereby new investors will be attracted to the funds. The Trustees
believe that improvements in distribution services should result in increased
sales of shares in the funds. In turn, increased sales are expected to lead to
an increase in a fund's net asset levels, which would enable the funds to
achieve economies of scale and lower their per-share operating expenses. In
addition, higher net asset levels could enhance the investment management of the
funds, for net inflows of cash from new sales may enable a fund's investment
adviser and sub-adviser to take advantage of attractive investment
opportunities. Finally, reduced redemptions could eliminate the potential need
to liquidate attractive securities positions in order to raise the capital
necessary to meet redemption requests.
Under the Plans for Class A shares (the "Class A Plans"), a fund 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 a fund's Class A shares; however, to the
extent that a fund pays service fees, the amount which a fund may pay as a
distribution fee is reduced accordingly so that the total fees payable under the
Class A Plan may not exceed on an annualized basis 0.35% of the average daily
net assets of a fund's Class A shares.
Under the Plans for Class B shares (the "Class B Plans"), a fund may pay ISI an
annual distribution fee of up to 0.75% and an annual service fee of up to 0.25%
of the average daily net assets of the fund's Class B shares.
Under the Plans for Class C shares (the "Class C Plans"), a fund may pay ISI an
annual distribution fee of up to 0.75% and an annual service fee of up to 0.25%
of the average daily net assets of the fund's Class C shares.
Under the Plans for Class M shares (the "Class M Plans"), a fund may pay ISI an
annual distribution fee of up to 0.75% and an annual service fee of up to 0.25%
of the average daily net assets of the fund's Class M shares; however, the total
fee payable pursuant to the Class M Plan may not, on an annualized basis, exceed
0.90% of the average daily net assets of the fund's Class M shares.
ISI may use the fees payable under the Class A, Class B, Class C and Class M
Plans as it deems appropriate to pay for activities or expenses primarily
intended to result in the sale of the Class A, Class B, Class C or Class M
shares, respectively, or in personal service to and/or maintenance of these
shareholder accounts. For each class, these activities and expenses may include,
but are not limited to:
Compensation to employees of ISI;
Compensation to and expenses of ISI and other selected dealers who engage
in or otherwise support the distribution of shares or who service
shareholder accounts;
The costs of printing and distributing prospectuses, statements of
additional information and reports for other than existing shareholders;
and
The cost of preparing, printing and distributing sales literature and
advertising materials.
Under the Plans, as required by Rule 12b-1, the Board of Trustees will review,
at least quarterly, a written report
50
<PAGE>
provided by ISI of the amounts expended by ISI in distributing and servicing
Class A, Class B, Class C or Class M shares of the funds and the purpose for
which such expenditures were made. For so long as the Plans are in effect,
selection and nomination of the Trustees who are not interested persons of the
Fund shall be committed to the discretion of the Trustees who are not interested
persons of the Fund.
A Plan may be terminated as to a class of shares of a fund at any time by vote
of a majority of the Disinterested Trustees, or by vote of a majority of the
outstanding voting securities of the applicable class. A Plan may be amended by
vote of the Trustees, including a majority of the Disinterested Trustees of the
Fund and have no direct or indirect financial interest in the operation of the
Plan or any agreement relating thereto, cast in person at a meeting called for
that purpose. Any amendment of a Plan that would materially increase the costs
to a particular class of shares of a fund requires approval by the shareholders
of that class. A Plan will remain in effect for successive one year periods, so
long as such continuance is approved annually by vote of the Fund's Trustees,
including a majority of the Disinterested Trustees, cast in person at a meeting
called for the purpose of voting on such continuance.
DISTRIBUTION FEES
Distribution related expenses incurred by ISI for the fiscal year ended October
31, 1998 are listed in the table below. These expenses have been partially
reimbursed to ISI by a 12b-1 arrangement with the funds.
<TABLE>
<CAPTION>
IDEX ALGER IDEX GE/SCOTTISH EQUITABLE
AGGRESSIVE GROWTH INTERNATIONAL EQUITY
-------------------------------- ----------------------------
A B M* A B M*
SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Advertising $ 7,897 $ 2,634 $ 1,469 $ 1,075 $ 410 $ 139
Printing/mailing
prospectuses to
other than current
shareholders $ 29,161 $ 9,372 $ 6,281 $ 4,134 $1,466 $ 702
Compensation to
underwriters $ 48,327 $ 4,225 $ 5,769 $ 7,401 $ 233 $ 646
Compensation to dealers $ 49,265 $ 4,188 $ 5,466 $ 2,368 $ 165 $ 496
Compensation to sales
personnel $ 17,469 $ 5,923 $ 2,966 $ 2,366 $ 952 $ 296
Interest or other finance
charges $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Travel $ 3,473 $ 1,155 $ 613 $ 474 $ 193 $ 73
Office expenses $ 14,557 $ 4,708 $ 2,954 $ 2,011 $ 755 $ 330
Administrative processing
costs $ 5,884 $ 2,510 $ 2,010 $ 1,685 $1,534 $1,480
TOTAL $909,355 $34,715 $27,528 $21,514 $5,708 $4,162
<CAPTION>
IDEX JCC
CAPITAL APPRECIATION IDEX JCC GLOBAL
------------------------------ -----------------------------------
A B M* A B M*
SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- -------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Advertising $ 3,204 $ 746 $ 220 $ 54,953 $ 40,053 $ 19,737
Printing/mailing
prospectuses to
other than current
shareholders $13,343 $ 2,664 $ 863 $ 197,285 $129,515 $ 76,772
Compensation to
underwriters $38,127 $ 2,359 $2,486 $ 295,263 $ 13,642 $ 32,628
Compensation to dealers $18,640 $ 2,723 $1,542 $ 369,223 $ 31,236 $ 79,303
Compensation to sales
personnel $ 6,792 $ 1,680 $ 478 $ 121,003 $ 91,326 $ 40,644
Interest or other finance
charges $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Travel $ 1,440 $ 330 $ 100 $ 22,844 $ 16,513 $ 7,587
Office expenses $ 6,469 $ 1,344 $ 432 $ 96,227 $ 65,071 $ 35,639
Administrative processing
costs $ 3,304 $ 1,905 $1,667 $ 15,335 $ 5,884 $ 4,198
TOTAL $91,319 $13,751 $7,788 $1,172,133 $393,240 $296,508
</TABLE>
- --------------
* All shares designated as Class C shares prior to March 1, 1999 were renamed
as Class M shares on that date. Effective November 1, 1999, each fund began
offering a new Class C share that has different fees and expenses than the
previous Class C share. Information is not included for the new Class C
share because the Fund began offering those shares on November 1, 1999.
<TABLE>
<CAPTION>
IDEX JCC GROWTH* IDEX C.A.S.E. GROWTH
----------------------------------- ------------------------------
A B M** A B M**
SHARES SHARES SHARES SHARES SHARES SHARES
------------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Advertising $ 77,405 $ 11,673 $ 19,518 $ 1,400 $ 658 $ 320
Printing/mailing prospectuses to other
than current shareholders $ 280,860 $ 32,758 $ 41,586 $ 5,787 $ 2,940 $1,859
Compensation to underwriters $ 757,228 $ 11,998 $ 26,389 $ 5,961 $ 765 $1,149
Compensation to dealers $1,042,306 $ 10,067 $ 21,834 $ 5,260 $ 2,597 $3,309
Compensation to sales personnel $ 169,895 $ 27,606 $ 48,270 $ 3,202 $ 1,442 $ 605
Interest or other finance charges $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Travel $ 32,301 $ 4,779 $ 7,581 $ 753 $ 337 $ 157
Office expenses $ 136,860 $ 17,364 $ 24,079 $ 3,058 $ 1,457 $ 821
Administrative processing costs $ 36,001 $ 3,720 $ 3,307 $ 1,943 $ 1,691 $1,576
TOTAL $2,532,856 $119,965 $192,564 $27,364 $11,887 $9,796
<CAPTION>
IDEX NWQ VALUE EQUITY
-------------------------------
A B M**
SHARES SHARES SHARES
---------- ---------- ---------
<S> <C> <C> <C>
Advertising $ 2,032 $ 1,487 $ 611
Printing/mailing prospectuses to other
than current shareholders $ 9,573 $ 6,341 $ 3,314
Compensation to underwriters $12,245 $ 1,414 $ 3,864
Compensation to dealers $ 6,590 $ 1,103 $ 1,501
Compensation to sales personnel $ 3,986 $ 3,131 $ 1,221
Interest or other finance charges $ 0 $ 0 $ 0
Travel $ 899 $ 655 $ 320
Office expenses $ 4,483 $ 2,983 $ 1,553
Administrative processing costs $ 2,125 $ 1,826 $ 1,645
TOTAL $41,933 $18,940 $14,029
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
IDEX LKCM STRATEGIC TOTAL RETURN IDEX DEAN ASSET ALLOCATION
-------------------------------- --------------------------------
A B M** A B M**
SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Advertising $ 6,160 $ 2,587 $ 1,783 $ 3,036 $ 3,274 $ 2,067
Printing/mailing prospectuses to other
than current shareholders $ 25,647 $10,979 $ 9,069 $12,382 $13,879 $ 9,786
Compensation to underwriters $ 48,644 $ 4,375 $ 8,564 $26,061 $10,044 $11,881
Compensation to dealers $ 18,621 $ 2,134 $ 3,600 $ 8,878 $ 6,582 $ 4,314
Compensation to sales personnel $ 12,640 $ 5,389 $ 3,350 $ 6,414 $ 6,755 $ 4,281
Interest or other finance charges $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Travel $ 2,556 $ 1,132 $ 759 $ 1,319 $ 1,370 $ 1,030
Office expenses $ 12,047 $ 5,223 $ 4,027 $ 5,951 $ 6,430 $ 4,775
Administrative processing costs $ 3,166 $ 2,082 $ 1,913 $ 2,357 $ 2,088 $ 1,847
TOTAL $128,481 $33,901 $33,065 $66,398 $50,422 $39,981
<CAPTION>
IDEX JCC BALANCED
-------------------------------
A B M**
SHARES SHARES SHARES
---------- ---------- ---------
<S> <C> <C> <C>
Advertising $ 4,556 $ 4,219 $ 1,509
Printing/mailing prospectuses to other
than current shareholders $17,283 $11,366 $ 5,778
Compensation to underwriters $32,505 $ 2,083 $ 2,917
Compensation to dealers $10,388 $ 1,745 $ 3,232
Compensation to sales personnel $ 9,677 $ 9,935 $ 3,100
Interest or other finance charges $ 0 $ 0 $ 0
Travel $ 1,806 $ 1,643 $ 525
Office expenses $ 8,090 $ 5,952 $ 2,508
Administrative processing costs $ 2,395 $ 1,772 $ 1,648
TOTAL $86,700 $38,715 $21,217
</TABLE>
<TABLE>
<CAPTION>
IDEX JCC FLEXIBLE INCOME IDEX AEGON INCOME PLUS
------------------------------ --------------------------------
A B M** A B M**
SHARES SHARES SHARES SHARES SHARES SHARES
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Advertising $ 1,438 $ 864 $ 920 $ 6,829 $ 1,731 $ 1,324
Printing/mailing prospectuses to other
than current shareholders $ 5,415 $2,168 $ 2,758 $ 25,783 $ 5,070 $ 6,169
Compensation to underwriters $24,302 $ 545 $ 916 $104,696 $ 1,435 $ 4,879
Compensation to dealers $12,267 $ 697 $ 1,862 $ 60,733 $ 1,076 $ 6,383
Compensation to sales personnel $ 3,184 $2,041 $ 2,281 $ 15,071 $ 3,956 $ 2,576
Interest or other finance charges $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Travel $ 649 $ 321 $ 456 $ 3,051 $ 681 $ 564
Office expenses $ 2,721 $1,139 $ 1,583 $ 12,859 $ 2,631 $ 2,853
Administrative processing costs $ 2,108 $1,490 $ 1,518 $ 3,438 $ 1,584 $ 1,649
TOTAL $52,084 $9,265 $12,294 $232,460 $18,164 $26,397
<CAPTION>
IDEX AEGON TAX EXEMPT
-----------------------------
A B M**
SHARES SHARES SHARES
---------- -------- ---------
<S> <C> <C> <C>
Advertising $ 2,211 $ 204 $ 513
Printing/mailing prospectuses to other
than current shareholders $ 9,432 $ 491 $1,777
Compensation to underwriters $31,751 $ 260 $1,184
Compensation to dealers $25,800 $ 318 $1,331
Compensation to sales personnel $ 5,034 $ 500 $1,110
Interest or other finance charges $ 0 $ 0 $ 0
Travel $ 1,192 $ 86 $ 199
Office expenses $ 4,887 $ 288 $ 857
Administrative processing costs $ 1,962 $1,440 $1,481
TOTAL $82,269 $3,587 $8,452
</TABLE>
- ------------------------------
* Class T shares of IDEX JCC Growth are not subject to annual distribution and
service fees.
