SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Registration No. 33-11805
Pre-Effective Amendment No.
Post-Effective Amendment No. 12
and/or
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1940
1940 Act File No. 811-5000
Amendment No. 13
(Check appropriate box or boxes.)
IDEX FUND 3
(Exact Name of Registrant as Specified in Charter)
201 HIGHLAND AVENUE, LARGO, FLORIDA 34640
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (813) 585-6565
G. JOHN HURLEY, P.O. BOX 9015, CLEARWATER, FLORIDA 34618-9015
(Name and Address of Agent for Service)
Approximate date of proposed public offering: As soon as practicable after this
registration statement becomes effective:
[ ] 60 days after filing pursuant to paragraph (a) (1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a) (2) of Rule 485.
[ ] On (date) pursuant to paragraph (a) (1) of Rule 485.
[ ] On (date) pursuant to paragraph (a) (2) of Rule 485.
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485.
[X] On March 1, 1996 pursuant to paragraph (b) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- --------------------------
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2(a) and filed a Rule 24f-2 Notice
on December 26, 1995 for the fiscal year ended October 31, 1995.
<PAGE>
IDEX FUND 3
Cross Reference Sheet
Between Prospectus and Statement of
Additional Information and Form N-1A Item
FORM N-1A ITEM CAPTION
- -------------- -------
PART A PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Summary of Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant The Fund: A Summary of Its
Objective, Investment
Practices and Risks;
Securities in Which the Fund
Invests; How the Fund
Invests; Additional Risk
Factors; Miscellaneous
Information
5. Management of Fund Investment Advisory and
Other Services;
Miscellaneous Information
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Securities Shareholder Information and
Instructions - How to Buy
Shares; Distributions and
Taxes; Miscellaneous
Information
7. Purchase of Securities Being Alternative Purchase
Offered Arrangements; Shareholder
Information and Instructions
- Opening an Account;
Shareholder Information and
Instructions - How to Buy
Shares; Shareholder
Information and Instructions
- How to Exchange Shares;
Shareholder Information and
Instructions - Other
Information; Investment
Advisory and Other Services
8. Redemption or Repurchase Shareholder Information and
Instructions - How to Redeem
(Sell) Shares
9. Pending Legal Proceedings Not Applicable
<PAGE>
PART B STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Miscellaneous Information
13. Investment Objectives and Policies Investment Objective;
Investment Restrictions,
Policies and Practices;
Other Policies and Practices
of the Fund
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Principal Shareholders
Holders of Securities
16. Investment Advisory and Investment Advisory and
Other Services Other Services;
Administrative Services;
Custodian, Transfer Agent
and Other Affiliates
17. Brokerage Allocation and Portfolio Transactions and
Other Practices Brokerage
18. Capital Stock and Other Securities Miscellaneous Information
19. Purchase, Redemption and Purchase of Shares; Net
Pricing of Securities Being Asset Value Determination;
Offered Dividends and Other
Distributions; Shareholder
Accounts; Retirement
Plans; Redemption of Shares
20. Tax Status Taxes
21. Underwriter Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
<PAGE>
IDEX FUND 3
201 Highland Avenue, Largo, FL 34640
Customer Service: (800) 851-9777
Prospectus dated March 1, 1996
This Prospectus is a legal document provided to you, the investor, which sets
forth concise information about the Fund that should be considered carefully
before you invest. Additional and more detailed information is contained in
the Statement of Additional Information (the "SAI"), which is incorporated by
reference in this Prospectus. You may obtain a copy of the current SAI, dated
March 1, 1996, at no charge by calling or writing IDEX. You should retain
this Prospectus for future reference.
IDEX Fund 3 (the "Fund") is a diversified open-end management investment
company whose investment objective is growth of capital. Idex Management,
Inc. serves as investment adviser and Janus Capital Corporation serves as
investment sub-adviser to the Fund. The Fund pursues its objective by
investing primarily in common stocks listed on a national securities exchange
or on NASDAQ and which the Fund's sub-adviser believes have a good potential
for capital growth. There can be, of course, no assurance that the Fund will
achieve its investment objective. For further information, please read The
Fund: A Summary of Its Objective, Investment Practices, and Risks; Securities
in Which the Fund Invests; How the Fund Invests; and Additional Risk Factors.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus does not constitute an offer to sell securities in any state
to any person to whom it is unlawful to make an offer in such state.
<PAGE>
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
Summary of Expenses ....................................................... 1
Financial Highlights ...................................................... 2
The Fund: A Summary of Its Objective,
Investment Practices and Risks .......................................... 4
Introduction to the Fund .................................................. 4
Securities in Which the Fund Invests ..................................... 4
How the Fund Invests ...................................................... 6
Additional Risk Factors ................................................... 7
Investment Advisory and Other Services ................................... 8
Administrator and Distributor ............................................. 9
Miscellaneous Information ................................................. 9
Distributions and Taxes ...................................................10
Shareholder Information and Instructions .................................11
- -----------------------------------------------------------------------------
<PAGE>
SUMMARY OF EXPENSES
Before investing in IDEX Fund 3, please read this section carefully to
understand the cost of investing. When you buy shares of the Fund, you will
incur certain expenses. The section titled Shareholder Transaction Expenses
shows the expenses involved in owning shares of the Fund. The section titled
Examples of Expenses shows the expenses you might pay when making a
hypothetical $1,000 investment.
<TABLE>
<CAPTION>
IDEX FUND 3
----------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as percentage of offering price) (1) ......................................................................... 8.50%
Exchange Fees (2) ............................................................................................ None
Redemption Fees (3) .......................................................................................... None
Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, whichever is lower) (4) ........................................................................... None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees ............................................................................................... 1.00%
12b-1 Service and Distribution Fees .......................................................................... None
Other Expenses (5) ........................................................................................... .36%
Total Operating Expenses (5) ................................................................................. 1.36%
EXAMPLES OF EXPENSES: (6)
You would pay the following expenses on a $1,000 investment, assuming (1) a 5% annual return,
and (2) redemption at the end of each period:
1 year ........................................................................................................ $ 98
3 years ...................................................................................................... $124
5 years ...................................................................................................... $153
10 years ..................................................................................................... $235
<FN>
(1) On certain purchases, the sales load may be reduced or waived. Certain
shares may be subject to a 1% deferred sales charge. See Note 4. See also
Shareholder Information and Instructions - Sales Charges, Available
Discounts and Dealer Reallowances.
(2) Exchanges must be made in amounts of $500 or more. No service fees are
currently charged for exchanges.
(3) A $20 service fee is charged for each redemption transaction paid by
Federal funds bank wire or for overnight mail delivery of check
redemptions. (See Shareholder Information and Instructions - How to
Redeem (Sell) Shares.)
(4) On sales over $1,000,000 on which no up-front sales charge was imposed, a
contingent deferred sales charge of 1% applies for twelve months.
(5) Other Expenses and Total Operating Expenses are based on actual expenses
for the fiscal year ended October 31, 1995. For the period ended October
31, 1995, Total Operating Expenses would be 1.32% after reduction in
expenses by affiliated brokerage and custody earnings credits.
(6) The Examples assume all dividends and distributions are paid in
additional shares and no payment of exchange or redemption fees.
</FN>
</TABLE>
The purpose of the preceding table is to help you understand the various
costs and expenses you might bear, directly or indirectly, if you invest in
the Fund. For more information about these expenses, please read Investment
Advisory and Other Services and Shareholder Information and Instructions.
EXPENSES SHOWN IN THE ABOVE EXAMPLES DO NOT REPRESENT ACTUAL PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
ASSUMED 5% ANNUAL RETURN IS ALSO HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OR PREDICTION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE
GREATER OR LESS THAN 5%.
1
<PAGE>
FINANCIAL HIGHLIGHTS
The table below shows the actual earnings, capital gains or losses, and
expenses of a share of the Fund.
The information contained in the table for each fiscal year and for other
periods shown through October 31, 1995 has been audited by Price Waterhouse
LLP, independent accountants, whose report is incorporated by reference into
the SAI.
The SAI is incorporated by reference in this Prospectus. You may obtain it
without charge by calling or writing to the Fund. Further information about
performance of the Fund is contained in the Fund's Annual Report to
shareholders, which you may also obtain without charge by calling or writing
the Fund.
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------------------------
1995 1994 1993 1992
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 15.11 $ 17.45 $ 17.32 $ 18.74
Net investment income .02 .06 .09 .09
Net realized and unrealized gain (loss) on
investments and foreign currency 5.12 (.44) 2.54 .34
Total income (loss) from investment operations 5.14 (.38) 2.63 .43
Dividends from net investment income (.07) (.04) (.09) (.08)
Distributions from realized net capital gains and
foreign currency (.15) (1.92) (2.41) (1.77)
Total distributions (.22) (1.96) (2.50) (1.85)
Net asset value at end of period $ 20.03 $ 15.11 $ 17.45 $ 17.32
Total return (2) 34.66% (3.36%) 16.39% 2.62%
Net assets at end of period (000's) $166,986 $153,676 $201,481 $196,495
Ratio of expenses to average net assets (3) 1.36% 1.25% 1.24% 1.22%
Ratio of net investment income to average
net assets .10% .28% .52% .50%
Portfolio turnover rate (4) 122.95% 80.92% 123.58% 86.46%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PERIOD
FROM
APRIL 20,
1987(1) TO
1991 1990 1989 1988 10/31/87
----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.53 $ 14.37 $ 10.17 $ 9.04 $ 10.00
Net investment income .13 .17 .07 .25 .05
Net realized and unrealized gain (loss) on
investments and foreign currency 6.87 (1.51) 4.29 1.02 (1.01)
Total income (loss) from investment operations 7.00 (1.34) 4.36 1.27 (.96)
Dividends from net investment income (.20) (.08) (.16) (.14) -
Distributions from realized net capital gains and
foreign currency (.59) (.42) - - -
Total distributions (.79) (.50) (.16) (.14) -
Net asset value at end of period $ 18.74 $ 12.53 $ 14.37 $ 10.17 $ 9.04
Total return (2) 58.58% (9.73%) 43.61% 14.20% (9.60%)
Net assets at end of period (000's) $197,498 $130,900 $98,580 $46,556 $27,112
Ratio of expenses to average net assets (3) 1.28% 1.37% 1.39% 1.50% 1.48%
Ratio of net investment income to average
net assets .84% 1.18% 0.52% 2.60% 1.14%
Portfolio turnover rate (4) 104.97% 186.79% 112.97% 77.01% 260.24%
<FN>
(1) Commencement of Operations.
(2) Total return figures do not reflect any sales charge and assume that all
dividends and distributions are paid in additional shares. Period ended
October 31, 1987 is not annualized.
(3) Annualized for 1987. Net of expense reimbursements and/or management fee
waivers in 1988, without which the ratio of expenses to average net
assets would be 1.58%. The expense ratio reduced by custody earnings
credits would have been 1.32% for the year ended October 31, 1995.
(4) This rate is calculated by dividing the average value of the Fund's
long-term investments during the period into the lesser of its long-term
purchases or sales in the period. Period ended October 31, 1987 is
annualized.
</FN>
</TABLE>
2
<PAGE>
PERFORMANCE/TOTAL RETURN
Mutual Fund performance is most often stated as "total return." Total return,
expressed as a percentage, shows the change in value of Fund shares, plus its
income and capital gain distributions, net of expenses or sales charges, from
the beginning of a period to the end of a period. Total return may be
annual -- the return achieved in a year -- or cumulative, over a period of
several years.
You may also see a Fund's performance described in terms of "average annual
total return." This rate shows the hypothetical annual compounded return that
would have produced the same cumulative return if performance had been
constant over the entire period. Because average annual returns for more than
one year tend to smooth out variations in performance, such figures are not
the same as actual year-by-year results.
The SAI contains a more detailed description of the method used to calculate
average annual total return for the Fund.
PERFORMANCE SHOWN IN ADVERTISING
The Fund may advertise its return in non-standard ways, or for periods in
addition to those the National Association of Securities Dealers, Inc.
("NASD") and SEC require to be shown. The Fund may also advertise return
without deducting sales charges; such return would appear higher than an
actual return which reflect sales charges.
COMMERCIAL PERFORMANCE RANKINGS AND COMPARISONS
TO STANDARD INVESTING INDEXES
The Fund may sometimes advertise its "Lipper Rankings" or "Morningstar
Ratings," or other ratings or rankings published by business magazines or
newspapers such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK,
BARRON'S, CHANGING TIMES, FORTUNE or INSTITUTIONAL INVESTOR. These rankings
or ratings may include criteria relating to Fund characteristics, as well as
to performance.
When the Fund advertises such rankings or ratings relating to performance,
information will be included about the ranking category, the number of Funds
in the category, the period and criteria on which the ranking is based and
the effect of sales charges, fee waivers and/or expense reimbursements.
The Fund may also compare its performance to other selected funds or to
recognized market indexes, such as the Standard & Poor's 500 Stock Index (the
"S&P 500") and the Dow Jones Industrial Average.
In addition, the Fund may make appropriate comparisons of its performance to
the performance of other types of investments, including certificates of
deposit, savings accounts and U.S. Treasury securities, or of certain
interest rate and inflation indexes, such as the Consumer Price Index.
All performance figures are based on historical results and are not intended
to predict future performance. The investment return and principal value of
an investment will fluctuate so that an investor's shares, when sold, may be
worth more or less than their original cost.
3
<PAGE>
THE FUND: A SUMMARY OF ITS OBJECTIVE,
INVESTMENT PRACTICES AND RISKS
/diamond/ THIS SECTION PROVIDES A DESCRIPTION OF IDEX FUND 3. THIS SUMMARY
SHOULD BE READ IN CONJUNCTION WITH THE SECTIONS CALLED: SECURITIES
IN WHICH THE FUND INVESTS; HOW THE FUND INVESTS; AND ADDITIONAL
RISK FACTORS, WHICH PROVIDE MORE INFORMATION ABOUT THE FUND'S
INVESTMENTS, PRACTICES AND RISKS.
INTRODUCTION TO
THE FUND
The Fund is a diversified open-end management investment company registered
under the Investment Company Act of 1940 (the "1940 Act").
The investment objective of the Fund is growth of capital.
The Fund may change its investment objective without shareholder approval.