** All shares designated as Class C shares prior to March 1, 1999 were renamed
as Class M shares on that date. Effective November 1, 1999, each fund began
offering a new Class C share that has different fees and expenses than the
previous Class C share. Information is not included for the new Class C
share because the Fund began offering those shares on November 1, 1999.
No expenses are listed for IDEX Goldman Sachs Growth, IDEX T. Rowe Price
Dividend Growth, IDEX Salomon All Cap, IDEX Pilgrim Baxter Mid Cap Growth, or
IDEX T. Rowe Price Small Cap as these funds commenced operations March 1, 1999.
52
<PAGE>
NET ASSET VALUE DETERMINATION
Net asset value is determined separately for each class of shares of a fund on
each day as of the close of the regular session of business on the New York
Stock Exchange (the "Exchange"), currently 4:00 p.m. Eastern Time, Monday
through Friday, except on: (i) days on which changes in the value of portfolio
securities will not materially affect the net asset value of a particular class
of shares of the funds; (ii) days during which no shares of a fund are tendered
for redemption and no orders to purchase shares of that fund are received; or
(iii) customary national holidays on which the Exchange is closed. The per share
net asset value of each class of shares of a fund is determined by dividing the
total value of the fund's securities, receivables and other assets allocable to
that class by the total number of shares outstanding of that class. The public
offering price of a Class A, Class B, Class C, Class M or Class T share of a
fund is the net asset value per share plus, the applicable sales charge in the
case of Class A, Class M or Class T shares. Investment securities are valued at
the closing price for securities traded on a principal securities exchange (U.S.
or foreign), or on the NASDAQ National Market. Investment securities traded on
the over-the-counter market and listed securities for which no sales are
reported for the trading period immediately preceding the time of determination
are valued at the last bid price. Foreign currency denominated assets and
liabilities are converted into U.S. dollars at the closing exchange rate each
day. Other securities for which quotations are not readily available are valued
at fair values determined in such manner as a fund's sub-adviser, under the
supervision of the Board of Trustees, decides in good faith. (No information is
included in the chart below for IDEX Goldman Sachs Growth, IDEX T. Rowe Price
Dividend Growth, IDEX Salomon All Cap, IDEX Pilgrim Baxter Mid Cap Growth or
IDEX T. Rowe Price Small Cap as these funds commenced operations March 1, 1999.)
OFFERING PRICE PER SHARE CALCULATED AS FOLLOWS:
<TABLE>
<CAPTION>
NET ASSET VALUE PER SHARE ADD MAXIMUM AMOUNT OF SALES OFFERING PRICE
AS OF OCTOBER 31, 1998 (NET ASSETS/SHARES OUTSTANDING) SELLING COMMISSION CHARGE PER SHARE
- ------------------------------ --------------------------------- -------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
IDEX Alger Aggressive Growth
Class A $22.24 5.50% $1.29 $23.53
Class B $21.93 0.00% $0.00 $21.93
Class M* $21.98 1.00% $0.22 $22.20
IDEX GE/Scottish Equitable
International Equity
Class A $10.77 5.50% $0.63 $11.40
Class B $10.71 0.00% $0.00 $10.71
Class M* $10.72 1.00% $0.11 $10.83
IDEX JCC Capital Appreciation
Class A $16.97 5.50% $0.99 $17.96
Class B $16.72 0.00% $0.00 $16.72
Class M* $16.76 1.00% $0.17 $16.93
IDEX JCC Global
Class A $24.09 5.50% $1.40 $25.49
Class B $23.62 0.00% $0.00 $23.62
Class M* $23.56 1.00% $0.24 $23.80
IDEX JCC Growth
Class A $29.35 5.50% $1.71 $31.06
Class B $28.63 0.00% $0.00 $28.63
Class M* $28.74 1.00% $0.29 $29.03
Class T $29.74 8.50% $2.76 $32.50
IDEX C.A.S.E. Growth
Class A $10.14 5.50% $0.59 $10.73
Class B $10.02 0.00% $0.00 $10.02
Class M* $10.04 1.00% $0.10 $10.14
IDEX NWQ Value Equity
Class A $11.09 5.50% $0.65 $11.74
Class B $10.98 0.00% $0.00 $10.98
Class M* $11.00 1.00% $0.11 $11.11
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
NET ASSET VALUE PER SHARE ADD MAXIMUM AMOUNT OF SALES OFFERING PRICE
AS OF OCTOBER 31, 1998 (NET ASSETS/SHARES OUTSTANDING) SELLING COMMISSION CHARGE PER SHARE
- --------------------------------- --------------------------------- -------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
IDEX LKCM Strategic Total Return
Class A $16.18 5.50% $0.94 $17.12
Class B $16.17 0.00% $0.00 $16.17
Class M* $16.17 1.00% $0.16 $16.33
IDEX Dean Asset Allocation
Class A $13.14 5.50% $0.76 $13.90
Class B $13.13 0.00% $0.00 $13.13
Class M* $13.13 1.00% $0.13 $13.26
IDEX JCC Balanced
Class A $14.75 5.50% $0.86 $15.61
Class B $14.74 0.00% $0.00 $14.74
Class M* $14.74 1.00% $0.15 $14.89
IDEX JCC Flexible Income
Class A $ 9.84 4.75% $0.49 $10.33
Class B $ 9.83 0.00% $0.00 $ 9.83
Class M* $ 9.84 1.00% $0.10 $ 9.94
IDEX AEGON Income Plus
Class A $10.43 4.75% $0.52 $10.95
Class B $10.42 0.00% $0.00 $10.42
Class M* $10.42 1.00% $0.11 $10.53
IDEX AEGON Tax Exempt
Class A $11.94 4.75% $0.60 $12.54
Class B $11.94 0.00% $0.00 $11.94
Class M* $11.94 1.00% $0.12 $12.06
</TABLE>
- --------------
* All shares designated as Class C shares prior to March 1, 1999 were renamed
as Class M shares on that date. Effective November 1, 1999, each fund began
offering a new Class C share that has different fees and expenses than the
previous Class C share. Information is not included for the NEW Class C
share because the Fund began offering those shares on November 1, 1999.
DIVIDENDS AND OTHER DISTRIBUTIONS
An investor may choose among several options with respect to dividends and
capital gains distributions payable to the investor. Dividends or other
distributions will be paid in full and fractional shares at the net asset value
determined as of the ex-dividend date unless the shareholder has elected another
distribution option as described in the prospectus. Transaction confirmations
and checks for payments designated to be made in cash generally will be mailed
on the payable date. The per share income dividends on Class B, Class C and
Class M shares of a fund are anticipated to be lower than the per share income
dividends on Class A shares of that fund (and Class T shares of IDEX JCC
Growth), as a result of higher distribution and service fees applicable to the
Class B, Class C and Class M shares.
SHAREHOLDER ACCOUNTS
Detailed information about general procedures for Shareholder Accounts and
specific types of accounts isset forth in the prospectus.
54
<PAGE>
RETIREMENT PLANS
The Fund offers several types of retirement plans that an investor may establish
to invest in shares of a fund with tax deductible dollars. Prototype retirement
plans for both corporations and self-employed individuals, and for Individual
Retirement Accounts, Code Section 401(k) Plans and Simplified Employee Pension
Plans are available by calling or writing IDEX Customer Service. These plans
require the completion of separate applications which are also available from
IDEX Customer Service. IFTC, Kansas City, Missouri, acts as the custodian or
trustee under these plans for which it charges an annual fee of up to $15.00 on
each such account with a maximum of $30.00 per tax identification number.