You will be notified 30 days before any such change. Unless otherwise noted,
the Fund may also change its investment policies without shareholder
approval.
If the Fund changes its investment objective, its new objective may not suit
your needs. You will be allowed 30 days after notice of an investment
objective change to sell or exchange your Fund shares without paying a sales
or exchange fee. If you sell or exchange your shares, you may, however,
realize a taxable gain or loss.
There can be no assurance that the Fund will achieve its investment
objective.
In order to preserve its ability to achieve its investment objective by
maintaining flexibility in making investments and in effecting portfolio
changes, and to preserve its identity as a small fund, the Fund discontinued
the sale of its shares to net investors effective June 15, 1990. Only
existing shareholders as of June 15, 1990 are permitted to purchase shares
and to receive any dividends or capital gain distributions in additional Fund
shares. However, the Fund reserves the right to reopen sales of shares to new
investors in the future if its management determines that to do so would be
in the best interest of the Fund and its shareholders.
IDEX FUND 3
OBJECTIVE: Growth of capital.
INVESTMENT FOCUS: The Fund invests primarily in common stocks listed on a
national securities exchange or on NASDAQ, which the Fund's sub-adviser
believes have a good potential for capital growth. Investment analysis
focuses on stocks with earnings growth potential that may not be recognized
by the market. These securities are selected solely for their growth
potential; investment income is not a consideration.
INVESTOR PROFILE: For the investor who wants capital growth in a broadly
diversified stock portfolio, and who can tolerate significant fluctuations in
value.
PRIMARY INVESTMENT PRACTICES: The Fund seeks to invest substantially all of
its assets in common stocks when its sub-adviser believes that the relevant
market environment favors such investing. Common stock investments are
selected from industries and companies that the portfolio manager believes
are experiencing favorable demand for their products and services, and which
operate in a favorable competitive environment and regulatory climate.
SECURITIES IN WHICH
THE FUND INVESTS
The Fund's potential risks and rewards are achieved fundamentally from the
investments it makes. This section discusses those securities with special
risk/reward considerations. This section should be read together with the
section called Additional Risk Factors.
FOREIGN SECURITIES
The Fund may invest up to 25% of its assets directly or indirectly in foreign
securities denominated in a foreign currency. Foreign securities may not be
publicly traded in the United States.
The Fund may indirectly invest in foreign securities through American
Depositary Receipts ("ADRs") or American Depositary Shares ("ADSs"), which
are dollar-denominated receipts issued by domestic banks or securities
firms. ADRs and ADSs are publicly traded on U.S. exchanges, and may not
involve the same risks as securities denominated in foreign currency.
The Fund may also indirectly invest in foreign securities through European
Depositary Receipts ("EDRs"), which are typically issued by European banks;
in Global Depositary Receipts ("GDRs"), which may be issued by domestic or
foreign banks; and in other types of receipts evidencing ownership of foreign
securities.
Investments in foreign securities involve different risks from investing in
domestic securities. See Additional Risk Factors.
FUTURES, OPTIONS AND OTHER
DERIVATIVE INSTRUMENTS
The Fund may write and purchase options on securities, as well as engage in
transactions involving options on securities or foreign currencies, futures
contracts, options on futures contracts, forward currency contracts, and
interest rate swaps, caps and floors. These instruments are commonly called
derivatives, because their price is derived from an underlying index,
security or other measure of value.
The Fund uses derivatives primarily as a hedge -- that is, to protect
portfolio positions against market or currency swings.
Futures contracts and related options may be used to attempt to enhance
profit, but the Fund limits non-hedging use of such instruments by requiring
that the aggregate initial margin and premiums required to establish
non-hedging positions will not exceed 5% of the fair market value of its net
assets.
The Fund's futures contracts activities are limited in such a manner as to
qualify for certain exemptions from registration with the Commodity Futures
Trading Commission.
There can be no assurance that the use of derivatives will help the Fund
achieve its investment objective. Derivatives involve special risks. See
Additional Risk Factors.
For more information about derivatives and their risks, see the SAI.
MORTGAGE AND OTHER
ASSET-BACKED SECURITIES
The Fund may invest up to 25% of its net assets in mortgage- and other asset-
backed securities. These are subject to prepayment risk -- the possibility
that early payoffs of underlying mortgages or other loans will cause the
principal and interest on the security to be paid before its stated maturity.
These early payments are
4
<PAGE>
more likely during periods when long-term interest rates decline. In the
event of such a prepayment during an interest rate decline, the Fund may be
required to invest the unanticipated proceeds at a lower interest rate.
Prepayments during such periods will also limit the Fund's ability to
participate in the kind of market gains possible with comparable government
securities not subject to prepayment.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities, which may include corporate
notes or preferred stock, but ordinarily are long-term debt obligations
which are convertible at a stated rate and time into common stock of the
issuer.
As with all debt securities, the market value of convertibles tends to
decline as interest rates rise and to increase as interest rates fall.
Convertible securities generally offer lower interest rates or dividend
yields than non-convertible securities of similar quality. However, when the
market price of the common stock underlying a convertible exceeds the
conversion price, the price of the convertible tends to rise like the common
stock price. When the price of the underlying stock declines, the convertible
tends to trade increasingly on a yield basis; therefore, its price may not
fall as much as the price of the common stock.
Convertible securities generally rank senior to common stocks in an issuer's
capital structure. That means convertible obligations are supposed to be paid
off before common stock obligations. Consequently, most convertibles are of
higher quality and entail less risk of decline in market value than the
issuer's common stock. However, the extent to which such risk is reduced
depends largely on the market value of the convertible as a debt
security -- i.e., if compared to other debt securities, the convertible pays a
competitive rate and is in demand, its price will hold up.
The Fund will evaluate convertibles for potential investment using the same
ratings criteria as it would use for investments in non-convertible debt
securities. See Securities in Which the Fund Invests - Debt Securities.
WHEN-ISSUED, DELAYED DELIVERY
AND FORWARD TRANSACTIONS
The Fund may buy securities on a when-issued or delayed delivery basis. It
may also enter into contracts to buy securities for a fixed price at a future
date beyond normal settlement time ("forward commitments").
The Fund bears the risk that the value of such securities may change before
delivery and the risk that the seller may not complete the transaction.
For more information regarding these types of securities, please see Appendix
A.
ILLIQUID SECURITIES
The Fund may invest as much as 15% of its net assets in securities that are
considered illiquid.
Securities are considered illiquid if there is no readily available market
for them, or because they carry legal or contractual restrictions on resale.
It often takes more time to sell illiquid securities, and costs more in
brokerage or dealer discounts or other expenses than does the sale of
exchange-listed securities or securities traded over-the-counter. As a
result, the Fund may not be able to sell such securities readily when the
sub-adviser thinks it proper to do so. The sub-adviser may have to sell an
alternative security in order to meet short-term needs for cash such as
shareholder redemption requests at a time that may not be advantageous.
Certain securities, called Rule 144A securities, are not registered for sale
to the public, but may be sold to certain institutional investors. Rule 144A
securities may be considered liquid if a dealer or an institutional market
exists for them. Procedures have been established by the Fund's sub-adviser
and Board of Trustees to determine if certain Rule 144A securities and other
securities, including commercial paper, are liquid. Securities purchased
under these rules may later become illiquid. The Fund's investments in such
securities could have the effect of increasing the level of Fund illiquidity
to the extent that a dealer or institutional trading market declines.
ZERO COUPON BONDS
AND OTHER SECURITIES
The Fund may invest as much as 10% of its assets in zero coupon bonds, step
coupon bonds, pay-in-kind securities or strips.
/diamond/ Zero coupon bonds do not make regular interest payments. They are sold
at a discount from face value. Principal and accreted discount
(representing interest accrued but not paid) are paid at maturity.
/diamond/ Step coupon bonds sell at a discount and pay a low coupon rate for an
initial period, then pay a higher coupon rate thereafter.
/diamond/ Pay-in-kind securities may pay interest in cash or in the form of a
similar bond or other asset.
/diamond/ Strips are debt securities that are stripped of their interest after
the securities are issued, but are comparable to zero coupon bonds.
The market value of these four kinds of securities generally fluctuates more
in response to interest rate changes than does the market value of
interest-paying securities of comparable quality and term. The Fund may
realize greater gains or losses as a result of such fluctuations.
To pay cash distributions from income earned on these kinds of securities,
the Fund may sell certain securities and may incur a capital gain or loss on
the sale.
REPURCHASE AND REVERSE
REPURCHASE AGREEMENTS
The Fund may invest in repurchase and reverse repurchase agreements. In a
repurchase agreement, the Fund buys a security and simultaneously agrees to
resell it to the seller, generally a bank or broker-dealer who agrees to
repurchase the security, at a specified price and date or on demand. This
technique is a method of earning income on idle cash. The repurchase
agreement is effectively secured by the value of the underlying security.
If a seller fails to repurchase the security as agreed, the Fund may suffer a
loss if the security's value declines before it can be sold on the open
market. If the seller goes bankrupt, the Fund may encounter delays and
increased costs in selling the underlying security.
Repurchase agreements maturing in more than seven days are subject to the
limits described above on illiquid securities.
In a reverse repurchase agreement, the Fund sells a security to another party
such as a bank or broker-dealer in return for cash and the Fund agrees to buy
the security back at a future date and price. These agreements may provide
cash to satisfy unusually heavy redemption requests or for other temporary or
emergency purposes without actually selling portfolio securities. They also
may help earn additional income on securities like treasury bills and notes.
5
<PAGE>
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. government securities, which are debt securities
backed either by the credit of the U.S. government as a whole or only by the
credit of the issuing agency or instrumentality. Securities issued by the
Federal Home Loan Banks and the Federal National Mortgage Association (FNMA)
are supported by the agency's right to borrow money from the U.S. Treasury
under certain circumstances. U.S. Treasury bonds, notes and bills, and some
agency securities, such as those issued by the Government National Mortgage
Association (GNMA), are backed by the full faith and credit of the U.S.
government as to payment of principal and interest and are the highest
quality U.S. government securities.
The Fund itself, and its share prices and yields, are not guaranteed by the
U.S. government.
DEBT SECURITIES
The Fund may not invest more than 5% of its net assets in junk bonds. Bonds
rated below investment grade are commonly known as "junk bonds" and normally
involve greater risk than investment grade securities. Junk bonds involve
significant quality and liquidity concerns. Their yields fluctuate. In
addition, lower-rated bonds carry substantial default risk - the risk that
the issuer will not make interest or principal payments when due. A bond
default could cause losses to the Fund.
The Fund may also buy unrated securities that, in the sub-adviser's opinion,
are equal in quality to the Fund's rated debt securities.
Unrated debt securities are not necessarily of lower grade than rated
securities, but they may not be as attractive to some buyers. The Fund relies
on the credit analysis of its sub-adviser when investing in unrated debt
securities.
HOW THE FUND INVESTS
The Fund's potential risks and rewards are affected by its investment
techniques. This section discusses investing techniques with special
risk/reward considerations.
DIVERSIFICATION
Diversification is the practice of spreading a portfolio's assets over a
number of investments, investment types, industries or countries to reduce
risk.
The Fund is diversified as a matter of fundamental policy, and is defined as
a diversified investment company under the 1940 Act. A diversified company
must have at least 75% of the value of its total assets in cash and cash
items (including receivables), government securities, securities of other
investment companies and other securities. For purposes of this calculation,
the company may not count securities of a single issuer that account for more
than 5% of the company's assets or that constitute more than 10% of the
issuer's voting securities.
As a fundamental policy governing concentration, the Fund will not invest 25%
or more of its assets in any one particular industry, other than U.S.
government securities.
PORTFOLIO TURNOVER
Although it is the policy of the Fund to buy and hold securities for its
stated investment objective, changes in these holdings will be made whenever
the portfolio manager believes they are advisable. Such changes may result
from:
/diamond/ liquidity needs;
/diamond/ securities having reached a price or yield objective;
/diamond/ anticipated changes in interest rates or the credit standing of an
issuer; or
/diamond/ developments not foreseen at the time of the investment decision.
To a limited extent, the Fund may engage in a significant number of
short-term transactions if such investing serves its objective. The rate of
portfolio turnover will not be a limiting factor when such short-term
investing is considered appropriate.
Turnover rate will not limit the manager's ability to buy or sell securities
for the Fund. Certain tax rules may restrict the Fund's ability to sell
securities when the security has been held for less than three months.
Increased turnover results in higher brokerage costs or mark-up charges for
the Fund; these charges are ultimately borne by shareholders. Short-term
trading may also result in short-term capital gains, which are taxed as
ordinary income to the Fund's shareholders.
For historical turnover rates, see Financial Highlights. For more discussion
of portfolio turnover, see the SAI.
CASH POSITIONS AND DEBT INVESTING
The portfolio manager of the Fund may at times choose to hold up to 100% of
net assets in cash, or to invest that cash in a variety of debt securities.
This may be done as a temporary defensive measure at times when desirable
risk/reward characteristics are not available in stocks or to earn income
from otherwise uninvested cash. When the Fund increases its cash or debt
investment position, its income may increase while its ability decreases to
participate in stock market declines or advances.
SHORT SALES
The Fund may sell securities "short against the box." A short sale is a sale
of a security that the Fund does not own. A short sale is "against the box"
if, at all times when the short sale is open, the Fund owns an equal amount
of the securities sold short or convertible into those same securities, or
exchangeable without further consideration for, securities of the same issue
as the securities sold short.
BORROWING AND LENDING
The Fund may borrow money from banks for temporary or emergency purposes. The
amount borrowed shall not exceed 25% of its total assets.
To secure borrowings, the Fund may not mortgage or pledge its securities in
amounts that exceed 15% of its net assets.
The Fund may borrow money from or lend money to other Funds that permit such
transactions and that are advised or sub-advised by Janus Capital Corporation
("Janus Capital"). The Fund must seek and obtain permission to do so from the
SEC. There is no assurance that such permission will be granted.
State law and regulations may impose additional limits on the Fund's
borrowing.
For more information about borrowing and lending, see the SAI.