However, if your retirement plan is under custody of IFTC and your combined
retirement account balances per taxpayer identification number are more than
$50,000, there is generally no fee. Shares of a fund are also available for
investment by Code Section 403(b)(7) retirement plans for employees of
charities, schools, and other qualifying employers. IDEX AEGON Tax Exempt is not
well-suited as an investment vehicle for tax-deferred retirement plans which
cannot benefit from tax-exempt income and whose distributed earnings are taxable
to individual recipients as ordinary income. To receive additional information
or forms on these plans, please call IDEX Customer Service at 1-888-233-4339
(toll free) or write to Idex Investor Services, Inc. at P.O. Box 9015,
Clearwater, Florida 33758-9015. No contribution to a retirement plan can be made
until the appropriate forms to establish the plan have been completed. It is
advisable for an investor considering the funding of any retirement plan to
consult with an attorney, retirement plan consultant or financial or tax advisor
with respect to the requirements of such plans and the tax aspects thereof.
REDEMPTION OF SHARES
Shareholders may redeem their shares at any time at any price equal to the net
asset value per share next determined following receipt of a valid redemption
order by the transfer agent, in proper form. Payment will ordinarily be made
within three days of the receipt of a valid redemption order. The value of
shares on redemption may be more or less than the shareholder's cost, depending
upon the market value of the fund's net assets at the time of redemption. CLASS
B SHARE AND CLASS M SHARE AND CERTAIN CLASS A AND CLASS T SHARE PURCHASES ARE
ALSO SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE UPON CERTAIN REDEMPTIONS. THE
PROSPECTUS DESCRIBES THE REQUIREMENTS AND PROCEDURES FOR THE REDEMPTION OF
SHARES.
Shares will normally be redeemed for cash, although each fund retains the right
to redeem its shares in kind under unusual circumstances in order to protect the
interests of the remaining shareholders by the delivery of securities selected
from its assets at its discretion. The Fund has, however, elected to be governed
by Rule 18f-1 under the 1940 Act pursuant to which a fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of a fund during any 90-day period for any one shareholder. Should redemptions
by any shareholder exceed such limitation, the fund will have the option of
redeeming the excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting the assets to
cash. The method of valuing securities used to make redemptions in kind will be
the same as the method of valuing portfolio securities described under "Net
Asset Value Determination," and such valuation will be made as of the same time
the redemption price is determined. Upon any distributions in kind, shareholders
may appeal the valuation of such securities by writing to the Fund.
Redemption of shares may be suspended, or the date of payment may be postponed,
whenever: (1) trading on the Exchange is restricted, as determined by the SEC,
or the Exchange is closed except for holidays and weekends; (2) the SEC permits
such suspension and so orders; or (3) an emergency exists as determined by the
SEC so that disposal of securities and determination of net asset value is not
reasonably practicable.
The CDSC is waived on redemptions of Class B and Class M shares in the
circumstances described below:
(a) REDEMPTION UPON TOTAL DISABILITY OR DEATH
A fund will waive the CDSC on redemptions following the death or total
disability (as evidenced by a determination of the Federal Social Security
Administration) of a Class B or M shareholder, but in the case of total
disability only as to shares owned at the time of the initial determination of
disability. The transfer agent or distributor will require satisfactory proof of
death or disability before it determines to waive the CDSC.
55
<PAGE>
(B) REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan ("SWP")
with respect to the shareholder's investment in a fund. Under the SWP, a dollar
amount of a participating shareholder's investment in the fund will be redeemed
systematically by the fund on a periodic basis, and the proceeds paid in
accordance with the shareholder's instructions. The amount to be redeemed and
frequency of the systematic withdrawals will be specified by the shareholder
upon his or her election to participate in the SWP. The CDSC will be waived on
redemptions made under the SWP subject to the limitations described below.
The amount of a shareholder's investment in a fund at the time election to
participate in the SWP is made with respect to the fund is hereinafter referred
to as the "Initial Account Balance." The amount to be systematically withdrawn
from a fund without the imposition of a CDSC may not exceed a maximum of 12%
annually of the shareholder's Initial Account Balance. The funds reserves the
right to change the terms and conditions of the SWP and the ability to offer
the SWP.
(C) REINVESTMENT PRIVILEGE
The CDSC is also waived on redemption of Class B or M shares as it relates to
the reinvestment of redemption proceeds in the same class of shares of another
fund within 90 days after redemption.
(D) CERTAIN RETIREMENT PLAN WITHDRAWALS
A fund will waive the CDSC 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.
TAXES
Each fund has qualified (except IDEX Goldman Sachs Growth, IDEX T. Rowe Price
Dividend Growth, IDEX Salomon All Cap, IDEX Pilgrim Baxter Mid Cap Growth and
IDEX T. Rowe Price Small Cap which all intend to qualify), and expects to
continue to qualify, for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended (the "Code"). In order to
qualify for that treatment, a fund must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income
("Distribution Requirement") and must meet several additional requirements.
With respect to each fund, these requirements include the following: (1) the
fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures or forward contracts) derived
with respect to its business of investing in securities or those currencies
("Income Requirement"); (2) at the close of each quarter of a fund's taxable
year, at least 50% of the value of its total assets must be represented by cash
and cash items, U.S. government securities, securities of other RICs and other
securities that, with respect to any one issuer, do not exceed 5% of the value
of the fund's total assets and that do not represent more than 10% of the
outstanding voting securities of the issuer; and (3) at the close of each
quarter of a fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer. If each fund qualifies as a
regulated investment company and distributes to its shareholders substantially
all of its net income and net capital gains, then each fund should have little
or no income taxable to it under the Code.
A fund will be subject to a nondeductible 4% excise tax to the extent it fails
to distribute by the end of any calendar year substantially all of its ordinary
income for that year and capital gains net income for the one-year period ending
on October 31 of that year, plus certain other amounts. Each fund intends to
distribute annually a sufficient amount of any taxable income and capital gains
so as to avoid liability for this excise tax.
If IDEX AEGON Tax Exempt invests in any instruments that generate taxable
income, distributions of the interest earned thereon will be taxable to that
fund's shareholders as ordinary income to the extent of its earnings and
profits. Moreover, if that fund realizes capital gains as a result of market
transactions, any distributions of that gain also will be taxable to its
shareholders.
Proposals may be introduced before Congress for the purpose of restricting or
eliminating the federal income tax exemption for interest on municipal
securities. If such a proposal were enacted, the availability of municipal
securities for investment by IDEX AEGON Tax Exempt
56
<PAGE>
and the value of its portfolio securities would be affected. In that event,
IDEX AEGON Tax Exempt will re-evaluate its investment objective and policies.
Dividends and interest received by a fund may be subject to income, withholding
or other taxes imposed by foreign countries and U.S. possessions that would
reduce the yield on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate these foreign taxes, however, and
foreign countries generally do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the value of IDEX JCC
Global's total assets at the close of its taxable year consists of securities of
foreign corporations, it will be eligible to, and may, file an election with the
IRS that will enable its shareholders, in effect, to receive the benefit of the
foreign tax credit with respect to any foreign and U.S. possessions income taxes
paid by it.
Pursuant to the election, a fund will treat those taxes as dividends paid to its
shareholders and each shareholder will be required to: (1) include in gross
income, and treat as paid by him, his proportionate share of those taxes; (2)
treat his share of those taxes and of any dividend paid by the fund that
represents income from foreign or U.S. possessions sources as his own income
from those sources; and (3) either deduct the taxes deemed paid by him in
computing his taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against his federal income tax. IDEX JCC
Global will report to its shareholders shortly after each taxable year their
respective shares of the income from sources within, and taxes paid to, foreign
countries and U.S. possessions if it makes this election.
Each fund, except IDEX AEGON Tax Exempt, may invest in the stock of "passive
foreign investment companies" ("PFICs"). A PFIC is a foreign corporation that,
in general, meets either of the following tests: (1) at least 75% of its gross
income is passive; or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, a
fund will be subject to federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain on disposition of
that stock (collectively, "PFIC income"), plus interest thereon, even if the
fund distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders. If a fund invests in a PFIC and
elects to treat the PFIC as a "qualified electing fund," then in lieu of the
foregoing tax and interest obligation, the fund will be required to include in
income each year its pro rata share of the qualified electing fund's annual
ordinary earnings and net capital gain (the excess of net long-term capital gain
over net short-term capital loss). This will occur even if they are not
distributed to the fund and those amounts would be subject to the distribution
requirements described above. In most instances it will be very difficult, if
not impossible, to make this election because of certain requirements thereof.
A fund, however, may qualify for, and may make, an election permitted under
Section 853 of the Code so that shareholders may be eligible to claim a credit
or deduction on their federal income tax returns for, and will be required to
treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid or incurred by the fund to foreign countries (which taxes
relate primarily to investment income). A fund may make an election under
Section 853 of the Code, provided that more than 50% of the value of the fund's
total assets at the close of the taxable year consists of securities in foreign
corporations, and the fund satisfies applicable distribution provisions of the
Code. The foreign tax credit available to shareholders is subject to certain
limitations imposed by the Code. In addition, another election is available that
would involve marking to market a fund's PFIC stock at the end of each taxable
year (and on certain other dates prescribed in the Code), with the result that
unrealized gains are treated as though they were realized although any such
gains recognized will be ordinary income rather than capital gain. If this
election were made, tax at the fund level under the PFIC rules would be
eliminated, but a fund could, in limited circumstances, incur nondeductible
interest charges. A fund's intention to qualify annually as a regulated
investment company may limit a fund's election with respect to PFIC stock.
The use of hedging strategies, such as writing (selling) and purchasing options
and futures contracts and entering into forward contracts, involves complex
rules that will determine for income tax purposes the character and timing of
recognition of the income received in connection therewith by a fund. Income
from foreign currencies (except certain gains therefrom that may be excluded by
future regulations), and income from transactions in options, futures and
forward contracts derived by a fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
Income Requirement.
If a fund satisfies certain requirements, any increase in value on a position
that is part of a "designated hedge" will be offset by any decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be
57
<PAGE>
included in gross income for purposes of that limitation. Each fund intends
that, when it engages in hedging transactions, they will qualify for this
treatment, but at the present time it is not clear whether this treatment will
be available for all of the fund's hedging transactions. To the extent this
treatment is not available, a fund may be forced to defer the closing out of
certain options and futures contracts beyond the time when it otherwise would be
advantageous to do so, in order for the fund to continue to qualify as a RIC.