LENDING PORTFOLIO SECURITIES
The Fund may lend securities to broker-dealers and financial institutions to
realize additional income. As a fundamental policy, the Fund will not lend
securities or other assets if, as a result, more than 25% of its total assets
would be lent to other parties. In practice, at this time, the Fund does not
intend to lend securities or make any other loans valued at more than 5% of
its total assets.
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If the borrower of a security defaults, the Fund may be delayed or prevented
from recovering collateral, or may be otherwise required to cover a
transaction in the security loaned.
If portfolio securities are loaned, collateral values must be continuously
maintained at no less than 100% by pricing both the securities loaned and the
collateral daily.
If a material event is to be voted upon affecting the Fund's investment in
securities which are on loan, the Fund will take such actions as may be
appropriate in order to vote its shares.
For more information about lending securities, see the SAI.
MASTER FUND/FEEDER FUND OPTION
The Fund may in the future seek to achieve its investment objective by
investing all of its assets in another investment company having the same
objective and substantially the same investment policies and restrictions.
Such an investment would be made only if the Board of Trustees of the Fund
determines it would be in the best interests of the Fund and its
shareholders. In making this determination, the Board will consider benefits
to shareholders and the opportunities to reduce costs and increase
efficiency, among other things. Should such a determination be made,
shareholders will be given at least 30 days notice.
CHANGES IN INVESTMENT
POLICIES AND RULES
The Fund is subject to investment restrictions, certain of which are
fundamental policies of the Fund. As such, they may not be changed without
shareholder approval. Non-fundamental investment restrictions and operating
policies may be changed by the Board of Trustees without shareholder
approval.
The investment restrictions of the Fund are described in the SAI.
NEW INVESTMENT INSTRUMENTS
The sub-adviser reserves the right to evaluate new financial instruments as
they are developed and become actively traded. Subject to any applicable
investment restriction, the Fund may invest in any such investment products
that its manager believes will further the Fund's investment objective.
ADDITIONAL RISK FACTORS
All investments involve risks. Some securities and some investment practices
involve taking special or additional risks. This section describes a number
of those risk factors.
FOREIGN SECURITIES
Investments in foreign securities involve risks that are different in some
respects from investments in securities of U.S. issuers. These risks include:
CURRENCY VALUE. Changes in currency exchange rates may affect the value of
foreign securities and the value of their dividend or interest payments and,
therefore, the Fund's share price and returns. Currency exchange rates are
affected by numerous factors, including relative interest rates, balances of
trade, levels of foreign investment and manipulation by central banks. The
foreign currency market is essentially unregulated and can be subject to
speculative trading. From time to time, many countries impose exchange
controls which limit or prohibit trading in certain currencies.
CURRENCY TRADING COSTS. ADRs do not involve the same direct currency and
liquidity risks as securities denominated in foreign currencies. However, the
value of the currency in which the foreign security represented by the ADR is
denominated may affect the value of the ADR.
To the extent that the Fund invests in foreign securities denominated in
foreign currencies, its share price reflects the price movements both of its
securities and of the currencies in which they are denominated. The share
price of the Fund may have a low correlation with movements in the U.S.
markets because the Fund invests in both U.S. and foreign securities. If most
of the securities in the Fund are denominated in foreign currencies or depend
on the value of foreign currencies, the relative strength of the U.S. dollar
against those foreign currencies may be an important factor in the Fund's
performance.
The Fund incurs costs in converting foreign currencies into U.S. dollars, and
vice versa.
DIFFERENT ACCOUNTING AND REPORTING PRACTICES. Foreign companies are generally
subject to tax laws and to accounting, auditing and financial reporting
standards, practices and requirements different from those that apply in the
U.S.
LESS INFORMATION AVAILABLE. There is generally less public information
available about foreign companies.
LESS REGULATION. Many foreign countries have less stringent securities
regulations than the U.S.
MORE DIFFICULT BUSINESS NEGOTIATIONS. The Fund may find it difficult to
enforce obligations in foreign countries or to negotiate favorable brokerage
commission rates.
REDUCED LIQUIDITY/INCREASED VOLATILITY. Some foreign securities are less
liquid, and their prices more volatile, than securities of comparable U.S.
companies.
SETTLEMENT DELAYS. Settling foreign securities transactions may take longer
than settlements in the U.S.
HIGHER CUSTODY CHARGES. Custodianship of shares may cost more for foreign
securities than it does for U.S. securities.
ASSET VULNERABILITY. In some foreign countries, there is a risk of direct
seizure or appropriation through taxation of assets of the Fund. Certain
countries may also impose limits on the removal of securities or other assets
of the Fund. Interest, dividends and capital gains on foreign securities held
by the Fund may be subject to foreign withholding taxes.
POLITICAL INSTABILITY. In some countries, political instability, war or
diplomatic developments could affect investments.
These risks may be greater in developing countries or in countries with
limited or developing capital markets. In particular, developing countries
may have relatively unstable governments, economies based on only a few
industries, and securities markets that trade only a small number of
securities. As a result, securities of issuers located in developing
countries may have limited marketability and may be subject to abrupt or
erratic price fluctuations.
At times, the Fund's foreign securities may be listed on exchanges or traded
in markets which are open on days (such as Saturday) when the Fund does not
compute a price or accept orders for purchase, sale or exchange of shares. As
a result, the net asset value of the Fund may be significantly affected by
trading on days when shareholders cannot make transactions.
HEDGING FOREIGN CURRENCY TRANSACTIONS. The Fund may hedge some or all of its
investments denominated in a foreign currency against a decline in the
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value of that currency. For example, the Fund may buy or sell securities
while using forward currency contracts to fix a price in U.S. dollars for
securities it has agreed to buy or sell ("transaction hedge"). The Fund may
enter into contracts to sell a foreign currency for U.S. dollars (not
exceeding the value of the Fund's assets denominated in that currency) or by
participation in options or futures contracts with respect to a currency
("position hedge").
The Fund could hedge a position by selling a second currency, which is
expected to perform similarly to the currency in which portfolio investments
are denominated, for U.S. dollars ("proxy hedge"). Or it may enter into a
forward contract to sell the currency in which the security is denominated
for a second currency that is expected to perform better relative to a given
currency, if the portfolio manager believes there is a reasonable degree of
correlation between movements in the two currencies ("cross-hedge").
As an operating policy, the Fund will not commit more than 10% of its assets
to the consummation of cross-hedge contracts, and will either cover such
transactions with liquid portfolio securities denominated in the applicable
currency or segregate high-grade, liquid assets in the amount of such
commitments. In addition, when the Fund anticipates buying securities
denominated in a particular currency, it may enter into a forward contract to
purchase such currency in exchange for the U.S. dollar or another currency
("anticipatory hedge").
These strategies seek to minimize the effect of currency appreciation as well
as depreciation, but do not protect against a decline in the underlying value
of the hedged security. In addition, such strategies may reduce or eliminate
the opportunity to profit from increases in the value of the original
currency, and may adversely affect the Fund's performance if the manager's
projection of future exchange rates is wrong.
FUTURES, OPTIONS AND OTHER
DERIVATIVE INSTRUMENTS
Generally, options, futures contracts, forward contracts and swap-related
products ("derivative instruments") involve additional investment risks and
transaction costs, and draw upon skills and experience which are different
from those needed to pick the other securities or instruments in which the
Fund invests. Special risks of derivatives' use include:
INACCURATE MARKET PREDICTIONS. If interest rates, securities prices or
currency markets do not move in the directions expected by a portfolio
manager who uses derivatives based on those measures, these instruments may
fail in their intended purpose and result in losses to the Fund.
IMPERFECT CORRELATION. Derivatives' prices may be imperfectly correlated with
the prices of the securities, interest rates or currencies being hedged. When
this happens, the expected benefits may be diminished.
ILLIQUIDITY. A liquid secondary market may not be available for a particular
instrument at a particular time. The Fund may therefore be unable to control
losses by closing out a derivative position.
TAX CONSIDERATIONS. The Fund may have to delay closing out certain derivative
positions to avoid adverse tax consequences.
The risk of loss from investing in derivative instruments is potentially
unlimited. See the SAI for more information about derivatives.
SPECIAL SITUATIONS
The Fund may invest in "special situations" from time to time. Special
situations arise when, in the opinion of the portfolio manager, a company's
securities may be recognized, then increase considerably in price, due to:
/diamond/ a new product or process;
/diamond/ a management change;
/diamond/ a technological breakthrough;
/diamond/ an extraordinary corporate event; or
/diamond/ a temporary imbalance in the supply of, and demand for, the securities
of an issuer.
Investing in a special situation carries an additional risk of loss if the
expected development does not happen or does not attract the expected
attention. The impact of special situation investing to the Fund will depend
on the size of the Fund's investment in a situation.
INVESTMENT ADVISORY
AND OTHER SERVICES
The Fund is run by a Board of Trustees. Subject to the supervision of the
Board of Trustees, its assets are managed by an investment adviser and
sub-adviser, and by a portfolio manager. This section describes the Fund's
ownership, organization and management.
TRUSTEES
The Board of Trustees is responsible for managing the business and affairs of
IDEX Fund 3. It oversees the operation of the Fund by its officers. It also
reviews the management of the Fund's assets by the investment adviser and
sub-adviser. Information about the Trustees and officers of the Fund is
contained in the SAI.
INVESTMENT ADVISER
The Fund has entered into a Management and Investment Advisory Agreement
("Advisory Agreement") with Idex Management, Inc. ("IMI"), whose address is
201 Highland Avenue, Largo, Florida 34640, to act as its investment adviser.
IMI has served as investment adviser to IDEX Fund 3, IDEX Fund and IDEX II
Series Fund Growth, Global, Flexible Income (and its predecessor, IDEX Total
Income Trust), Balanced and Capital Appreciation Portfolios since the
inception of each Fund or Portfolio.
ADVISORY FEES PAID BY THE FUND
IMI is responsible for furnishing or causing to be furnished to the Fund
investment advice and recommendations, and for supervising the purchase and
sale of securities as directed by appropriate Fund officers. In addition, IMI
is responsible for the administration of the Fund.
The Fund pays IMI advisory fees at an annual rate of 1.00% of average daily
net assets.
The investment advisory fees paid by the Fund are higher than those paid by
most other Funds.
ADVISORY FEE REIMBURSEMENT
IMI will reimburse the Fund or waive fees, or both, to the extent that the
Fund's normal net operating expenses, including advisory fees but excluding
interest, taxes and brokerage commissions, exceed on an annual basis the
lesser of the most restrictive expense limitation imposed by any state in
which its shares are offered, or 1.50% of the Fund's average daily net
assets.
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ACTUAL ADVISORY FEE RATIO TOTAL ACTUAL EXPENSE RATIO FOR THE
FOR THE FISCAL YEAR ENDED FISCAL YEAR ENDED OCTOBER 31, 1995,
OCTOBER 31, 1995 INCLUDING THE INVESTMENT
- ------------------------------------- ADVISORY FEE.
PERCENTAGE OF ------------------------------------
AVERAGE DAILY PERCENTAGE OF
NET ASSETS AVERAGE DAILY
IDEX Fund 3 1.00% NET ASSETS
IDEX Fund 3 1.36%
BUSINESS EXPENSES BORNE
BY THE FUND
In addition to the investment advisory fee, under its Advisory Agreement, the
Fund pays most of its operating costs, including administrative, bookkeeping
and clerical expenses, legal fees, auditing and accounting fees, shareholder
services and transfer agent fees, custodian fees, costs of complying with
federal and state regulations, preparing, printing and distributing reports
to shareholders, non-interested trustees' fees and expenses, interest,
insurance, dues for trade associations and taxes. The Fund also pays all
brokerage commissions in connection with portfolio transactions.
OWNERSHIP OF IDEX MANAGEMENT,
INC. AND INTERSECURITIES, INC.
Fifty percent (50%) of the outstanding stock of IMI and 100% of the
outstanding stock of InterSecurities, Inc. ("ISI"), principal underwriter of
the Fund's shares, is owned by AUSA Holding Company ("AUSA"). AUSA is a
holding company which is wholly owned by AEGON USA, Inc. ("AEGON USA"), a
financial services holding company whose primary emphasis is on life and
health insurance and annuity and investment products. AEGON USA is a wholly
owned indirect subsidiary of AEGON nv, a Netherlands corporation and publicly
traded international insurance group. Janus Capital, the Fund's sub-adviser,
owns the remaining 50% of the outstanding shares of IMI. Kansas City Southern
Industries, Inc., a publicly owned holding company whose primary subsidiaries
are engaged in transportation and financial services, owns approximately 83%
of Janus Capital.
SUB-ADVISER
Janus Capital, whose functions in managing the Fund are described below, is
described in this Prospectus as the "sub-adviser".
IMI has entered into an Investment Counsel Agreement with Janus Capital, 100
Fillmore Street, Denver, Colorado 80206. Janus Capital is a registered
investment adviser which serves as the investment adviser or sub-adviser to
other mutual funds and private accounts. Janus Capital is also sub-adviser to
IDEX Fund, IDEX II Series Fund Growth, Global, Flexible Income, Balanced and
Capital Appreciation Portfolios and to certain Portfolios of the WRL Series
Fund, Inc.
Janus Capital provides IMI with investment advice and recommendations for the
Fund consistent with its investment objective, policies and restrictions, and
supervises all security purchases and sales on behalf of the Fund, including
the negotiation of commissions and the allocation of principal business and
portfolio brokerage. In allocating such portfolio transactions, Janus Capital
may consider research and other services furnished to it and may place
portfolio transactions with broker-dealers that are affiliated with IMI or
Janus Capital. In placing portfolio business with all dealers, Janus Capital
seeks the best execution of each transaction, and all brokerage placement
must be consistent with the Rules of Fair Practice of the NASD.
While Janus Capital provides portfolio management services, IMI retains
responsibility for the performance of such functions. For its services, Janus
Capital receives 50% of the fees received by IMI under the Fund's Advisory
Agreement less 50% of any amount reimbursed to the Fund or waived by IMI
pursuant to the Fund's expense limitation. IMI may pay additional
compensation to Janus Capital under certain circumstances depending on the
level of the aggregate net assets of certain mutual Funds in the IDEX Group
of Mutual Funds, as described in the SAI.