The treatment of income dividends and capital gains distributions by a fund to
shareholders under the various state income tax laws may not parallel that under
the federal law. Qualification as a regulated investment company does not
involve supervision of a fund's management or of its investment policies and
practices by any governmental authority.
Shareholders are urged to consult their own tax advisors with specific reference
to their own tax situations, including their state and local tax liabilities.
PRINCIPAL SHAREHOLDERS
To the knowledge of the Fund, as of October 19, 1999, no shareholders owned
beneficially or of record 5% or more of the outstanding shares of beneficial
interest of IDEX Alger Aggressive Growth, IDEX JCC Capital Appreciation, IDEX
JCC Global, IDEX LKCM Strategic Total Return, IDEX Dean Asset Allocation, IDEX
JCC Balanced or IDEX JCC Flexible Income. National Heritage Foundation for the
benefit of VORA, Falls Church, Virginia, owns approximately 8.9% of the
outstanding shares of beneficial interest of the IDEX GE/Scottish Equitable
International Equity-A; Donaldson, Lufkin & Jenrette Securities Corporation,
Jersey City, New Jersey, owns approximately 8.9% of the outstanding shares of
beneficial interest of the IDEX GE/Scottish Equitable International Equity-A,
and ISI owned beneficially or of record approximately 23.4% of the IDEX
GE/Scottish Equitable International Equity-A; Alan R. and Donna May Hostetler
JD, Williamsburg, VA own approximately 18.7% of outstanding shares of beneficial
ownership of IDEX GE/Scottish Equitable International Equity-M; Timothy and
Deborah O'Donnell, Orlando, FL own 21.1% of the outstanding shares of beneficial
ownership of IDEX GE/Scottish Equitable International Equity-M; and ISI owns
21.1% of GE/Scottish Equitable International Equity-M, and 13.0% of IDEX
C.A.S.E. Growth-A, 6.6% of IDEX NWQ Value Equity-A, 10.6% of IDEX Goldman Sachs
Growth-A, 8.6% of IDEX Goldman Sachs Growth-B, 27.9% of IDEX Goldman Sachs
Growth-M, 9.7% of IDEX T. Rowe Price Dividend Growth-A, 8.3% of IDEX T. Rowe
Price Dividend Growth-B, 16.3% of IDEX T. Rowe Price Dividend Growth-M, 29.1% of
IDEX T. Rowe Price Small Cap-A, 34.0% of IDEX T. Rowe Price Small Cap-B, 55.4%
of IDEX T. Rowe Price Small Cap-M, 11.8% of IDEX Salomon All Cap-A, 12.8% of
IDEX Salomon All Cap-B, 27.9% of IDEX Salomon All Cap-M, 10.6% of IDEX Pilgrim
Baxter Mid Cap Growth-A, 10.1% of IDEX Pilgrim Baxter Mid Cap Growth-B and 25.9%
of IDEX Pilgrim Baxter Mid Cap Growth-M; Bear Stearns Securities Corp.,
Brooklyn, NY owns approximately 5.8% of the outstanding shares of beneficial
interest of IDEX AEGON Tax Exempt-A; Donald Lufkin & Jenrette Securities
Corporation, Inc. owns approximately 20.5% of the outstanding shares of
beneficial interest of IDEX AEGON Tax Exempt-M; Stephen P. Elias owns
approximately 9.4% of the outstanding shares of beneficial interest of IDEX
AEGON Tax Exempt-M; Prudential Securities, Inc. owns approximately 7.4% of the
outstanding shares of beneficial interest of IDEX AEGON Income Plus-M on behalf
of Patricia Jennings Bober Trust, approximately 12.3% of IDEX AEGON Income
Plus-M on behalf of the Neal B.Schneider Family Trust, approximately 18.0% of
IDEX AEGON Income Plus-M on behalf of the James Schneider Family Trust,
approximately 5.3% of the IDEX JCC Flexible Income-B on behalf of R.C.
Gambatesa, and approximately 25.2% of IDEX Salomon All Cap-M; Neil & Walana N.
Ulrich, Clear Lake, WI own approximately 5.3% of the outstanding shares of
beneficial interest of IDEX AEGON Tax Exempt-B; Irby & Jessie Judice, Beaumont,
Texas own approximately 6.2% of the outstanding shares of beneficial interest of
IDEX AEGON Tax Exempt-B; Ernest Roodhouse, Greenville, IL owns approximately
7.5% of the outstanding shares of beneficial interest of IDEX AEGON Tax
Exempt-B; Margaret Wallace, Cedar Rapids, IA owns approximately 11.0% of the
outstanding shares of beneficial interest of IDEX AEGON Tax Exempt-B; A.G.
Edwards & Sons on behalf of Eleonora Karanauskas, New York, NY, owns
approximately 5.1% of the outstanding shares of beneficial ownership of IDEX
Goldman Sachs Growth-M; Donaldson Lufkin & Jenrette Securities Corporation, Inc.
owns approximately 12.3% of the outstanding shares of beneficial ownership of
IDEX T. Rowe Price Dividend Growth-M; First Clearing Corporation, Augusta, GA on
behalf of David Fitzgerald owns approximately 5.6% of the outstanding shares of
beneficial interest of T. Rowe Price Dividend Growth-M; Investors Fiduciary
Trust Co. on behalf of
58
<PAGE>
Christopher Mills owns approximately 17.9% of the outstanding shares of
beneficial ownership of IDEX T. Rowe Price Dividend Growth-M and approximately
5.4% of the outstanding shares of beneficial ownership of IDEX Salomon All Cap-B
on behalf of Margaret Freeman; Gordon Davis, Forest Hills, NY owns approximately
5.4% of the outstanding shares of beneficial interest in IDEX T. Rowe Price
Small Cap-M approximately 5.0% of the outstanding shares of beneficial interest
in IDEX Salomon All Cap-M; and Compania Financiera De Inversiones FHR S.A.,
Miami, FL owns approximately 5.0% of IDEX Pilgrim Baxter Mid Cap Growth-B; and
State Street Bank and Trust Company as Trustee for the ConAgra Retirement Income
Savings Plan, Boston, Massachusetts, owned approximately 23.7% of the
outstanding shares of beneficial interest of IDEX JCC Growth.
As of October 19, 1999 certain affiliates of AIMI were the record owners of
shares of beneficial interest of IDEX AEGON Income Plus: AUSA Life Insurance
Company owned beneficially or of record 10.2% of the outstanding shares and PFL
Life Insurance Company owned 6.0% of the outstanding shares.
As of October 19, 1999, G. John Hurley, as Trustee of the Lydia A. Bickerton
Charitable Trust ("Charitable Trust"), dated 1-18-84, Clearwater, Florida owned
7.8% of Class A outstanding shares of beneficial interest of the IDEX Goldman
Sachs Growth fund, and ISI, the Fund's principal underwriter, owned beneficially
or of record approximately 10.6% of Class A, 8.6% of Class B and 27.9% of Class
M outstanding shares of beneficial interest of the IDEX Goldman Sachs fund. Mr.
Hurley, as Chairman of the Board of ISI and as Trustee of the Charitable Trust,
may be deemed to have "control" of the IDEX Goldman Sachs Growth fund as defined
by the 1940 Act.
MISCELLANEOUS
ORGANIZATION
Each fund is a series of the IDEX Mutual Funds, a Massachusetts business trust
that was formed by a Declaration of Trust dated January 7, 1986. The Trust
currently is governed by a Restatement of Declaration of Trust ("Declaration of
Trust") dated as of August 30, 1991.
On October 1, 1993, in a tax-free reorganization, IDEX JCC Flexible Income
acquired all of the assets and assumed all of the liabilities of IDEX Total
Income Trust ("IDEX Total") in exchange for shares of IDEX JCC Flexible Income
which were then distributed to IDEX Total shareholders. All historical financial
and performance information set forth in this SAI relates to IDEX Total prior to
the date it was reorganized into the IDEX JCC Flexible Income.
On September 20, 1996 in a tax-free reorganization, IDEX JCC Growth (formerly
IDEX II Growth Fund) acquired all of the assets and assumed all of the
liabilities of IDEX Fund and IDEX Fund 3 in exchange for Class T shares of IDEX
JCC Growth which were then distributed on a pro rata basis to the respective
shareholders of IDEX Fund and IDEX Fund 3. Upon closing of the reorganization,
IDEX II Series Fund changed its name to IDEX Series Fund. IDEX Series Fund
became IDEX Mutual Funds effective March 1, 1999.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Fund to issue an unlimited number of shares
of beneficial interest. Shares of the Fund are fully paid and nonassessable when
issued. Shares of the Fund have no preemptive, cumulative voting, conversion or
subscription rights. Shares of the Fund are fully transferable but the Fund is
not bound to recognize any transfer until it is recorded on the books.
The shares of beneficial interest of each fund are divided into four classes,
Class A, Class B, Class C and Class M shares; IDEX JCC Growth includes a fifth
class, Class T shares. Each class represents interests in the same assets of the
fund and differ as follows: each class of shares has exclusive voting rights on
matters pertaining to its plan of distribution or any other matter appropriately
limited to that class; Class A shares are subject to an initial sales charge and
are subject to a CDSC on purchases of $1 million or more if redeemed within 24
months of purchase; Class B shares are subject to a CDSC, or back-end load, at a
declining rate; Class C shares are not subject to an initial sales charge or
CDSC; Class M shares are subject to an initial sales charge and are subject to a
CDSC if redeemed within 18 months of purchase; Class B, Class C and Class M
shares are subject to higher ongoing distribution and service fees; each class
may bear differing amounts of certain class-specific expenses; and each class
has a separate exchange privilege. Class T shares of the IDEX JCC Growth are
subject to an initial sales charge and are subject to a CDSC if redeemed with 24
months of purchase. Class T shares have 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
59
<PAGE>
shares. The Fund does not anticipate that there will be any conflicts between
the interests of holders of the different classes of shares of the same fund by
virtue of these classes. On an ongoing basis, the Board of Trustees will
consider whether any such conflict exists and, if so, take appropriate action.