PORTFOLIO MANAGER. Scott W. Schoelzel has served as portfolio manager of the
Fund since January, 1996. He previously served as co-portfolio manager of the
Fund from June, 1995 until becoming portfolio manager. Mr. Schoelzel also
serves as portfolio manager of other mutual Funds in the IDEX group: IDEX
Fund and IDEX II Series Fund Growth Portfolio. Mr. Schoelzel is Vice
President of Janus Capital, where he has been employed since 1994. From 1991
to 1993, Mr. Schoelzel was a portfolio manager with Founders Asset
Management, Denver, Colorado.
ADMINISTRATOR AND
DISTRIBUTOR
ADMINISTRATOR
IMI has entered into an Administrative Services Agreement ("Administrative
Agreement") pursuant to which ISI serves as administrator to the Fund.
Under the Administrative Agreement, ISI provides all services required to
carry on the general administrative and corporate affairs of the Fund. These
services include furnishing all executive and managerial personnel, office
space and equipment, arrangements for and supervision of all shareholder
services, federal and state regulatory compliance, and responsibility for
accounting and record keeping.
For its services under the Administrative Agreement, ISI receives 50% of the
fees received by IMI under the Advisory Agreement. Under certain
circumstances, the amounts payable to ISI under the Administrative Agreement
will be reduced by any additional compensation payable by IMI to Janus
Capital, as described in the SAI.
UNDERWRITING AGREEMENT
The Fund has entered into an Underwriting Agreement with ISI pursuant to
which ISI serves as principal underwriter and performs services and bears
expenses relating to the offering of Fund shares for sale to the public. ISI
also serves as principal underwriter of IDEX Fund and IDEX II Series Fund.
ISI is compensated by the Fund for services as distributor and principal
underwriter of Fund shares.
MISCELLANEOUS INFORMATION
ORGANIZATION OF THE FUND
The Fund is the sole series of IDEX Fund 3 ("the Fund"), a Massachusetts
business trust that was formed by a Declaration of Trust dated December 1,
1986 and whose operations are governed by a Restatement
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of Declaration of Trust dated as of August 30, 1991 ("Declaration of Trust").
A copy of the Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts. The Fund currently is the only series of the
trust.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the Fund. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of Fund
assets for all loss and expense of any shareholder held personally liable by
reason of being or having been a shareholder. Liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility that IDEX believes is remote.
The Fund is managed by its Board of Trustees pursuant to the Declaration of
Trust. The Declaration of Trust permits the Board of Trustees to issue an
unlimited number of shares of beneficial interest in the Fund. Each share of
the Fund has equal voting, dividend, liquidation and redemption rights.
PERSONAL SECURITIES TRADING
The Fund permits "Access Persons" as defined by Rule 17j-1 under the 1940 Act
to engage in personal securities transactions, subject to the terms of the
Code of Ethics and Insider Trading Policy ("the Policy") that has been
adopted by the Board of Trustees of the Fund. Access Persons must use the
guidelines established by this Policy for all personal securities
transactions and are subject to certain prohibitions on personal trading. The
Fund's sub-adviser, pursuant to Rule 17j-1 and other applicable laws, and
pursuant to the terms of the Policy, must adopt and enforce its own Code of
Ethics and Insider Trading Policy appropriate to its particular business
needs. The sub-adviser must report to the Board of Trustees on a quarterly
basis with respect to the administration and enforcement of such Policy,
including any violations thereof which may potentially affect the Fund.
SHAREHOLDER MEETINGS
The Fund does not intend to hold annual meetings of shareholders, unless
required to do so by the 1940 Act or by the Declaration of Trust. A meeting
will be called for the election of trustees upon the written request of
holders of 10% of the outstanding shares of the Fund. Shareholders have
neither preemptive nor cumulative voting rights.
THE TRANSFER AGENT
Idex Investor Services, Inc., P.O. Box 9015, Clearwater, Florida 34618-9015,
an affiliate of IMI and ISI, is the Fund's transfer agent, withholding agent
and dividend paying agent.
THE CUSTODIAN
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, is custodian of the Fund's assets and serves as custodian for
qualified retirement plans and individual retirement plan accounts investing
in the Fund. However, all correspondence about a shareholder's account should
be sent to IDEX.
SHAREHOLDER INQUIRIES
Inquiries by shareholders about the Fund or requests for forms for opening or
changing accounts or plans should be made by writing IDEX at P.O. Box 9015,
Clearwater, Florida 34618-9015 or calling IDEX at (800) 851-9777.
SHAREHOLDER REPORTS,
PROSPECTUSES AND
CONSOLIDATED STATEMENTS
The Fund sends annual and semi-annual reports and updated prospectuses to
shareholders. The annual reports contain audited financial statements. To
reduce costs, the Fund will send only one copy of certain mailings to a
shareholder who has more than one account (each with the same taxpayer ID
number). Further, two or more shareholders may elect to receive a
consolidated statement and only one copy of certain mailings for their
accounts so long as they share the same surname and address. Select this
option on the New Account Application or by written request to IDEX.
Additional copies of shareholder reports and prospectuses may be obtained by
calling IDEX.
DISTRIBUTIONS AND TAXES
This section discusses how and when the Fund makes distributions to you from
its net earnings and profits, and some of your tax responsibilities related
to such distributions.
INCOME AND
CAPITAL GAINS DISTRIBUTIONS
The Fund pays two kinds of distributions. Ordinary income distributions are
made from Fund earnings from interest paid on taxable bonds, dividends paid
on stocks, and other kinds of securities income. Capital gains distributions
are made from gains realized when securities owned for more than one year are
sold at an amount greater than their cost. Short-term capital gain
distributions (related to securities sold which have been owned one year or
less) are ordinary income, not capital gain, to shareholders.
NOTE: The Fund may also realize capital losses.
Income distributions are made semi-annually; capital gains distributions are
generally made once a year.
Capital gain distributions realized during each fiscal year, ending October
31, normally will be declared and paid in the following fiscal year. To avoid
a 4% excise tax on undistributed amounts of ordinary income and capital
gains, as described in the SAI, the Fund 3 may, to the extent permitted by
the SEC, pay additional distributions of capital gain in any year and make
additional dividend distributions.
If you buy shares in a non-retirement account on or shortly before the record
date for a dividend or other taxable distribution, you will pay full price
for the shares, then receive some portion of what you paid as a taxable
distribution.
HOW YOU RECEIVE
YOUR DISTRIBUTIONS
The Fund will automatically reinvest your dividend and capital gain
distributions in additional shares of the Fund, unless you specify another
payment method. See Shareholder Information and Instructions for complete
information about how to receive your distributions.
Requested cash distributions will be paid by direct deposit (via Automated
Clearing House electronic funds transfer ("ACH")), or by check, whichever you
choose on your New Account Application. Dividend checks are usually mailed,
along with a confirmation, on the payable date. The dividend checks will be
made out to the shareholder of record and sent to the address of record. You
may request a different payee or address on the New Account Application. To
do so on an existing account, send a signature guaranteed request to IDEX.
Any checks which cannot be delivered and are returned to IDEX will be
reinvested in full or fractional shares in your account at the net asset
value next computed after the check has been received by IDEX. To reduce
costs to the Fund, checks outstanding and uncashed for over 180 days may be
"stop-paid" and reinvested back into the shareholder/payee's
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account at the discretion of IDEX. Cash distributions that total less than
$5.00 will be reinvested into the account.
Shareholders may obtain further information or change their dividend or
distribution options any time before the record date of any dividend or
distribution by calling IDEX at (800) 851-9777 or writing to P.O. Box 9015,
Clearwater, FL 34618-9015.
TAX INFORMATION
The Fund is a regulated investment company, as defined by Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code").
If the Fund meets certain requirements of the Code for each fiscal period, it
does not pay taxes on net income realized from investment operations to the
extent earnings and profits are distributed to shareholders. Shareholders are
responsible for any taxes related to distributions. See the SAI for a
complete discussion of a mutual fund as a regulated investment company.
If the Fund declares a dividend or other distribution in October, November or
December payable to shareholders of record on a specified date in such a
month, and if the Fund pays the distribution to the shareholders during
January of the following year, then each shareholder will be treated as
receiving the distribution on December 31 of the first year, and the Fund
will be treated as having paid the distribution on that date.
"TAXABLE EVENTS" -- WHEN AND
HOW YOU OWE TAX RELATED TO
YOUR PORTFOLIO INVESTMENT
SELLING OR EXCHANGING SHARES. When you sell shares, whether you take cash or
exchange the shares for shares in another Portfolio or Fund, it is a "taxable
event." For non-retirement plan accounts, you will owe tax if you realize a
taxable gain on the sale or exchange. On the other hand, if you realize a
loss based on your tax basis in the shares, you may be able to offset that
capital loss against capital gain income you have. If there were any capital
gains distributions on the shares, the loss that is allowed will be treated
as a long-term capital loss, to the extent of the capital gains
distributions.
For tax purposes, the cost of a share is generally the per-share price you
paid for your shares (which may include sales charges). As a general rule,
your gain or loss on a sale or exchange will be a long-term capital gain or
loss if the shares have been held for more than one year and a short-term
capital gain or loss if held for one year or less. Under current tax law,
individuals are subject to a maximum federal tax rate of 28% on net capital
gain.
For most accounts (other than retirement plan accounts which will receive
Form 1099-R), IDEX will provide you with your "cost basis" when you sell
shares. This cost basis figure is important. It is figured on the single
category average cost method, and will allow you to determine whether you
have gained or lost on your sale.
You are not required to use this method; in fact, if you have previously sold
Fund shares and did not use this method to report gain or loss, it is not
available to you for sales of shares of the Fund. To determine which method
is most suitable for you, please consult your tax adviser.
NOTE: Please keep all regular account statements to use in conjunction with
average cost information (if received) in order to determine tax gain or loss
on the sale of Fund shares.
INCOME TAX OWED ON INCOME DISTRIBUTIONS. Ordinary income distributions,
whether received in cash or reinvested, are subject to ordinary income tax
rates.
INCOME TAX OWED ON CAPITAL GAIN DISTRIBUTIONS. As explained above, the Fund
generally distributes net realized capital gains, to the extent available, to
shareholders once a year. These capital gains distributions, whether paid in
cash or reinvested, are subject to the maximum capital gains tax rate of
28% -- the same tax rate as if you sell shares and realize a gain.
If you sell shares of the Fund, then buy shares again under the reinvestment
privilege described in Shareholder Information and Instructions, the cost of
shares sold may need to be reduced related to any front-end sales charges you
may have initially paid. See the SAI and consult your tax adviser about these
rules, as well as wash sale provisions of the Internal Revenue Code.
SOME STATE TAX EXEMPTIONS
In some states, shareholders are not subject to state taxation on
distributions made by a registered investment company that were derived from
interest on or portions of their account value attributed to direct or
indirect obligations of the U.S. government. This exemption generally does
not apply to dividends derived from interest on obligations issued by
agencies or instrumentalities of the U.S. government, or interest earned on
repurchase obligations secured by such obligations or direct obligations of
the U.S. government. See Securities in Which the Fund Invests for an
explanation of these securities and transactions.
Since state and local tax rules vary, please consult your tax adviser.
TAX STATEMENTS
Tax forms related to dividends and other distributions paid by the Fund are
mailed annually. For most types of accounts, IDEX will report the proceeds of
redemptions to shareholders and the Internal Revenue Service ("IRS")
annually. Average cost basis information on non-retirement plan account
redemptions is not currently reported to the IRS.
TAX WITHHOLDING
The Fund is required to withhold 31% of all dividends, capital gains
distributions and redemption proceeds paid on behalf of any individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer identification number. Withholding from income distributions
and capital gain distributions also is required for shareholders who
otherwise are subject to backup withholding according to the IRS.
NOTE: The foregoing is only a general summary of some of the important
federal tax considerations under current law generally affecting the Fund and
its shareholders; see the SAI for further discussion. Because there may be
other federal, state or local tax considerations applicable to a particular
shareholder, shareholders are urged to consult their own tax advisers.
SHAREHOLDER INFORMATION
AND INSTRUCTIONS
This section discusses buying, selling, and exchanging shares of the Fund;
sales charges and possible waivers and discounts; and general shareholder
account information.
If you need help or additional forms, call IDEX Customer Service at (800)
851-9777 M-F, 8 a.m-7 p.m. ET, or contact your representative.
HOW TO BUY SHARES
1. OPEN AN ACCOUNT
Fill out the New Account Application form included with this prospectus and
send it to IDEX. IRAs and other retirement accounts require a different
application. To open an IRA, call or write your registered representative or
IDEX for an IRA application. If you already have an account in an IDEX Fund
or Portfolio, you may open an account in another
11
<PAGE>
IDEX Fund or Portfolio with the same account features by calling or writing
to IDEX.
NOTE: You must include your Social Security or other Taxpayer Identification
Number with your application, or your account may be subject to backup
withholding or to involuntary termination.
The Fund reserves the right to reject any purchase order.
2. PAY FOR YOUR SHARES
You may buy shares in the following ways:
/diamond/ By check, by mail
Make your check payable to IDEX Mutual Funds and send it to
IDEX INVESTOR SERVICES, INC.
P.O. BOX 9015
CLEARWATER, FL 34618-9015 or
201 HIGHLAND AVENUE
LARGO, FL 34640.
/diamond/ By automatic investment plan
With an automatic investment plan, you choose to invest a regular
dollar amount, and have that amount deducted from a bank account on
any day between the 3rd and 28th day of each month. Your moneys will
be transferred via ACH. To set up, change or discontinue an automatic
investment plan, call or write IDEX.
/diamond/ By telephone
Telephone purchases may be set up by calling or writing IDEX, or you
may select telephone purchases on your New Account Application. Funds
to pay for telephone orders will be transferred electronically from
your bank account via ACH. See also Other Information - Telephone
Transactions.
/diamond/ Through authorized dealers
Orders of at least $1,000 ("confirmed purchases") may be issued
through authorized dealers. If you open a new account through a
dealer, the dealer is responsible for opening your account and
providing your taxpayer ID number. If you already have an IDEX
account, no additional documentation is needed. Dealers may pay for
share orders with Federal funds bank wires by instructing their banks
to wire Federal funds as follows:
NATIONSBANK OF FLORIDA, N.A.
TAMPA, FLORIDA
ABA #063100277
DDA #3601194554
ATTN: IDEX INVESTOR SERVICES, INC.