On any matter submitted to a vote of shareholders of a series or class, each
full issued and outstanding share of that series or class has one vote.
The Declaration of Trust provides that each of the Trustees will continue in
office until the termination of the Trust or his earlier death, resignation,
bankruptcy or removal. A meeting will be called for the election of trustees
upon the written request of holders of 10% or more of the outstanding shares of
the Fund. Vacancies may be filled by a majority of the remaining trustees,
subject to certain limitations imposed by the 1940 Act. Therefore, it is not
anticipated that annual or regular meetings of shareholders normally will be
held, unless otherwise required by the Declaration of Trust or the 1940 Act.
Subject to the foregoing, shareholders have the power to vote for the election
and removal of trustees, to terminate or reorganize the Fund, to amend the
Declaration of Trust, on whether to bring certain derivative actions and on any
other matters on which a shareholder vote is required by the 1940 Act, the
Declaration of Trust, the Fund's bylaws or the Trustees.
LEGAL COUNSEL AND AUDITORS
Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as counsel to the Fund and certain of its affiliates.
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA 02110 serves as
independent accountants for the Fund.
REGISTRATION STATEMENT
This SAI and the prospectus for the Fund does not contain all the information
set forth in the registration statement and exhibits relating thereto, which the
Fund has filed with the SEC, Washington, D.C. under the 1933 Act and the 1940
Act, to which reference is hereby made.
PERFORMANCE INFORMATION
Quotations of average annual total return for a particular class of shares of a
fund will be expressed in terms of the average annual compounded rate of return
of a hypothetical investment in the fund over periods of 1, 5, and 10 years.
These are the average annual compounded rates of return that would equate the
initial amount invested to the ending redeemable value. These rates of return
are calculated pursuant to the following formula:
P(1 + T)n = ERV
(where P = a hypothetical initial investment of $1,000; T = the average annual
total return; N = the number of years; and ERV = the ending redeemable value of
a hypothetical $1,000 investment made at the beginning of the period). All
average annual total return figures reflect the deduction of a proportionate
share of each fund's expenses on an annual basis, and assume that the maximum
sales load (Class A, M and Class T shares) is deducted from the initial $1,000
investment and all dividends and distributions are paid in additional shares.
(No information is included for the new Class C shares as the Fund began
offering those shares on November 1, 1999.)
60
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
IDEX GE/SCOTTISH EQUITABLE
IDEX ALGER AGGRESSIVE GROWTH INTERNATIONAL EQUITY
AS OF OCTOBER 31, 1998 CLASS CLASS
- -------------------------------------- -------------------------------- --------------------------------
A B M*** A B M***
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Inception Date 12/02/94 10/01/95 12/02/94 02/01/97 02/01/97 02/01/97
Sales Charge 5.50% * 1.00% 5.50% * 1.00%
12b-1 Fee 0.35% 1.00% 0.90% 0.35% 1.00% 0.90%
Average Annual Total Return Including
Sales Charges:
1 year 15.74% 17.04% 20.89% (3.07)% (3.11)% 0.97%
5 years N/A N/A N/A N/A N/A N/A
10 years N/A N/A N/A N/A N/A N/A
Inception 25.31% 11.87% 26.45% 1.50 % 1.92 % 3.68%
Average Annual Total Return Without
Deduction of Sales Charge:
1 year 22.48% 22.04% 22.11% 2.58 % 1.89 % 1.99%
5 years N/A N/A N/A N/A N/A N/A
10 years N/A N/A N/A N/A N/A N/A
Inception 27.13% 12.37% 26.78% 4.85% 4.17% 4.28%
Cumulative Total Return Without
Deduction of Sales Charge:
1 year 22.48% 22.04% 22.11% 2.58 % 1.89 % 1.99%
5 years N/A N/A N/A N/A N/A N/A
10 years N/A N/A N/A N/A N/A N/A
Inception 156.14% 43.32% 153.33% 8.59 % 7.36 % 7.55%
<CAPTION>
IDEX JCC CAPITAL APPRECIATION
AS OF OCTOBER 31, 1998 CLASS
- -------------------------------------- -------------------------------
A B M***
---------- ---------- ---------
<S> <C> <C> <C>
Inception Date 12/02/94 10/01/95 12/02/94
Sales Charge 5.50% * 1.00%
12b-1 Fee 0.35% 1.00% 0.90%
Average Annual Total Return Including
Sales Charges:
1 year 3.83% 4.35% 8.34%
5 years N/A N/A N/A
10 years N/A N/A N/A
Inception 16.00% 10.37% 16.89%
Average Annual Total Return Without
Deduction of Sales Charge:
1 year 9.87% 9.35% 9.43%
5 years N/A N/A N/A
10 years N/A N/A N/A
Inception 17.69% 10.90% 17.19%
Cumulative Total Return Without
Deduction of Sales Charge:
1 year 9.87% 9.35% 9.43%
5 years N/A N/A N/A
10 years N/A N/A N/A
Inception 89.29% 37.59% 86.17%
</TABLE>
<TABLE>
<CAPTION>
IDEX JCC GLOBAL IDEX JCC GROWTH
AS OF OCTOBER 31, 1998 CLASS CLASS
- -------------------------------------- -------------------------------- -----------------------------------------
A B M*** A B M*** T**
---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Inception Date 10/01/92 10/01/95 10/01/93 05/08/86 10/01/95 10/01/93 6/04/85
Sales Charge 5.50% * 1.00% 5.50% * 1.00% 8.50%
12b-1 Fee 0.35% 1.00% 0.90% 0.35% 1.00% 0.90% 0%
Average Annual Total Return Including
Sales Charges:
1 year 5.17% 5.93% 9.97% 27.77% 29.96% 32.65% 24.01%
5 years 15.66% N/A 16.33% 18.08% N/A 18.84% 17.81%
10 years --% N/A N/A 18.81% N/A N/A 18.77%
Inception 19.59% 18.18% 17.69% 17.35% 22.46% 18.50% 17.65%
Average Annual Total Return Without
Deduction of Sales Charge:
1 year 11.30% 10.93% 11.08% 35.21% 34.96% 35.00% 35.53%
5 years 16.98% N/A 16.33% 19.43% N/A 19.07% 19.92%
10 years --% N/A N/A 19.48% N/A N/A 19.83%
Inception 20.71% 18.64% 17.92% 17.89% 22.88% 18.74% 18.44%
Cumulative Total Return Without
Deduction of Sales Charge:
1 year 11.30% 10.93% 11.08% 35.21% 34.96% 35.00% 35.53%
5 years 119.02% N/A 115.20% 142.96% N/A 139.38% 147.99%
10 years N/A N/A N/A 493.06% N/A N/A 510.64%
Inception 213.98% 69.41% 131.08% 679.92% 88.79% 139.35% 866.59%
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
IDEX C.A.S.E. GROWTH IDEX NWQ VALUE EQUITY
AS OF OCTOBER 31, 1998 CLASS CLASS
- ------------------------------------ -------------------------------- --------------------------------
A B M*** A B M***
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Inception Date 02/01/96 02/01/96 02/01/96 02/01/97 02/01/97 02/01/97
Sales Charge 5.50% * 1.00% 5.50% * 1.00%
12b-1 Fee 0.35% 1.00% 0.90% 0.35% 1.00% 0.90%
Average Annual Total Return
Including Sales Charges:
1 year (19.51)% (19.63)% (17.00)% (10.18)% (10.27)% (7.34)%
5 years N/A N/A N/A N/A N/A N/A
10 years N/A N/A N/A N/A N/A N/A
Inception 3.18% 3.67% 4.40% 2.96% 3.51% 5.22%
Average Annual Total Return Without
Deduction of Sales Charge:
1 year (14.83)% (15.40)% (15.31)% (4.96)% (5.55)% (5.46)%
5 years N/A N/A N/A N/A N/A N/A
10 years N/A N/A N/A N/A N/A N/A
Inception 5.33% 4.69% 4.79% 6.37% 5.74% 5.83%
Cumulative Total Return Without
Deduction of Sales Charge:
1 year (14.83)% (15.40)% (15.31)% (4.96)% (5.55)% (5.46)%
5 years N/A N/A N/A N/A N/A N/A
10 years N/A N/A N/A N/A N/A N/A
Inception 15.32% 13.41% 13.70% 11.33% 10.18% 10.36%
<CAPTION>
IDEX LKCM STRATEGIC TOTAL RETURN
AS OF OCTOBER 31, 1998 CLASS
- ------------------------------------ -------------------------------
A B M***
---------- ---------- ---------
<S> <C> <C> <C>
Inception Date 12/02/94 10/01/95 12/02/94
Sales Charge 5.50% * 1.00%
12b-1 Fee 0.35% 1.00% 0.90%
Average Annual Total Return
Including Sales Charges:
1 year 1.52% 1.74% 4.78%
5 years N/A N/A N/A
10 years N/A N/A N/A
Inception 15.07% 14.03% 15.83%
Average Annual Total Return Without
Deduction of Sales Charge:
1 year 7.43% 6.74% 6.85%
5 years N/A N/A N/A
10 years N/A N/A N/A
Inception 16.74% 14.52% 16.12%
Cumulative Total Return Without
Deduction of Sales Charge:
1 year 7.43% 6.74% 6.85%
5 years N/A N/A N/A
10 years N/A N/A N/A
Inception 83.40% 51.95% 79.61%
</TABLE>
<TABLE>
<CAPTION>
IDEX DEAN ASSET ALLOCATION IDEX JCC BALANCED
AS OF OCTOBER 31, 1998 CLASS CLASS
- -------------------------------------- -------------------------------- -------------------------------
A B M*** A B M***
---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Inception Date 10/01/95 10/01/95 10/01/95 12/02/94 10/1/95 12/02/94
Sales Charge 5.50% * 1.00% 5.50% * 1.00%
12b-1 Fee 0.35% 1.00% 0.90% 0.35% 1.00% 0.90%
Average Annual Total Return Including
Sales Charge:
1 year 1.35% 1.56% 4.60% 8.38% 8.97% 11.94%
5 years N/A N/A N/A N/A N/A N/A
10 years N/A N/A N/A N/A N/A N/A
Inception 10.71% 11.52% 11.78% 17.68% 18.40% 18.45%
Average Annual Total Return Without
Deduction of Sales Charge:
1 year 7.25% 6.56% 6.67% 14.69% 13.97% 14.08%
5 years N/A N/A N/A N/A N/A N/A
10 years N/A N/A N/A N/A N/A N/A
Inception 12.75% 12.04% 12.15% 19.39% 18.85% 18.76%
Cumulative Total Return Without
Deduction of Sales Charge:
1 year 7.25% 6.56% 6.67% 14.69% 13.97% 14.08%
5 years N/A N/A N/A N/A N/A N/A
10 years N/A N/A N/A N/A N/A N/A
Inception 44.83% 42.01% 42.44% 100.23% 70.36% 96.12%
<CAPTION>
IDEX JCC FLEXIBLE INCOME
AS OF OCTOBER 31, 1998 CLASS
- -------------------------------------- -------------------------------
A B M***
---------- ---------- ---------
<S> <C> <C> <C>
Inception Date 06/29/87 10/01/95 10/01/93
Sales Charge 4.75% * 1.00%
12b-1 Fee 0.35% 1.00% 0.90%
Average Annual Total Return Including
Sales Charge:
1 year 2.32% 1.74% 4.77%
5 years 6.21% N/A 6.44%
10 years 7.74% N/A N/A
Inception 7.99% 7.75% 6.50%
Average Annual Total Return Without
Deduction of Sales Charge:
1 year 7.43% 6.74% 6.84%
5 years 7.25% N/A 6.65%
10 years 8.27% N/A N/A
Inception 8.45% 8.30% 6.71%
Cumulative Total Return Without
Deduction of Sales Charge:
1 year 7.43% 6.74% 6.84%
5 years 41.88% N/A 38.00%
10 years 121.34% N/A N/A
Inception 150.96% 27.89% 39.11%
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
IDEX AEGON INCOME PLUS IDEX AEGON TAX EXEMPT
AS OF OCTOBER 31, 1998 CLASS CLASS
- ------------------------------------ ------------------------------------ -----------------------------------
A B M*** A B M***
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Inception Date 6/14/85 10/01/95 10/01/93 04/01/85 10/01/95 10/01/93
Sales Charge 4.75% * 1.00% 4.75% * 1.00%
12B-1 Fee 0.35% 1.00% 0.90% 0.35% 1.00% 0.60%
Average Annual Total Return
Including Sales Charges:
1 year (1.38)% (2.13)% 0.94% 2.10% 1.50% 4.85%
5 years 6.16 % N/A 6.28% 4.84% N/A 5.39%
10 years 9.31 % N/A N/A 6.51% N/A N/A
Inception 9.79 % 7.05 % 6.42% 7.77% 6.06% 5.36%
Average Annual Total Return Without
Deduction of Sales Charge:
1 year 3.54 % 2.87 % 2.97% 7.19% 6.50% 6.92%
5 years 7.19 % N/A 6.49% 5.87% N/A 5.60%
10 years 9.84 % N/A N/A 7.03% N/A N/A
Inception 10.19 % 7.62 % 6.63% 8.15% 6.63% 5.57%
Cumulative Total Return Without
Deduction of Sales Charge:
1 year 3.54 % 2.87 % 2.97% 7.19% 6.50% 6.92%
5 years 41.53 % N/A 36.97% 33.00% N/A 31.32%
10 years 155.67 % N/A N/A 97.29% N/A N/A
Inception 266.15 % 25.39 % 38.59% 189.91% 21.89% 31.69%
</TABLE>
- ------------------------------
* The contingent deferred sales charge on redemption of Class B shares is 5%
during the first year, 4% during the second year, 3% during the third year,
2% during the fourth year, 1% during the fifth and sixth years and 0% during
the seventh year and later. The Class A, M and T shares are subject to a 1%
contingent deferred sales charge.
** Performance of Class T Shares of IDEX JCC Growth is based on the historical
performance of IDEX Fund from its inception on June 4, 1985 until the
reorganization of IDEX Fund and IDEX Fund 3 into Class T Shares of IDEX
Series Fund Growth Portfolio on September 20, 1996; and the historical
performance of Class T Shares of IDEX JCC Growth thereafter.
*** Effective March 1, 1999, Class C shares became Class M shares.
No information is included for IDEX Goldman Sachs Growth, IDEX Pilgrim Baxter
Mid Cap Growth, IDEX T. Rowe Price Dividend Growth, IDEX T. Rowe Price Small Cap
and IDEX Salomon All Cap as they did not commence operations until March 1,
1999.
The current yield for a particular class of shares of each of IDEX JCC Flexible
Income, IDEX AEGON Tax Exempt, IDEX AEGON Income Plus, IDEX JCC Balanced, IDEX
AEGON Income Plus, IDEX Dean Asset Allocation or IDEX LKCM Strategic Total
Return is computed in accordance with a standardized method prescribed by rules
of the SEC. The yield is computed by dividing the fund's investment income per
share earned during a particular 30-day base period (including dividends, if any
and interest earned, minus expenses excluding reductions for affiliated
brokerage and custody earnings credits accrued during the period) by the maximum
offering price per share on the last day of the base period and then annualizing
the result.
63
<PAGE>
CURRENT YIELD
30 DAY PERIOD
ENDED 10/31/98
---------------
IDEX LKCM STRATEGIC TOTAL RETURN
Class A 1.06%
Class B 0.52%
Class M* 0.60%
IDEX JCC BALANCED
Class A 1.81%
Class B 1.31%
Class M* 1.41%
IDEX JCC FLEXIBLE INCOME
Class A 4.95%
Class B 4.55%
Class M* 4.66%
IDEX AEGON TAX EXEMPT
Class A 3.33%
Class B 2.85%
Class M* 3.25%
IDEX AEGON INCOME PLUS
Class A 5.57%
Class B 5.20%
Class M* 5.29%
IDEX DEAN ASSET ALLOCATION
Class A 1.31%
Class B 0.78%
Class M* 0.87%
- ------------------------------
* All shares designated as Class C shares prior to March 1, 1999 were renamed
as Class M shares on that date. Effective November 1, 1999, each fund began
offering a new Class C share that has different fees and expenses than the
previous Class C share. Information is not included for the new Class C
share because the Fund began offering those shares on November 1, 1999.
The tax equivalent yield of IDEX AEGON Tax Exempt is computed by dividing that
portion of the yield (as computed above) which is tax-exempt by one minus an
assumed tax rate of 28% and adding the product to that portion, if any, of the
fund's yield that is not tax-exempt. The tax equivalent yield of IDEX AEGON Tax
Exempt Class A, Class B and Class M shares based on a 30-day period ended
October 31, 1998 was 4.63%, 3.96% and 4.51%, respectively.
From time to time in advertisements or sales material, a fund may present and
discuss its performance rankings and/or ratings or other information as
published by recognized mutual fund statistical services or by publications of
general interest such as WALL STREET JOURNAL, BOSTON GLOBE, NEW YORK TIMES, LOS
ANGELES TIMES, CHRISTIAN SCIENCE MONITOR, USA TODAY, TAMPA TRIBUNE, ST.
PETERSBURG TIMES, FINANCIAL TIMES, HARTFORD CURRENT, INTERNATIONAL HERALD
TRIBUNE, INVESTOR'S BUSINESS DAILY, BOSTON HERALD, WASHINGTON POST, KIPLINGER'S
WASHINGTON LETTER, KIPLINGER'S TAX REPORT, KIPLINGER'S PERSONAL FINANCE
MAGAZINE, BARRON'S, BUSINESS WEEK, FINANCIAL SERVICES WEEK, NATIONAL
UNDERWRITER, TIME, NEWSWEEK, PENSIONS & INVESTMENTS, U.S. NEWS AND WORLD REPORT,
MORNINGSTAR MUTUAL FUND VALUES, ECONOMIST, BANK LETTER, BOSTON BUSINESS JOURNAL,
RESEARCH RECOMMENDATIONS, FACS OF THE WEKK, MONEY, MODERN MATURITY, FORBES,
FORTUNE, FINANCIAL PLANNER, AMERICAN BANKER, U.S. BANKER, ABA BANKING JOURNAL,
INSTITUTIONAL INVESTOR (U.S./EUROPE), REGISTERED REPRESENTATIVE, INDEPENDENT
AGENT, AMERICAN DEMOGRAPHICS, TRUSTS & ESTATES, CREDIT UNION MANAGEMENT,
PERSONAL INVESTOR, NEW ENGLAND BUSINESS, BUSINESS MONTH, GENTLEMEN'S QUARTERLY,
EMPLOYEE RESEARCH REPORT, EMPLOYEE BENEFIT PLAN REVIEW, ICI MUTUAL FUND NEWS,
SUCCEED, JOHNSON CHARTS, WEISENBERGER INVESTMENT COMPANIES SERVICE, MUTUAL FUND
QUARTERLY, FINANCIAL WORLD MAGAZINE, CONSUMER REPORTS, BABSON-UNITED MUTUAL FUND
SELECTOR AND MUTUAL FUND ENCYCLOPEDIA (DEARBORN FINANCIAL PUBLISHING). A fund
may also advertise non-standardized performance information which is for a
period in addition to those required to be presented, or which provides actual
year-by-year return, or any combination thereof, or both. For Class A, Class M
and Class T shares, non-standardized performance may also be that which does not
reflect deduction of the maximum sales charge applicable to Class A, Class M and
Class T shares or the
64
<PAGE>
contingent deferred sales charge applicable to Class B and under certain
circumstances Class A, Class M and Class T shares. In addition, a fund may, as
appropriate, compare its performance to that of other types of investments such
as certificates of deposit, savings accounts and U.S. Treasuries, or to certain
interest rate and inflation indices, such as the Consumer Price Index. A fund
may also advertise various methods of investing including, among others, dollar
cost averaging, and may use compounding illustrations to show the results of
such investment methods. The Fund or the Distributor may also from time to time
in advertisements or sales material present tables or other information
comparing tax-exempt yields to the equivalent taxable yields, whether with
specific reference to IDEX AEGON Tax Exempt or otherwise.
FINANCIAL STATEMENTS
Audited financial statements for IDEX Alger Aggressive Growth, IDEX GE/Scottish
Equitable International Equity, IDEX JCC Capital Appreciation, IDEX JCC Global,
IDEX JCC Growth, IDEX C.A.S.E. Growth, IDEX NWQ Value Equity, IDEX LKCM
Strategic Total Return, IDEX Dean Asset Allocation, IDEX JCC Balanced, IDEX JCC
Flexible Income, IDEX AEGON Income Plus and IDEX AEGON Tax Exempt for the fiscal
year ended October 31, 1998 are incorporated by reference from the Fund's Annual
Report dated October 31, 1998. Unaudited financial statements for the
semi-annual period ended April 30, 1999 are also incorporated by reference from
the Fund's Semi-Annual Report dated April 30, 1999.
65
<PAGE>
APPENDIX A
CERTAIN SECURITIES IN WHICH THE FUNDS MAY INVEST
I. MUNICIPAL OBLIGATIONS IN WHICH IDEX AEGON TAX EXEMPT MAY INVEST
A. MUNICIPAL BONDS
GENERAL INFORMATION. Municipal bonds are debt obligations issued to obtain
funds for various public purposes, including the construction of a wide range
of public facilities such as airports, highways, bridges, schools, hospitals,
housing, mass transportation, streets and water and sewer works, and that pay
interest that is exempt from federal income tax in the opinion of issuer's
counsel. Other public purposes for which municipal bonds may be issued include
the refunding of outstanding obligations, obtaining funds for general expenses
and obtaining funds to lend to other public institutions and facilities.
The two principal classifications of municipal bonds are "general obligation"
bonds and "revenue" or "special tax" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue or special tax bonds are payable only
from the revenues derived from a particular facility or class of facilities or
project or, in some cases, from the proceeds of a special excise tax or other
specific revenue source, but are not supported by the issuer's power to levy
general taxes. Most industrial development bonds are in this category.
There are, of course, variations in the security of municipal bonds, both within
a particular classification and between classifications, depending on numerous
factors. The yields of municipal bonds depend, among other things, upon general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, the maturity of the obligations and rating of the
issue.
INDUSTRIAL DEVELOPMENT BONDS AND PRIVATE ACTIVITY BONDS. Industrial development
bonds ("IDBs") and private activity bonds ("PABs") are issued by or on behalf of
public authorities to finance various privately operated facilities, such as
airports or pollution control facilities. PABs generally are such bonds issued
after August 15, 1986. These obligations are included within the term "municipal
bonds" if the interest paid thereon is exempt from federal income tax in the
option of the bond counsel. IDBs and PABs are in most cases revenue bonds and
thus are not payable from the unrestricted revenues of the issuer. The credit
quality of IDBs and PABs is usually directly related to the credit standing of
the user of the facilities being financed.
PURCHASES ON "WHEN-ISSUED" OR "DELAYED DELIVERY" BASIS. Sometimes the IDEX AEGON
Tax Exempt may buy municipal bonds on a "when-issued" or "delayed delivery"
basis. This means that when it agrees to buy, the terms of the bonds and the
price it will pay are fixed, but it does not purchase and take delivery of the
bonds until a later date (the "settlement date"), which is usually within one
month. The IDEX AEGON Tax Exempt pays no money and receives no interest before
the settlement date. The commitment to purchase securities on a when-issued or
delayed delivery basis involves the risk that the market value of such
securities may fall below cost prior to the settlement date. While the IDEX
AEGON Tax Exempt may sell the municipal bonds before the settlement date, it
will ordinarily do so only for investment management reasons. Ordinarily, the
IDEX AEGON Tax Exempt purchases municipal bonds that it has agreed to buy on a
when-issued or delayed delivery basis. Gains or losses on sales prior to the
settlement date are not tax-exempt.
A municipal bond purchased on a when-issued or delayed delivery basis is
recorded as an asset on the commitment date. The IDEX AEGON Tax Exempt will
direct the fund's custodian to segregate cash, U.S. government securities or
other appropriate debt obligations owned by the fund that are at least equal in
value to the amount the IDEX AEGON Tax Exempt will have to pay on the settlement
date. If necessary, additional assets will be placed in the account daily so
that the value of the account will at least equal the fund's purchase
commitment.
B. MUNICIPAL NOTES
The IDEX AEGON Tax Exempt may invest in the following types of municipal notes,
subject to the quality requirements described in the prospectus:
A-1
<PAGE>
PROJECT NOTES. Project notes ("PNs") are issued on behalf of local authorities
at auctions conducted by the United States Department of Housing and Urban
Development to raise funds for federally sponsored urban renewal, neighborhood
development and housing programs. PNs are backed by the full faith and credit of
the federal government through agreements with the local authority which provide
that, if required, the federal government will lend the issuer an amount equal
to the principal of and interest on the PNs. Ordinarily, PNs are repaid by
rolling over the notes or from the proceeds of new bonds or other securities
which are issued to provide permanent financing.
BOND ANTICIPATION NOTES. Bond anticipation notes ("BANs") are usually general
obligations of state and local governmental issuers which are sold to obtain
interim financing for projects that will eventually be funded through the sale
of long-term debt obligations or bonds. The ability of an issuer to meet its
obligations on its BANs is primarily dependent on the issuer's access to the
long-term municipal bond market and the likelihood that the proceeds of such
bond sales will be used to pay the principal and interest on the BANs.
TAX ANTICIPATION NOTES. Tax anticipation notes ("TANs") are issued by state and
local governments to finance their current operations. Repayment is generally to
be derived from specific future tax revenues. TANs are usually general
obligations of the issuer. A weakness in an issuer's capacity to raise taxes due
to, among other things, a decline in its tax base or a rise in delinquencies,
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs.
REVENUE ANTICIPATION NOTES. Revenue anticipation notes ("RANs") are issued by
governments or governmental bodies with the expectation that future revenues
from a designated source will be used to repay the notes. In general, they also
constitute general obligations of the issuer. A decline in the receipt of
projected revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its obligations
on outstanding RANs. In addition, the possibility that the revenues would, when
received, be used to meet other obligations could affect the ability of the
issuer to pay the principal and interest on RANs.
CONSTRUCTION LOAN NOTES. Construction loan notes are issued to provide
construction financing for specific projects. Frequently, these notes are
redeemed with funds obtained from the Federal Housing Administration.
BANK NOTES. Bank notes are notes issued by local governmental bodies and
agencies as those described above to commercial banks as evidence of borrowings.
Banks on occasion sell such notes to purchasers such as the IDEX AEGON Tax
Exempt. The purposes for which the notes are issued vary, but bank notes are
frequently issued to meet short-term working-capital or capital-project needs.
These notes typically are redeemed with revenue from taxes or from long-term
financing proceeds, and may have risks similar to the risks associated with TANs
and RANs.
C. MUNICIPAL COMMERCIAL PAPER
Municipal commercial paper (also called "short-term discount notes") represents
short-term obligations of state and local governments and their agencies issued
typically to meet seasonal working capital or interim construction financing
requirements. Municipal commercial paper is often issued at a discount, with
shorter maturities than municipal notes. Such obligations are repayable from
general revenues of the issuer or refinanced with long-term debt. In most cases,
municipal commercial paper is backed by letters of credit, lending or note
repurchase agreements, or other credit facility agreements offered by banks or
other institutions.
While the various types of municipal notes and municipal commercial paper
described above as a group represent the major portion of the tax-exempt note
market, other types of notes are occasionally available in the marketplace and
the IDEX AEGON Tax Exempt may invest in such other types of notes to the extent
permitted under its investment objective and policies. Such short-term
obligations may be issued for different purposes and with different security
than those mentioned above.
D. FLOATING RATE AND VARIABLE RATE OBLIGATIONS
IDEX AEGON Tax Exempt may purchase floating rate and variable rate obligations,
including participation interests therein (see section E below). Investments in
floating or variable rate securities normally will include IDBs which provide
that the rate of interest is set as a specific percentage of a designated base
rate, such as the rate on Treasury bonds or bills or the prime rate at a major
commercial bank, and that the fund can demand payment of the obligation on short
notice at par value plus accrued interest. Variable rate securities provide for
a specified periodic adjustment in the interest
A-2
<PAGE>
rate, while floating rate securities have flexible rates that change whenever
there is a change in the designated base interest rate. Frequently, such
securities are secured by letters of credit or other credit support arrangements
provided by banks. The quality of the underlying creditor (I.E., the corporation
utilizing the IDBs financing) or the bank, as the case may be, must be
equivalent to the municipal obligation ratings required for purchases for the
IDEX AEGON Tax Exempt.
E. PARTICIPATION INTERESTS
IDEX AEGON Tax Exempt may invest in participation interests purchased from banks
in variable rate tax-exempt securities (such as IDBs) owned by the banks. A
participation interest gives the purchaser an undivided interest in the tax-
exempt security in the proportion that the fund's participation interest bears
to the total principal amount of the tax-exempt security, and permits demand
repurchase as described in section D above. Participations are frequently backed
by an irrevocable letter of credit or guarantee of the bank offering the
participation which the sub-adviser, under the supervision of the Board of
Trustees, has determined meets the prescribed quality standards for the IDEX
AEGON Tax Exempt. The fund has the right to sell the instrument back to the bank
and draw on the letter of credit on 7 days' notice for all or any part of the
fund's participation interest in the tax-exempt security, plus accrued interest.
The fund intends to exercise its demand rights under the letter of credit only
(1) upon a default under the terms of the tax-exempt security, (2) as needed to
provide liquidity in order to meet redemptions, or (3) upon a drop in the rating
or the sub-adviser's evaluation of the underlying security. Banks charge a
service and letter of credit fee and a fee for issuing repurchase commitments in
an amount equal to the excess of the interest paid on the tax-exempt securities
over the yield negotiated between the fund and the bank at which the instruments
were purchased by the IDEX AEGON Tax Exempt. The sub-adviser will monitor the
pricing, quality and liquidity of the variable rate demand instruments held by
the IDEX AEGON Tax Exempt, including the IDBs supported by bank letters of
credit or guarantee, on the basis of published financial information, reports or
rating agencies and other bank analytical services. Participation interests will
be purchased only if, in the opinion of counsel, interest income on such
interest will be tax-exempt when distributed as dividends to shareholders.
Obligations of issuers of municipal bonds, municipal notes and municipal
commercial paper are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, which may be enacted by Congress or state
legislatures extending the time for payment of principal or interest, or
imposing other constraints upon enforcement of such obligations or upon
municipalities' power to levy taxes. There is also the possibility that
litigation or other conditions may materially affect the power or ability of an
issuer to pay, when due, the principal of and interest on its municipal
obligations.