CONFIRMED PURCHASE ORDER NUMBER(S)
SHAREHOLDER'S ACCOUNT NAME(S)
The dealer's bank may charge for a wire transfer. IDEX currently does not
charge for this service.
The Fund generally will not accept initial purchases for less than $500 worth
of shares (including the sales charge). Purchases through certain plans for
regular investment, like the automatic investment plan described above, do
not require a minimum initial investment. If you already own Fund shares and
are buying more, the minimum purchase amount is usually $50.
Purchases of shares generally must be "settled" (payment received by the Fund
and shares credited to your account) within three business days from when the
Fund gets your purchase order. Therefore, the Fund must receive your payment
within that time.
<TABLE>
<CAPTION>
QUANTITY DISCOUNTS
SALES CHARGE REALLOWANCE SALES CHARGE
AS % OF TO DEALERS AS A % AS % OF
AMOUNT OF PURCHASE OFFERING PRICE OF OFFERING PRICE AMOUNT INVESTED
<S> <C> <C> <C>
Less than $10,000 8.50% 7.00% 9.30%
$10,000 but less than $25,000 7.75% 6.25% 8.40%
$25,000 but less than $50,000 6.25% 5.50% 6.70%
$50,000 but less than $75,000 5.75% 5.00% 6.10%
$75,000 but less than $100,000 5.00% 4.25% 5.30%
$100,000 but less than $250,000 4.25% 3.75% 4.40%
$250,000 but less than $500,000 3.00% 2.50% 3.10%
$500,000 but less than $1,000,000 1.25% 1.00% 1.30%
$1,000,000 or more 0.00% 1.00%* 0.00%
<FN>
* This amount is not a charge incurred by shareholders. ISI, at its own expense, may make the
following payments in accordance with its procedures as may be in effect from time to time:
1.00% of the net asset value of shares sold in amounts of $1,000,000 but less than
$2,500,000; .75% of the net asset value of shares sold in amounts of $2,500,000 but less
than $4,000,000; .50% of the net asset value of shares sold in amounts of $4,000,000 but
less than $5,000,000; and .25% of the net asset value of shares sold in amounts of
$5,000,000 or more. The privilege of purchasing shares at net asset value in amounts of
$1,000,000 or more is not available if another net asset value purchase privilege is also
applicable.
NOTE: If you redeem shares on which no up-front sales charge was imposed because you
invested $1 million or more during the first 12 months after buying them, you will
pay a deferred sales charge equal to 1%. You do not pay any deferred sales charge
when you redeem shares if you paid an up-front sales charge on those shares,
regardless of how long you have owned them.
</FN>
</TABLE>
12
<PAGE>
PER-SHARE PUBLIC OFFERING
PRICE AND NET ASSET VALUE
Net assets of the Fund are determined by adding the value of all securities,
receivables and other assets of the Fund, and subtracting liabilities.
However, for purposes of shareholder communication, public offering price and
net asset value ("NAV") per share usually refer to the purchase price and
value of one share of the Fund, respectively. The public offering price of a
share of the Fund is its per share NAV, plus the sales charge.
The number of shares that you buy is determined by the next NAV per share
calculated after IDEX receives and accepts your order to purchase shares.
The NAV per share is determined by the Fund's custodian on each day that the
New York Stock Exchange (the "Exchange") is open, as of the close of the
regular session of business on the Exchange. The Exchange currently closes at
4:00 p.m. Eastern time each day it is open.
Per share NAV is determined by dividing the net assets by the total number of
shares outstanding.
In determining total net assets and thus, NAV per share, securities and other
portfolio investments are valued at market value. Investments for which
quotations are not readily available are valued at fair value determined in
good faith by the sub-adviser under the supervision of the Board of
Trustees.
SALES CHARGES, AVAILABLE
DISCOUNTS AND
DEALER REALLOWANCES
When you buy shares, you generally pay an up-front sales charge. You can
reduce the up-front sales charge percentage in four ways:
/diamond/ By investing larger amounts;
/diamond/ By investing under a "right of accumulation," which credits your
account for shares you already own in various IDEX portfolios and
helps you earn discounts on new investments;
/diamond/ By filing a "letter of intention" to buy enough shares within a 13
month period to qualify for a reduced sales charge; or
/diamond/ By investing as part of a qualified group.
You generally pay no sales charge upon redemption of shares. However, if you
pay no up-front sales charge because you are purchasing $1 million or more of
shares, you will pay a deferred sales charge of 1% if you redeem any of those
shares within the first 12 months after buying them. The charge is assessed
on an amount equal to the lesser of the then current market value or the
original cost of the shares being redeemed. No sales charge is imposed on
increases in net asset value above the initial purchase price.
WHAT IS A "DEALER REALLOWANCE"?
IDEX sells its Funds both directly and through authorized dealers in the
United States and its territories. The Fund receives the entire NAV of shares
sold. ISI retains the sales charge, then reallows uniform discounts from the
applicable public offering price to all of its dealers -- this is how dealers
are compensated.
From time to time, ISI will create special promotions with dealers, in which
dealers earn larger reallowances in return for selling significant amounts of
shares or in return for certain training services. Sometimes, these dealers
may earn virtually the entire sales charge; at those times, they may be
deemed underwriters as described in the Securities Act of 1933.
Promotions may also involve non-cash incentives such as prizes or
merchandise. Non-cash compensation may also be in the form of attendance at
seminars conducted by ISI, including lodging and travel expenses.
Reallowances may also be given to banks or other financial institutions to
compensate them for their services in connection with share sales and
servicing of shareholder accounts.
ISI may also pay dealers, banks or other institutions from its own funds for
administrative services in connection with larger accounts.
DISCOUNTS THROUGH A
RIGHT OF ACCUMULATION
If you already own shares of certain IDEX Funds or Portfolios, you may be
able to get a sales charge discount when you buy new shares of the Fund or
certain Portfolios of IDEX II Series Fund on which an initial sales charge is
imposed. The value of the shares you already own may be "accumulated" -- i.e.,
counted together with the value of the new shares you plan to buy -- to
achieve quantities eligible for discount. Ask your sales representative for
information, or call IDEX.
DISCOUNTS THROUGH A
LETTER OF INTENTION
You may also earn a sales charge discount on shares by making a written
commitment to invest, within a 13-month period, an amount which qualifies for
discount. This written commitment, called a Letter of Intention ("LOI"), is
not a binding legal obligation.
Shares purchased under the terms of an LOI will be sold at the public
offering price -- NAV plus discounted sales charge -- which applies to the
total value of the shares you commit to buy during the period of the LOI.
During this period, your share purchases are subject to the following rules:
/diamond/ The first 5% of the amount that you agree to invest will be placed in
escrow until the LOI is fulfilled or 13 months has expired.
/diamond/ Future changes in quantity discounts (breakpoints) will apply to
purchases under the LOI.
/diamond/ Sales charge adjustments will be made if you actually buy more or less
than you commit to buy during the period of your LOI.
/diamond/ Shares bought up to 90 days before an LOI may be included in your LOI.
The LOI, however, will start on the day of the first purchase that is
included under the LOI.
/diamond/ Right of accumulation can apply to an LOI. That is, the current value
of all previous purchases of shares that paid a sales charge can be
counted towards fulfillment of the LOI, but the sales charges on these
previous purchases will not be adjusted.
/diamond/ Each LOI investment must be at least 5% of the total commitment.
/diamond/ Dividends and capital gains must be reinvested in additional shares.
No cash distributions are allowed under an LOI.
You may elect to invest under an LOI on your New Account Application. For
more information about an LOI, consult your registered representative or call
IDEX at (800) 851-9777.
DISCOUNTS AS A QUALIFIED GROUP
Members of a qualified group may purchase shares at a reduced sales charge
applicable to the group within a specified period. IDEX takes into account
the anticipated aggregate amount of purchases by the group of shares and
shares of other IDEX Funds with a front-end sales charge. A "qualified group"
is one which (i) has been in existence for more than six months, (ii) has a
purpose other than to acquire shares of the Fund or similar investments and
(iii) satisfies uniform criteria that allows IDEX and other dealers offering
Fund shares to realize economies
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<PAGE>
of scale. Pension or other employee benefit plan participants may qualify for
group purchases. The Fund reserves the right to modify or terminate this
privilege at any time. For information about qualifying groups, call IDEX.
WAIVER OF SALES CHARGES FOR
CERTAIN INDIVIDUALS
Shares of the Fund may be sold without sales charges to:
/diamond/ Current or former trustees, trustees emeriti, directors, officers,
full-time employees or sales representatives of the Fund, IMI, Janus
Capital, ISI, or any of their affiliates;
/diamond/ Directors, officers, full-time employees and sales representatives of
any dealer having a sales agreement with ISI;
/diamond/ Any trust, pension, profit-sharing or other benefit plan for any of
the foregoing persons;
/diamond/ Any members of the family of any of the foregoing persons; or
/diamond/ "Wrap" accounts for the benefit of clients of certain broker-dealers,
financial institutions or financial planners, who have entered into
arrangements with the Fund or ISI.
Persons eligible to buy shares at NAV may not impose a sales charge when they
re-sell those shares.
HOW TO REDEEM (SELL) SHARES
GENERAL INFORMATION. You may redeem (sell) your shares at any time at the
next determined NAV after IDEX receives your redemption request. For
information about how NAV is determined, see Per-Share Public Offering Price
and Net Asset Value under How to Buy Shares.
IDEX will normally pay you for your shares within three days of receiving a
valid redemption request. However, if you have purchased the shares by check
or ACH, IDEX must first be sure your payment has cleared. It will, therefore,
not pay for redemptions of this kind until such purchase(s) has cleared the
bank, which may take up to 15 days.
Your check will be sent by first-class mail. You can pay $20 (by check or
deduction from your account) for overnight delivery, if you wish, and if the
service is available to your account address.
Redemption and repurchase of shares may be suspended or payment postponed
during any period when the Exchange is closed (other then on weekends or
customary holidays) or trading on the Exchanges is restricted, or during a
period of an emergency or other periods during which the SEC permits such
suspension.
This section describes selling shares for cash. For other circumstances, see
Redemption of Shares in the SAI.
As described under How to Buy Shares, certain share sales will be charged the
appropriate contingent deferred sales charge applicable to certain
redemptions.
TO REDEEM SHARES BY MAIL. Send your redemption request to:
IDEX INVESTOR SERVICES, INC.
ATTENTION: REDEMPTIONS
P.O. BOX 9015
CLEARWATER, FL 34618-9015.
Your redemption request must be signed by the owner(s) of the account, or by
a person authorized to act for the owner(s).
/diamond/ Include the name of the Fund, the number of shares or dollar
amount of shares to be sold, the account number, and the name(s) on
the account.
/diamond/ If you have previously requested share certificates, they must be
returned if you wish to redeem these shares.
/diamond/ Your signature may have to be guaranteed. See Signature Guarantees
below.
Evidence of the authority of the person seeking a redemption is required for
all redemptions of shares held in the name of a corporation, a partnership,
trust or fiduciary.
SIGNATURE GUARANTEES. For your protection, a signature guarantee will be
required for the following transactions:
/diamond/ redemption requests larger than $100,000 by check;
/diamond/ redemption requests of any size made in an account where the
registration and/or address has been changed in the last 10 days;
/diamond/ redemptions by check made payable to someone other than the name on
the account, and/or sent to an address other than the address of
record;
/diamond/ redemptions by Federal Funds bank wire to a bank that is not pre-
designated on your account;
/diamond/ certain requests to change the registered owners of an account; or
/diamond/ to change certain arrangements in your existing systematic withdrawal
plan or cash dividend payment details.
This guarantee must be made by a national or state bank, a member firm of a
national stock exchange, or any other eligible guarantor as defined by the
SEC. Notarization is not an acceptable substitute. IDEX may require signature
guarantee for certain other circumstances from time to time.
TO REDEEM SHARES BY TELEPHONE AND RECEIVE YOUR MONEY BY CHECK. You may redeem
shares in amounts up to $50,000 by phone per day and receive your money by
check unless you have declined this privilege on the New Account Application.
Call (800) 851-9777 to order a phone redemption.
Telephone redemption with payment by check is not allowed:
/diamond/ For shares purchased by check or ACH within the past 15 days;
/diamond/ For retirement accounts (except IRAs, which will be subject to 10%
withholding);
/diamond/ For shares represented by certificates;
/diamond/ In amounts of $50,000 and over; or
/diamond/ In accounts where the registration and/or address has been changed
within the past 10 days.
If the account is held in more than one name, IDEX may accept the telephone
sale order of any one account holder. Your registered representative may
redeem shares on your behalf by telephone unless you have declined this
privilege on your New Account Application.
The Fund reserves the right to alter or modify the telephone redemption
privilege. See Other Information -- Telephone Transactions for further
information.
TO REDEEM SHARES BY TELEPHONE AND RECEIVE YOUR MONEY ELECTRONICALLY BY ACH OR
BANK WIRE. You may sell up to $50,000 worth of shares by phone and receive
your money by ACH or Federal funds bank wire to a pre-authorized bank
account. To receive this privilege, complete the appropriate section of the
New Account Application. If you already have an account, and wish to add the
electronic payment privilege, mail a signature guaranteed letter and bank
information (usually a voided check) to IDEX. ACH transfers usually take
three banking days. No fee is currently charged for this service.
Funds sent via Federal funds bank wire usually arrive on the next banking
day. Each time you have money wired to your bank account via a Federal funds
wire, a $20 fee will be charged. This amount will be deducted from your
account by the sale of shares. The receiving bank may also charge you a fee.
Federal funds wire transfers require a minimum redemption of $1,000.
14
<PAGE>
If you do not have the wire transfer privilege, and do not want to establish it
as a standing privilege on your account, you may still redeem shares and receive
funds at a U.S. bank via Federal funds wire by writing a letter of instruction
to IDEX. A Federal funds wire redemption generally requires a signature
guarantee.
TO REDEEM SHARES THROUGH A REGISTERED DEALER. You may also place confirmed
redemption requests through registered securities dealers. Some of these
dealers use the National Securities Clearing Corporation ("NSCC") electronic
order system. It is the responsibility of such dealers to transmit your sell
orders promptly. Payment for these redemption requests will be made to the
dealer within three days after IDEX receives your order, properly signed,
including share certificates and appropriate signature guarantees where
necessary. IDEX reviews all such orders.
TO REDEEM SHARES AUTOMATICALLY, AT REGULAR INTERVALS. You may establish a
systematic withdrawal plan ("SWP") on your New Account Application or by
calling Customer Service and obtaining the forms to do so. To set up an SWP,
you must:
/diamond/ Have an account worth at least $10,000;
/diamond/ Withdraw at least $50 with each redemption.
You may receive your money via ACH to your bank account or by check to your
address of record.
Withdrawals paid by check are normally made seven to 10 days before the first
of the month, although the Fund cannot guarantee that you will receive your
money exactly by the date you select. You may make withdrawals monthly,
quarterly, or annually.
Special considerations in using an SWP:
/diamond/ If an SWP is established on a new account, the initial disbursement
will not be made within 15 days of the date of your initial purchase.
/diamond/ Dividends and capital gains distributions on accounts with an active
SWP are usually paid in additional shares of the Fund.
/diamond/ If the requested payments under an SWP require sale of more shares
than have been credited through the payment of dividends and capital
gains distributions in additional shares, your original investment may
be depleted and ultimately exhausted.
/diamond/ Payments under an SWP probably will include some amount of your
original investment and are taxable events.
/diamond/ An SWP may not be advantageous to maintain while you simultaneously
buy additional shares; you'll pay more in sales charges than you have
to.
/diamond/ You can change or cancel an SWP at any time by writing or calling
IDEX. An SWP will be terminated when all shares in an account have
been redeemed, or when IDEX receives notice of the account holder's
death.
REINVESTMENT PRIVILEGE
If you sell shares, you may repurchase shares of the Fund, IDEX Fund or any
Class A Portfolio shares of IDEX II Series Fund, in an amount not more than
the amount you sold, without incurring a new sales charge. To do this, you
must send a written request to IDEX within 90 days after you sell your
shares. IDEX reserves the right to modify or eliminate this reinvestment
privilege at any time. Exchanging shares is allowed any time, generally
without new sales charges. See How to Exchange Shares, below.
When you exercise this reinvestment privilege:
/diamond/ You may reinvest the proceeds of a share sale in shares without paying
the up-front commission;
/diamond/ The contingent deferred sales charge you paid, if any, when you sold
your shares will also be reinvested in new shares.
NOTE: Certain distributions from qualified plans are not eligible for this
privilege.
HOW TO EXCHANGE SHARES
GENERAL INFORMATION. You may exchange shares of the Fund for shares of other
Funds or Portfolios in the IDEX Group on which an initial sales charge is
imposed. No sales charges are imposed at the time of an exchange; exchanges
must be made in amounts of $500 or more.
In addition, you may exchange shares for any of the three portfolios of the
Cash Equivalent Fund or the California Tax-Exempt Money Market Fund. See
Money Market Fund Exchange Privilege, below.
You automatically have the telephone exchange privilege unless you decline it
on your New Account Application. Exchanges may be made by mail or by phone.
Write or call IDEX Customer Service.
You may exchange all the shares in one account for shares in another account.
All special account features present in the old account, such as Automatic
Investment Plan, Letter of Intention, or Systematic Withdrawal/Exchange Plan,
will be transferred to the new account, unless IDEX is otherwise instructed.
You may exchange part of the shares in one account and open a new account for
new shares in another Fund or Portfolio. In partial exchanges, all special
account features except Automatic Investment Plan and Systematic Withdrawal/
Exchange Plan will be transferred to the new account, unless IDEX is
otherwise instructed.
Before making an exchange into a Fund or Portfolio which is new to you, read
the Prospectus carefully. Obtain Prospectuses by calling or writing IDEX.
The Fund reserves the right to limit exchanges or modify or terminate the
exchange privilege at any time.
TELEPHONE EXCHANGES. Call IDEX at (800) 851-9777 to make a telephone
exchange. New shares acquired by phone exchange must be registered in exactly
the same name as the shares sold by phone exchange. No share certificates are
available for shares acquired through a phone exchange. See Other
Information -- Telephone Transactions for more information.
SYSTEMATIC EXCHANGES. You may choose, either on your New Account Application,
or by writing IDEX, to exchange shares automatically at regular intervals
from one IDEX Fund or Portfolio on which an initial sales charge is imposed
to another. All conditions described above under General Information also
apply to systematic exchanges.
New shares acquired by systematic exchange must be registered in exactly the
same name as the shares sold in a systematic exchange. No share certificates
are available for shares acquired through a systematic exchange.
MONEY MARKET FUND EXCHANGE PRIVILEGE. You may make sales charge-free
exchanges of at least $500 at NAV of Fund shares to any of the three
portfolios of the Cash Equivalent Fund or the California Tax-Exempt Money
Market Fund.
You may also sell your shares of any of the Money Market Funds in minimum
amounts of $500 and invest the proceeds in another IDEX Fund or Portfolio on
which an initial sales charge is imposed.
Sales charges will be made on exchanges from Money Market Funds when you
15
<PAGE>
have originally invested in these Money Market Funds, then decided to
exchange for shares in the Fund.
Systematic exchanges may also be made between the Money Market Funds and the
Fund. See Systematic Exchanges, above, for conditions.
These Funds (the "Money Market Funds"), which are separately managed by
Zurich Kemper Investments, Inc., are open-end, diversified money market
mutual Funds.
Sales of shares in connection with Money Market Fund exchanges will be
effected as of the end of the day when your exchange request is received, if
it is received before 4:00 p.m. Eastern time.
This exchange privilege does not constitute an offering or recommendation of
Money Market Fund shares by the Fund. Before making a Money Market Fund
exchange, you should consider the investment objective of the Money Market
Fund and read its current Prospectus.
You may request a Money Market Fund exchange by writing or calling IDEX.
OTHER INFORMATION
MINIMUM ACCOUNT BALANCE. The Fund may redeem any account in which the balance
has fallen below $500 due to redemptions and there are no share purchases
within the past 60 days, unless the account is less than 24 months old.
The Fund will notify the holder of such an account 60 days before closing it.
After being notified, the account holder may make share purchases to bring
the account above the $500 minimum.
REPURCHASE ARRANGEMENTS. For the convenience of its shareholders, the Fund
has authorized ISI to act as its agent in the repurchase of Fund shares. This
procedure may be terminated at any time. If you sell your shares to ISI
through a dealer, your dealer may charge you an additional fee.
RETIREMENT PLANS. Fund shares may be purchased in qualified retirement plans,
including individual retirement accounts (IRAs), 401(k)s, Simplified Employee
Pension Plans (SEP-IRAs), corporate and self-employed pension and profit
sharing plans (Keoghs) and 403(b)(7) programs.
Do not try to open a retirement plan with the application in this Prospectus.
These plans require a different application. Call or write IDEX to obtain the
application.
Retirement plan accounts are ordinarily charged a $12 per year maintenance
fee, with a maximum of $24 a year per taxpayer ID number. However, if your
retirement plan is under custody of Investors Fiduciary Trust Company and
your combined retirement account balances per taxpayer ID number are more
than $50,000, there is generally no fee.
The SAI contains more information about retirement plans. Investors should
consult with their tax advisers about tax-deferral issues in such plans.
TELEPHONE TRANSACTIONS. The Fund, ISI and IDEX will not be liable for
complying with telephone instructions, and investors will bear the risk of
loss. The Fund, ISI and/or IDEX will employ reasonable procedures to make
sure telephone instructions are genuine. These procedures may include, among
others, requiring forms of personal identification, providing written
confirmation of telephone transactions and/or tape recording telephone
orders. If the Fund, ISI and/or IDEX do not employ such reasonable
procedures, they may be held liable for loss due to fraudulent or
unauthorized telephone instructions.
HOW TRANSACTIONS ARE CONFIRMED. After most every account transaction, except
when shares are bought with reinvested dividends and capital gains
distributions and except for automatic redemptions or purchases via ACH, you
will receive a statement. This statement will show the details of the
transaction, the number of shares held in your account and the transactions
since the beginning of the year. You will receive a quarterly statement which
details your dividend and capital gain distribution reinvestments, as well as
your ACH transactions.
HISTORICAL STATEMENTS. You may order a historical statement covering years
before the current year.
SHARE CERTIFICATES. Account holders ordinarily do not want share
certificates. Shares are normally recorded on the Fund's books and no
certificates are issued. You may, however, obtain certificates for your
shares, with these limitations:
/diamond/ No certificates will be issued for fractional shares;
/diamond/ No certificates will be issued for accounts holding less than 30
shares, except in connection with sales or transfers of shares from
other funds when you already hold certificates;
/diamond/ Certificates are issued only in the same name as your account;
/diamond/ Certificates are not issued for retirements plan accounts with IFTC as
custodian.
If you want certificates representing your shares, you may write or call IDEX
to request them. You may return share certificates to IDEX at any time. There
may be a charge for cancelling and replacing lost or stolen share
certificates. Notify IDEX immediately if your certificates are lost or
stolen. Remember that if you ask for a certificate for your shares, you will
not be able to redeem or exchange your shares by telephone. Also, you will
have to send your share certificate to us when you want to redeem or exchange
those shares.
16
<PAGE>
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary provides a more detailed description of the types of securities
in which the Fund may invest. The Fund may invest in these securities to the
extent permitted by its investment objective and policies. The Fund is not
limited by this discussion and may invest in ANY type of security unless
precluded by the policies discussed elsewhere in this Prospectus or in the
SAI.
I. EQUITY AND DEBT SECURITIES
BONDS ARE DEBT SECURITIES issued by a company, municipality or government
agency. The issuer of a bond is required to pay the holder the amount of the
loan (or par value) at a specified maturity and to make scheduled interest
payments.
CERTIFICATES OF PARTICIPATION ("COPS") are certificates representing an
interest in a pool of securities. Holders are entitled to a proportionate
interest in the underlying securities. Municipal lease obligations are often
sold in the form of COPs. See "Municipal lease obligations" below.
COMMERCIAL PAPER is a short-term debt obligation with a maturity ranging from
1 to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. The Fund may purchase commercial paper issued
under Section 4(2) of the Securities Act of 1933. The Fund may determine that
such securities are liquid under guidelines established by the Trustees.
COMMON STOCK represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on
common stock are not fixed but are declared at the discretion of the issuer's
board of directors.
CONVERTIBLE SECURITIES are preferred stocks or bonds that pay a fixed
dividend or interest payment and are convertible into common stock at a
specified price or conversion ratio.
DEPOSITARY RECEIPTS are receipts for shares of a foreign-based corporation
that entitle the holder to dividends and capital gains on the underlying
security. Receipts include those issued by domestic banks (American
Depositary Receipts), foreign banks (Global or European Depositary Receipts)
and broker-dealers (depositary shares).
HIGH-YIELD/HIGH-RISK BONDS are securities that are rated below investment
grade by the primary rating agencies (BB or lower by Standard & Poor's and Ba
or lower by Moody's). Other terms commonly used to describe such securities
include "lower rated bonds," "non-investment grade bonds" and "junk bonds."
INDUSTRIAL DEVELOPMENT BONDS are revenue bonds that are issued by a public
authority but which may be backed only by the credit and security of a
private issuer and may involve greater credit risk. See "Municipal
securities" below.
MORTGAGE- AND ASSET-BACKED SECURITIES are shares in an organized pool of
mortgages or other debt. These securities are generally pass-through
securities, which means that principal and interest payments on the
underlying securities (less servicing fees) are passed through to
shareholders on a pro rata basis. These securities involve prepayment risk,
which is the risk that the underlying mortgages or other debt may be
refinanced or paid off prior to their maturities during periods of declining
interest rates. In that case, a portfolio manager may have to reinvest the
proceeds from the securities at a lower rate. Potential market gains on a
security subject to prepayment risk may be more limited than potential market
gains on a comparable security that is not subject to prepayment risk.
MUNICIPAL LEASE OBLIGATIONS are revenue bonds backed by leases or installment
purchase contracts for property or equipment. Lease obligations may not be
backed by the issuing municipality's credit and may involve risks not
normally associated with general obligation bonds and other revenue bonds.
For example, their interest may become taxable if the lease is assigned and
the holders may incur losses if the issuer does not appropriate funds for the
lease payments on an annual basis, which may result in termination of the
lease and possible default.
MUNICIPAL SECURITIES are bonds or notes issued by a U.S. state or political
subdivision. A municipal security may be a general obligation backed by the
full faith and credit (i.e., the borrowing and taxing power) of a
municipality or a revenue obligation paid out of the revenues of a designated
project, facility or revenue source.
PASSIVE FOREIGN INVESTMENT COMPANIES (PFICS) are foreign investment funds or
trusts. In addition to bearing their proportionate share of a Portfolio's
expenses, shareholders may indirectly bear similar expenses of PFICs and
similar trusts.
PREFERRED STOCK is a class of stock that generally pays dividends at a
specified rate and has preference over common stock in the payment of
dividends and liquidation. Preferred stock generally does not carry voting
rights.
REPURCHASE AGREEMENTS involve the purchase of a security by the Fund and a
simultaneous agreement by a bank or dealer to repurchase the security from
the Fund at a specified date or upon demand. This technique offers a method
of earning income on idle cash. These securities involve the risk that the
seller will fail to repurchase the security, as agreed. In that case, the
Fund will bear the risk of market value fluctuations until the security can
be sold and may encounter delays and incur costs in liquidating the security.
REVERSE REPURCHASE agreements involve the sale of a security by the Fund to
another party (generally a bank or dealer) in return for cash and an
agreement by the Fund to buy the security back at a specified price and time.
This technique may be used to provide cash to satisfy unusually high
redemption requests or for other temporary or emergency purposes.
STANDBY COMMITMENTS are obligations purchased by the Fund from a dealer that
give the Fund the option to sell a security to the dealer at a specified
price.
TENDER OPTION BONDS are generally long-term securities that have been coupled
with an option to tender the securities to a bank, broker-dealer or other
financial institution at periodic intervals and receive the face value of the
bond. This type of security is commonly used as a means of enhancing the
liquidity of municipal securities.