II. OBLIGATIONS IN WHICH EACH FUND MAY INVEST
(UNLESS OTHERWISE NOTED)
The funds may invest in the following obligations for temporary defensive
purposes or as otherwise described in the prospectus.
A. U.S. GOVERNMENT OBLIGATIONS
As described in the prospectus, a fund may invest in some or all of the
following types of direct obligations of the federal government, issued by the
Department of the Treasury, and backed by the full faith and credit of the
federal government.
TREASURY BILLS. Treasury bills are issued with maturities of up to one year.
They are issued in bearer form, are sold on a discount basis and are payable at
par value at maturity.
TREASURY NOTES. Treasury notes are longer-term interest bearing obligations
with original maturities of one to seven years.
TREASURY BONDS. Treasury bonds are longer-term interest bearing obligations with
original maturities from 5 to 30 years.
B. OBLIGATIONS OF FEDERAL AGENCIES, INSTRUMENTALITIES AND AUTHORITIES
Certain federal agencies have been established as instrumentalities of the
United States government to supervise and finance certain types of activities.
These agencies include, but are not limited to, the Banks for Cooperatives,
Federal Land Banks, Federal Intermediate Credit Banks, Federal Home Loan Banks
("FHLB"), Federal National Mortgage Association ("FNMA"), Government National
Mortgage Association ("GNMA"), Export-Import Bank of the United States, and
A-3
<PAGE>
Tennessee Valley Authority ("TVA"). Issues of these agencies, while not direct
obligations of the United States government, are either backed by the full faith
and credit of the United States (e.g., GNMA Certificates or certain TVA bonds)
or are guaranteed by the Treasury (e.g., certain other TVA bonds) or supported
by the issuing agencies' right to borrow from the Treasury (e.g., FHLB and FNMA
bonds). There can be no assurance that the United States government itself will
pay interest and principal on securities as to which it is not legally obligated
to do so.
C. CERTIFICATES OF DEPOSIT AND TIME DEPOSITS
A time deposit is a non-negotiable interest-bearing deposit with a bank which
generally cannot be withdrawn prior to a specified maturity date without
substantial interest penalties. A certificate of deposit ("CD") is a negotiable
instrument issued by a bank against a time deposit. CDs normally can be traded
in the secondary market prior to maturity, and are thus more liquid than other
forms of time deposits. The funds will only invest in U.S. dollar denominated
time deposits and CDs representing deposits in U.S. banks with assets of $1
billion or more, whose deposits are insured by the Federal Deposit Insurance
Corporation.
D. COMMERCIAL PAPER
Commercial paper refers to short-term unsecured promissory notes issued by
commercial and industrial corporations to finance their current operations.
Commercial paper may be issued at a discount and redeemed at par, or issued at
par with interest added at maturity. The interest or discount rate depends on
general interest rates, the credit standing of the issuer, and the maturity of
the note, and generally moves in tandem with rates on large CDs and Treasury
bills. An established secondary market exists for commercial paper, particularly
that of stronger issuers which are rated by Moody's Investors Service, Inc. and
Standard and Poor's Ratings Group. Investments in commercial paper are subject
to the risks that general interest rates will rise, that the credit standing and
outside rating of the issuer will fall, or that the secondary market in the
issuer's notes will become too limited to permit their liquidation at a
reasonable price.
E. BANKERS' ACCEPTANCES
A bankers' acceptance is a negotiable short-term draft, generally arising from a
bank customer's commercial transaction with another party, with payment due for
the transaction on the maturity date of the customer's draft. The draft becomes
a bankers' acceptance when the bank, upon fulfillment of the obligations of the
third party, accepts the draft for later payment at maturity, thus adding the
bank's guarantee of payment to its customer's own obligation. In effect, a
bankers' acceptance is a post-dated certified check payable to its bearer at
maturity. Such acceptances are highly liquid, but are subject to the risk that
both the customer and the accepting bank will be unable to pay at maturity. A
fund may invest in U.S. dollar denominated bankers' acceptances issued by U.S.
banks, their foreign branches, and by U.S. branches of foreign banks.
F. REPURCHASE AGREEMENTS FOR U.S. GOVERNMENT SECURITIES
Subject to its investment restrictions, a fund may enter into repurchase
agreements with banks and dealers for securities of or guaranteed by the U.S.
government, under which the fund purchases securities and agrees to resell the
securities at an agreed upon time and at an agreed upon price. The difference
between the amount a fund pays for the securities and the amount it receives
upon resale is accrued as interest and reflected in the fund's net investment
income. When a fund enters into repurchase agreements, it relies on the seller
to repurchase the securities. Failure to do so may result in a loss for the fund
if the market value of the securities is less than the repurchase price. Under
the 1940 Act, repurchase agreements may be considered collateralized loans by a
fund.
At the time a fund enters into a repurchase agreement, the value of the
underlying security including accrued interest will be equal to or exceed the
value of the repurchase agreement and, for repurchase agreements that mature in
more than one day, the seller will agree that the value of the underlying
security including accrued interest will continue to be at least equal to the
value of the repurchase agreement.
Although repurchase agreements carry certain risks not associated with direct
investment in securities, a fund intends to enter into repurchase agreements
only with banks and dealers in transactions which the fund's sub-adviser
believes present minimal credit risks in accordance with guidelines adopted by
the Trustees. To the extent that proceeds from any sales of collateral upon a
default in the counterparty's obligation to repurchase were less than the
repurchase price, the
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fund would suffer a loss. If the counterpart's petitions for bankruptcy or
otherwise becomes subject to bankruptcy or liquidation proceedings, there might
be restrictions on a fund's ability to sell the collateral and the fund could
suffer a loss.
III. OTHER SECURITIES IN WHICH THE FUNDS MAY INVEST
A. CORPORATE DEBT SECURITIES
A fund may invest in corporate bonds, notes and debentures of long and short
maturities and of various grades, including unrated securities. Corporate debt
securities exist in great variety, differing from one another in quality,
maturity, and call or other provisions. Lower grade bonds, whether rated or
unrated, usually offer higher interest income, but also carry increased risk of
default. Corporate bonds may be secured or unsecured, senior to or subordinated
to other debt of the issuer, and, occasionally, may be guaranteed by another
entity. In addition, they may carry other features, such as those described
under "Convertible Securities" and "Variable or Floating Rate Securities," or
have special features such as the right of the holder to shorten or lengthen the
maturity of a given debt instrument, rights to purchase additional securities,
rights to elect from among two or more currencies in which to receive interest
or principal payments, or provisions permitting the holder to participate in
earnings of the issuer or to participate in the value of some specified
commodity, financial index, or other measure of value.
B. INTERNATIONAL AGENCY OBLIGATIONS
A fund may invest in bonds, notes or Eurobonds of international agencies.
Examples are securities issued by the Asian Development Bank, the European
Economic Community, and the European Investment Bank. The funds may also
purchase obligations of the International Bank for Reconstruction and
Development which, while technically not a U.S. government agency or
instrumentality, has the right to borrow from the participating countries,
including the United States.
C. BANK OBLIGATIONS OR SAVINGS AND LOAN OBLIGATIONS
Subject to its investment restrictions, a fund may purchase certificates of
deposit, bankers' acceptances and other debt obligations of commercial banks and
certificates of deposit and other debt obligations of savings and loan
associations ("S&L's"). Certificates of deposit are receipts from a bank or an
S&L for funds deposited for a specified period of time at a specified rate of
return. Bankers' acceptances are time drafts drawn on commercial banks by
borrowers, usually in connection with international commercial transactions.
These instruments may be issued by institutions of any size, may be of any
maturity, and may be insured or uninsured. The quality of bank or savings and
loan obligations may be affected by such factors as (a) location -- the strength
of the local economy will often affect financial institutions in the region, (b)
asset mix -- institutions with substantial loans in a troubled industry may be
weakened by those loans, and (c) amount of equity capital -- under-capitalized
financial institutions are more vulnerable when loan losses are suffered. The
sub-adviser will evaluate these and other factors affecting the quality of bank
and savings and loan obligations purchased by a fund, but the fund is not
restricted to obligations or institutions which satisfy specified quality
criteria.
D. VARIABLE OR FLOATING RATE SECURITIES
Subject to its investment restrictions, a fund may purchase variable rate
securities that provide for automatic establishment of a new interest rate at
fixed intervals (e.g., daily, monthly, semi-annually, etc.). Floating rate
securities provide for automatic adjustment of the interest rate whenever some
specified interest rate index changes. The interest rate on variable and
floating rate securities is ordinarily determined by reference to, or is a
percentage of, a bank's prime rate, the 90-day U.S. Treasury bill rate, the rate
of return on commercial paper or bank certificates of deposit, an index of
short-term interest rates, or some other objective measure.
E. PREFERRED STOCKS
Subject to a fund's investment restrictions, a fund may purchase preferred
stocks. Preferred stocks are securities which represent an ownership interest in
a corporation and which give the owner a prior claim over common stock on the
corporation's earnings and assets. Preferred stock generally pays quarterly
dividends. Preferred stocks may differ in many of their provisions. Among the
features that differentiate preferred stocks from one another are the dividend
rights, which may be cumulative or non-cumulative and participating or
non-participating, redemption provisions, and voting rights. Such features will
establish the income return and may affect the prospects for capital
appreciation or risks of capital loss.
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F. CONVERTIBLE SECURITIES
Subject to its investment restrictions, a fund may invest in debt securities
convertible into or exchangeable for equity securities, or debt securities that
carry with them the right to acquire equity securities, as evidenced by warrants
attached to such securities or acquired as part of units of the securities. Such
securities normally pay less current income than securities without conversion
features, but add the potential opportunity for appreciation from enhanced value
for the equity securities into which they are convertible, and the concomitant
risk of loss from declines in those values.
G. COMMON STOCKS
Subject to its investment restrictions, a fund may invest in common stocks. IDEX
JCC Flexible Income will consider investment in income-producing common stocks
if the yields of common stocks generally become competitive with the yields of
other income securities. Common stocks are junior to the debt obligations and
preferred stocks of an issuer. Hence, dividend payments on common stocks should
be regarded as less secure than income payments on corporate debt securities.
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