U.S. GOVERNMENT SECURITIES include direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of
one to ten years and Treasury bonds may be issued with any maturity but
generally have maturities
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of at least ten years. U.S. government securities also include indirect
obligations of the U.S. government that are issued by federal agencies and
government sponsored entities. Unlike Treasury securities, agency securities
generally are not backed by the full faith and credit of the U.S. government.
Some agency securities are supported by the right of the issuer to borrow
from the Treasury, others are supported by the discretionary authority of the
U.S. government to purchase the agency's obligations and others are supported
only by the credit of the sponsoring agency.
WARRANTS are securities, typically issued with preferred stock or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at
the time of issuance of the warrant. The right may last for a period of years
or indefinitely.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD TRANSACTIONS generally involve the
purchase of a security with payment and delivery due at some time in the
future (i.e., beyond normal settlement). The Fund does not earn interest on
such securities until settlement and bears the risk of market value
fluctuations in between the purchase and settlement dates. New issues of
stocks and bonds, private placements and U.S. government securities may be
sold in this manner.
ZERO COUPON BONDS are debt securities that do not pay regular interest at
regular intervals, but are issued at a significant discount from face value.
The discount approximates the total amount of interest the security will
accrue from the date of issuance to maturity. Strips are debt securities that
are stripped of their interest (usually by a financial intermediary) after
the securities are issued. The market value of these securities generally
fluctuates more in response to changes in interest rates than interest-paying
securities of comparable maturity.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
FUTURES CONTRACTS are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. The Fund may buy and sell futures contracts on foreign currencies,
securities and financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. An option
on a futures contract gives the buyer the right, but not the obligation, to
buy or sell a futures contract at a specified price on or before a specified
date. Futures contracts and options on futures are standardized and traded on
designated exchanges.
INDEXED/STRUCTURED SECURITIES are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, equity securities, indices or other financial indicators.
Such securities may be positively or negatively indexed (i.e. their value may
increase or decrease if the reference index or instrument appreciates).
Indexed/ structured securities may have return characteristics similar to
direct investments in the underlying instruments and may be more volatile
than the underlying instruments. The Fund bears the market risk of an
investment in the underlying instruments, as well as the credit risk of the
issuer.
INVERSE FLOATERS are debt instruments whose interest rate bears an inverse
relationship to the interest rate on another instrument.
OPTIONS are the right, but not the obligation, to buy or sell a specified
amount of securities or other assets on or before a fixed date at a
predetermined price. The Fund may purchase and write put and call options on
securities, securities indices and foreign currencies. A put option gives the
holder the right, upon payment of a premium, to deliver a specified amount of
a security to the writer of the option on or before a fixed date at a
predetermined price. A call option gives the holder the right, upon payment
of a premium, to call upon the writer to deliver a specified amount of a
security on or before a fixed date at a predetermined price.
FORWARD CONTRACTS are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are
not currently exchange traded and are typically negotiated on an individual
basis. The Fund may enter into forward currency contracts to hedge against
declines in the value of non-dollar denominated securities or to reduce the
impact of currency appreciation on purchases of nondollar denominated
securities. They may also enter into forward contracts to purchase or sell
securities or other financial indices.
INTEREST RATE SWAPS involve the exchange by two parties of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments).
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STATEMENT OF ADDITIONAL INFORMATION
March 1, 1996
IDEX FUND 3
201 Highland Avenue
Largo, Florida 34640
Customer Service (800) 851-9777
IDEX Fund 3 (the 'Fund') is a diversified open-end management investment
company that seeks growth of capital. The Fund pursues its objective primarily
by investing in common stocks listed on a national securities exchange or on
NASDAQ and which the Fund's sub-adviser believes have a good potential for
capital growth.
This Statement of Additional Information is not a Prospectus, and should be
read in conjunction with the Prospectus dated March 1, 1996 which may be
obtained free of charge by writing or calling the Fund at the above address or
telephone number. This Statement of Additional Information contains additional
and more detailed information about the Fund's operations and activities than
that set forth in the Prospectus.
<PAGE>
<TABLE>
<CAPTION>
IDEX FUND 3
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<S> <C>
Investment Objective......................................................................... 1
Investment Restrictions, Policies and Practices.............................................. 1
Other Policies and Practices of the Fund..................................................... 3
Futures, Options and Other Derivative Instruments....................................... 3
Futures Contracts.................................................................. 3
Options on Futures Contracts....................................................... 6
Options on Securities.............................................................. 6
Options on Foreign Currencies...................................................... 10
Forward Contracts.................................................................. 11
Swaps and Swap-Related Products.................................................... 12
Eurodollar Instruments............................................................. 13
Special Investment Considerations and Risks........................................ 13
Additional Risks of Options on Foreign Currencies, Forward Contracts and Foreign
Instruments...................................................................... 14
Zero Coupon, Pay-In-Kind and Step Coupon Securities..................................... 15
Income Producing Securities............................................................. 15
Lending of Fund Securities.............................................................. 16
Joint Accounts.......................................................................... 16
Illiquid Securities..................................................................... 16
Repurchase and Reverse Repurchase Agreements............................................ 16
Pass-Through Securities................................................................. 17
High-Yield/High-Risk Bonds.............................................................. 18
Warrants and Rights..................................................................... 19
U.S. Government Securities.............................................................. 19
Portfolio Turnover...................................................................... 19
Investment Advisory and Other Services....................................................... 19
Distributor.................................................................................. 22
Administrative Services...................................................................... 22
Custodian, Transfer Agent and Other Affiliates............................................... 23
Portfolio Transactions and Brokerage......................................................... 23
Trustees and Officers........................................................................ 24
Purchase of Shares........................................................................... 29
Net Asset Value Determination................................................................ 29
Dividends and Other Distributions............................................................ 30
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Shareholder Accounts......................................................................... 30
Retirement Plans............................................................................. 30
Redemption of Shares......................................................................... 30
Taxes........................................................................................ 31
Principal Shareholders....................................................................... 32
Miscellaneous Information.................................................................... 33
Organization............................................................................ 33
Shares of Beneficial Interest........................................................... 33
Legal Counsel and Auditors.............................................................. 33
Registration Statement.................................................................. 33
Performance Information...................................................................... 33
Financial Statements......................................................................... 34
</TABLE>
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INVESTMENT OBJECTIVE
The Prospectus discusses the types of securities in which the Fund will
invest and the portfolio policies and practices. The following discussion of
Investment Restrictions, Policies and Practices supplements that set forth in
the Prospectus.
As stated in the Prospectus, the Fund's investment objective is growth of
capital. The Fund pursues its objective primarily by investing in common stocks
listed on a national securities exchange or on NASDAQ and which the Fund's
sub-adviser believes have a good potential for capital growth. There can be no
assurance that the Fund will, in fact, achieve its objective. The Fund's
investment objective may be changed by the Board of Trustees without shareholder
approval. A change in the investment objective of the Fund may result in the
Fund having an investment objective different from that which the shareholder
deemed appropriate at the time of investment. The 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, the 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 the 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 the Fund are present or represented by
proxy.
As of March 1, 1996, the non-fundamental investment restriction relating to
borrowing will be applied as a fundamental restriction. It is anticipated that
the Board of Trustees of the Fund will approve this change at the regular
quarterly meeting which will be held on March 18, 1996.
The Fund 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 Investment Company Act of 1940, as amended (the '1940 Act')), if
immediately after and as a result of such purchase (a) the value of the
holdings of the 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; and
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).
In addition to the above, as a fundamental policy, the Fund may,
notwithstanding any other investment policy or restriction (whether or not
fundamental), invest all of its assets in the securities of a single open-
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<PAGE>
end management investment company with substantially the same fundamental
investment objective, policies and restrictions as the Fund.
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 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 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, future contracts, swaps, forward contracts, and other derivative
instruments or the segregation of assets in connection with such transactions;
(F) The Fund may not invest more than 15% of its assets in illiquid
securities. This does not include securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, or any successor to such Rule,
Section 4(2) commercial paper or any securities which the Board of Trustees or
the investment sub-adviser, as appropriate, has made a determination of
liquidity, as permitted under the 1940 Act;
(G) The Fund may not invest in companies for the purpose of exercising
control or management;
(H) 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. Restrictions (i) and (ii) do not apply to money
market funds or to securities received as dividends, through offers to exchange,
or as a result of reorganization, consolidation, or merger. If the Fund invests
in a money market fund, the investment advisers will reduce their advisory fees
by the amount of any investment advisory or administrative service fees paid to
the investment manager of the money market fund;
(I) 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;
2
<PAGE>
(J) The Fund may not purchase the securities of any issuer (other than U.S.
government agencies and instrumentalities or instruments guaranteed by an entity
with a record of more than three years' continuous operation, including that of
predecessors) with a record of less than three years' continuous operation
(including that of predecessors) if such purchase would cause the value of the
Fund's investments in all such issuers to exceed 5% of the Fund's total assets
taken at market value at the time of such purchase; and
(K) The Fund may not invest in warrants valued at the lower of cost or
market value, if such value exceeds 5% of the Fund's net assets, provided that
no more than 2% of the Fund's net assets may be invested in warrants which are
not listed on the New York or American Stock Exchange. Warrants acquired by the
Fund in units or attached to securities may be deemed to be without value.
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 Fund's net assets
will not result in a violation of such restriction.
OTHER POLICIES AND PRACTICES OF THE FUND
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS.
A. FUTURES CONTRACTS. The Fund may enter into contracts for the purchase
or sale for future delivery of fixed-income securities, foreign
currencies or contracts based on financial indices including indices of
U.S. government securities, foreign government securities, equity or
fixed-income securities ('futures contracts'). U.S. futures contracts
are traded on exchanges which have been designated 'contract markets' by
the Commodity Futures Trading Commission ('CFTC') and must be executed
through a futures commission merchant ('FCM'), or brokerage firm, which
is a member of the relevant contract market. Through their clearing
corporations, the exchanges guarantee performance of the contracts as
between the clearing members of the exchange.
When the Fund buys or sells a futures contract it incurs a contractual
obligation to receive or deliver the underlying instrument (or a cash
payment based on the difference between the underlying instrument's
closing price and the price at which the contract was entered into) at a
specified price on a specified date. Transactions in futures contracts
may be made to attempt to hedge against potential changes in interest or
currency exchange rates or the price of a security or a securities index
which might correlate with or otherwise adversely affect either the
value of the 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 FCM when the contract is
entered into. Initial margin deposits are equal to a percentage of the
contract's value, as set by the exchange on which the contract is
traded, and may be maintained in cash or certain high-grade liquid
assets by the Fund's custodian for the benefit of the FCM. Initial
margin payments are similar to good faith deposits or performance bonds.
Unlike margin extended by a securities broker, initial margin payments
do not constitute purchasing securities on margin for purposes of a
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 FCM to settle the change in value on a daily
basis. The party that has a gain may be entitled to receive all or a
portion of this amount. In the event of the bankruptcy of the FCM that
holds margin on behalf of a Fund, that Fund may be entitled to return of
the margin owed to such Fund only in proportion to the amount received
by the FCM's other customers. The portfolio manager will attempt to
minimize the risk by careful monitoring of the creditworthiness of the
FCMs with which a Fund does business and by segregating margin payments
with the custodian.
Although the Fund would segregate 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.
3
<PAGE>
However, because the Fund's cash that may otherwise be invested would be
held uninvested or invested in high-grade liquid assets so long as the
futures position remains open, such 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 the 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, the 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, the Fund might sell bond index futures contracts, thereby
hoping to offset a potential decline in the value of debt securities in
the portfolio by a corresponding increase in the value of the futures
contract position held by the Fund. The Fund also could seek to protect
against potential price declines by selling portfolio securities and
investing in money market instruments. However, since the futures market
is more liquid than the cash market, the use of futures contracts as an
investment technique allows the Fund to maintain a defensive position
without having to sell portfolio securities.
Similarly, when prices of equity securities are expected to increase, or
interest rates are expected to fall, futures contracts may be bought to
attempt to hedge against the possibility of having to buy equity
securities at higher prices. This technique is sometimes known as an
anticipatory hedge. Since the fluctuations in the value of futures
contracts should be similar to those of equity securities, the 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 the 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 high-grade 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 with respect to the futures contracts.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to
distortions. First, all participants in the futures market are subject
to initial margin and variation margin requirements. Rather than meeting
additional variation margin requirements, investors may close out
futures contracts through offsetting transactions which could distort
the normal price relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants
entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced and prices in the
futures market distorted. Third, from the point of view of speculators,
the margin deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of the foregoing distortions,
a correct forecast of general price trends by the portfolio manager
still may not result in a successful use of futures contracts.
Futures contracts entail risks. Although the use of futures contracts is
believed to benefit the Fund, if the portfolio manager'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
the Fund has hedged against the effects of a possible decrease in prices
of securities held in its portfolio 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 the Fund has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin
4
<PAGE>
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 a limited number of types of
futures contracts, it is possible that the standardized futures
contracts available to the Fund will not match exactly such Fund's
current or potential investments. The 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 portfolio securities with a futures contract
based on a broad index of securities -- which involves a risk that the
futures position will not correlate precisely with such performance of
the Fund's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments correlate with the
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 the 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.
The 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,
although this may not be successful in all cases. If price changes in
the 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 the 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 by buying,
in the case of a contractual obligation to sell, or selling, in the case
of a contractual obligation to buy, an identical futures contract on a
commodities exchange. Such a transaction cancels the obligation to make
or take delivery of the commodities.
The 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 Fund will use futures contracts and related options
primarily for bona fide hedging purposes within the meaning of CFTC
regulations; except that, in addition, the Fund 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 the
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Fund's net assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into.
B. OPTIONS ON FUTURES CONTRACTS. The Fund may buy and write put and call
options on futures contracts. An option on a future gives the Fund the
right (but not the obligation) to buy or sell a futures contract at a
specified price on or before a specified date. Transactions in options
on futures contracts may be made to attempt to hedge against potential
changes in interest rates or currency exchange rates or the price of a
security or a securities index which might correlate with or otherwise
adversely affect either the value of the Fund's securities or the 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 the 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, the 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, the 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 the 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 portfolio 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 portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio
securities. For example, the Fund may buy a put option on a futures
contract to hedge its portfolio securities against the risk of falling
prices or rising interest rates.
The amount of risk the 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.
C. OPTIONS ON SECURITIES. In an effort to increase current income and to
reduce fluctuations in net asset value, the Fund 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. The Fund also may write call options that are not
covered for cross-hedging purposes. The Fund may write and buy options
on the same types of securities that the Fund may purchase directly.
There are no specific limitations on the Funds' 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.
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A put option written by the Fund is 'covered' if the Fund (i) segregates
cash not available for investment or high-grade liquid assets with a
value equal to the exercise price with its custodian or (ii) holds a put
on the same security and in the same principal amount as the put written
and the exercise price of the put held is equal to or greater than the
exercise price of the put written. The premium paid by the buyer of an
option will reflect, among other things, the relationship of the
exercise price to the market price and the volatility of the underlying
security, the remaining term of the option, supply and demand and
interest rates.
A call option written by the 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 portfolio. A call option
written by the Fund is also deemed to be covered if that Fund holds a
call on the same security and in the same principal amount as the call
written and the exercise price of the call held (i) is equal to or less
than the exercise price of the call written or (ii) is greater than the
exercise price of the call written if the difference is segregated with
its custodian.
The Fund may also write call options that are not covered for cross
hedging purposes. The Fund collateralizes its obligation under a written
call option for cross-hedging purposes by segregating cash or high-grade
liquid assets in an amount not less than the market value of the
underlying security, marked-to-market daily. The 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 portfolio manager believes that writing the option would
achieve the desired hedge.
If a put or call option written by the 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.
The 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.
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In the case of a written call option, effecting a closing transaction
will permit the 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 deposited high-grade liquid assets.
Effecting a closing transaction also will permit the cash or proceeds
from the concurrent sale of any securities subject to the option to be
used for other Fund investments. If the Fund desires to sell a
particular security on which it has written a call option, such Fund
will effect a closing transaction prior to or concurrent with the sale
of the security.
The 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, the Fund may not be able to effect closing transactions in
particular options and that Fund would have to exercise the options in
order to realize any profit. If the 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 which event the secondary market on that
Exchange (or in that class or series of options) would cease to exist,
although outstanding options on that Exchange that had been issued by
the OCC as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Fund may 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
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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 the 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,
the 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.
The Fund may buy put options to hedge against a decline in the value of
its securities. By using put options in this way, the 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.
The 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, the 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 and would realize a loss if the
price of the underlying security did not increase (in the case of a
call) or decrease (in the case of a put) during the period by more than
the amount of the premium. If a put or call option purchased by the 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 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, the 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, the Fund is obligated, in return for the premium received, to
make delivery of this amount. The 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. The Fund will not purchase these options
unless the sub-adviser is satisfied with the development, depth and
liquidity of the market and believes the options can be closed out.
Price movements in the 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 portfolio manager to predict correctly
movements in the direction of the stock market generally or of a
particular industry. Because options on securities indexes require
settlement in cash, the portfolio manager may be forced to liquidate
portfolio securities to meet settlement obligations.
The amount of risk the 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
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above, the purchase of an option also entails the risk that changes in
the value of the underlying futures contract will not be fully reflected
in the value of the options bought.
D. OPTIONS ON FOREIGN CURRENCIES. The 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 portfolio securities are denominated will reduce the U.S. dollar
value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the
value of portfolio securities, the 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, the 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 the 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,
the 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.
The 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, the 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 portfolio securities will be offset by the amount of the
premium received.
Similarly, instead of purchasing a call option to attempt to hedge
against a potential increase in the U.S. dollar cost of securities to be
acquired, the 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 the 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, the Fund also may lose all or a portion of the benefits
which might otherwise have been obtained from favorable movements in
exchange rates.
The Fund may write covered call options on foreign currencies. A call
option written on a foreign currency by the 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 portfolio. A call option is also covered if
the Fund has a call on the same foreign currency and in the same
principal amount as the call written if the exercise price of the call
held (i) is equal to or less than the exercise price of the call written
or (ii) is greater than the exercise price of the call written, if the
difference is maintained by such Fund in cash or high-grade liquid
assets that are segregated with the Fund's custodian.
The 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
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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, the Fund collateralizes
the option by segregating cash or high-grade liquid assets in an amount
not less than the value of the underlying foreign currency in U.S.
dollars marked-to-market daily.
E. FORWARD CONTRACTS. A forward contract is an agreement between two
parties in which one party is obligated to deliver a stated amount of a
stated asset at a specified time in the future and the other party is
obligated to pay a specified invoice amount for the assets at the time
of delivery. The 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 the Fund's principal uses of forward
foreign currency exchange contracts ('forward currency contracts'). The
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 price (which may be in U.S. dollars or another
foreign currency). The Fund will exchange foreign currencies for U.S.
dollars and for other foreign currencies in the normal course of
business and may buy and sell currencies through forward currency
contracts in order to fix a price for securities it has agreed to buy or
sell ('transaction hedge'). The Fund also may hedge some or all of its
investments denominated in foreign currency against a decline in the
value of that currency relative to the U.S. dollar by entering into
forward currency contracts to sell an amount of that currency (or a
proxy currency whose performance is expected to replicate or exceed the
performance of that currency relative to the U.S. dollar) approximating
the value of some or all of its portfolio securities denominated in that
currency ('position hedge') or by participating in options or futures
contracts with respect to the currency. The 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 the 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 portfolio
manager believes there is a reasonable degree of correlation between
movements in the two currencies ('cross-hedge').
These types of hedging seek to minimize the effect of currency
appreciation as well as depreciation, but do not eliminate fluctuations
in the underlying U.S. dollar equivalent value of the proceeds of or
rates of return on the Fund's foreign currency denominated portfolio
securities. The matching of the increase in value of a forward contract
and the decline in the U.S. dollar equivalent value of the foreign
currency denominated asset that is the subject of the hedge generally
will not be precise. Shifting the 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 its portfolio manager's position
projection of future exchange rates is inaccurate. Proxy hedges and
cross-hedges may result in losses if the currency used to hedge does not
perform similarly to the currency in which hedged securities are
denominated. Unforeseen changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such
contracts.
The Fund will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in the currency
underlying the forward contract or the currency being hedged. To the
extent that the Fund is not able to cover its forward currency positions
with underlying portfolio securities, its custodian will segregate cash
or high-grade liquid assets having a
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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
high-grade liquid assets on a daily basis so that the value of the
covered and segregated assets will be equal to the amount of the Fund's
commitments with respect to such contracts. As an alternative to
segregating assets, the Fund may buy call options permitting such Fund
to buy the amount of foreign currency being hedged by a forward sale
contract or the Fund may buy put options permitting it to sell the
amount of foreign currency subject to a forward buy contract.
While forward contracts are not currently regulated by the CFTC, the
CFTC may in the future assert authority to regulate forward contracts.
In such event, the Fund's ability to utilize forward contracts may be
restricted. In addition, the Fund may not always be able to enter into
forward contracts at attractive prices and may be limited in its ability
to use these contracts to hedge its assets.
F. Swaps and Swap-Related Products. In order to attempt to protect the
value of its investments from interest rate or currency exchange rate
fluctuations, the Fund may enter into interest rate and currency
exchange rate swaps, and may buy or sell interest rate and currency
exchange rate caps and floors. The portfolio manager expects to enter
into these transactions primarily to attempt to preserve a return or
spread on a particular investment or portion of its portfolio. The Fund
also may enter into these transactions to attempt to protect against any
increase in the price of securities it may consider buying at a later
date.
The Fund does not intend to use these transactions as a speculative
investment. Interest rate swaps involve the exchange by the 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.
The Fund may enter into interest rate swaps, caps and floors on either
an asset-based or liability-based basis, depending upon whether it is
hedging its assets or its liabilities, and will usually enter into
interest rate swaps on a net basis (i.e., the two payment streams are
netted out, with the 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 the Fund's obligations over its entitlements with respect to
each interest rate swap will be calculated on a daily basis and an
amount of cash or high-grade liquid assets having an aggregate net asset
at least equal to the accrued excess will be segregated by its
custodian. If the 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.
The 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. The
portfolio manager will monitor the creditworthiness of all
counterparties on an ongoing basis. If there is a default by the other
party to such a transaction, the 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
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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 the Fund sells (i.e.,
writes) caps and floors, it will segregate cash or high-grade liquid
assets having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of its obligations with respect to any
caps or floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by the Fund, although the Fund does not presently
intend 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 the 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 the Fund is contractually obligated to make. If the other
party to an interest rate swap that is not collateralized defaults, the
Fund would risk the loss of the net amount of the payments that it
contractually is entitled to receive. The 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
Statement of Additional Information and in the Prospectus, there may be
additional opportunities in connection with options, futures contracts,
forward currency contracts and other hedging techniques, that become
available as the portfolio managers develop new techniques, as
regulatory authorities broaden the range of permitted transactions and
as new instruments are developed. The portfolio managers may use these
opportunities to the extent they are consistent with the Fund's
investment objective and are permitted by the Fund's investment
limitations and applicable regulatory requirements.
G. EURODOLLAR INSTRUMENTS. The Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank
Offered Rate (the 'LIBOR'), although foreign currency-denominated
instruments are available from time to time. Eurodollar futures
contracts enable purchasers to obtain a fixed rate for the lending of
funds and sellers to obtain a fixed rate for borrowings. The Fund might
use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income
instruments are linked.
H. SPECIAL INVESTMENT CONSIDERATIONS AND RISKS. The successful use of the
investment practices described above with respect to futures contracts,
options on futures contracts, forward contracts, options on securities
and on foreign currencies, and swaps and swap-related products draws
upon skills and experience which are different from those needed to
select the other instruments in which the Fund invests. Should interest
or exchange rates or the prices of securities or financial indices move
in an unexpected manner, the 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.
The 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 the Fund as
the possible loss of the entire premium paid for an option bought by the
Fund, the inability of the Fund, as the writer of a covered call option,
to benefit from the appreciation of the underlying securities
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<PAGE>
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 the Fund will
be able to use those instruments effectively for their intended
purposes.
In connection with certain of its hedging transactions, the Fund must
segregate assets with its custodian bank to ensure that such Fund will
be able to meet its obligations pursuant to these instruments.
Segregated assets generally may be not be disposed of for so long as the
Fund maintains the positions giving rise to the segregation requirement.
Segregation of a large percentage of the Fund's assets could impede
implementation of that Fund's investment policies or its ability to meet
redemption requests or other current obligations.
I. ADDITIONAL RISKS OF OPTIONS ON FOREIGN CURRENCIES, FORWARD CONTRACTS
AND FOREIGN INSTRUMENTS. Unlike transactions entered into by the 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 the 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, such as technical changes
in the mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in
foreign countries. Such transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign
currencies or securities. The value of such positions also
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<PAGE>
could be adversely affected by (i) other complex foreign political and
economic factors, (ii) lesser availability than in the United States of
data on which to make trading decisions, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements
than in the United States, and (v) low trading volume.
ZERO COUPON, PAY-IN-KIND AND STEP COUPON SECURITIES.
The Fund may invest up to 10% of its assets in zero coupon, pay-in-kind and
step-coupon securities. Zero-coupon bonds are issued and traded at a discount
from their face value. They do not entitle the holder to any periodic payment of
interest prior to maturity. Step coupon bonds trade at a discount from their
face value and pay coupon interest. The coupon rate is low for an initial period
and then increases to a higher coupon rate thereafter. The discount from the
face amount or par value depends on the time remaining until cash payments
begin, prevailing interest rates, liquidity of the security and the perceived
credit quality of the issuer. Pay-in-kind bonds give the issuer an option to pay
cash at a coupon payment date or give the holder of the security a similar bond
with the same coupon rate and a face value equal to the amount of the coupon
payment that would have been made.
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 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 and
in cash and are likely to respond to changes in interest rates to a greater
degree than other types of debt securities having similar maturities and credit
quality.
INCOME PRODUCING SECURITIES.
The Fund may invest in certain types of income producing securities, which
include securities that make periodic income payments, as well as those that
make interest payments on a deferred basis, or pay interest at maturity (as in
the case with treasury bills or zero-coupon bonds).
Other types of income producing securities that the Fund may purchase
include, but are not limited to, the following types of securities:
VARIABLE AND FLOATING RATE OBLIGATIONS. These types of securities are
relatively long-term instruments that often carry demand features
permitting the holder to demand payment of principal at any time or at
specified intervals prior to maturity.
STANDBY COMMITMENTS. These instruments, which are similar to a put, give
the Fund the option to obligate a broker, dealer or bank to repurchase a
security held by the 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.
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<PAGE>
INVERSE FLOATERS. Inverse floaters are instruments whose interest bears an
inverse relationship to the interest rate on another security. The Fund
will not invest more than 5% of its assets in inverse floaters.
The Fund will purchase instruments with demand features, standby
commitments and tender option bonds primarily for the purpose of increasing
liquidity.
LENDING OF FUND SECURITIES.
Subject to its investment restriction relating to lending, the 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) the Fund must receive any dividends or interest paid by the issuer on
such securities; c) the Fund must have the right to call the loan and obtain the
securities loaned at any time upon notice of not more than five business days,
including the right to call the loan to permit voting of the securities; and d)
the Fund must receive either interest from the investment of collateral or a
fixed fee from the borrower. Securities loaned by the Fund remain subject to
fluctuations in market value. The 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, the Fund may
experience delays in, or be prevented from, recovering the collateral. During
the period that the Fund seeks to enforce its rights against the borrower, the
collateral and the securities loaned remain subject to fluctuations in market
value. The Fund may also incur expenses in enforcing its rights. If the 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. The Fund will not lend securities to any adviser or
sub-adviser to the Fund or their affiliates. By lending its securities, the 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 ACCOUNTS.
Janus Capital, the sub-adviser to the Fund, has received exemptive relief
from the SEC to permit any funds advised or sub-advised by Janus Capital to
invest in certain money market instruments through a joint account. Accordingly,
the Fund may purchase such instruments through a joint account.
ILLIQUID SECURITIES.
The Fund may invest up to 15% of its net assets in illiquid securities
(i.e., securities that are not readily marketable). The Board of Trustees has
authorized the sub-adviser to make liquidity determinations with respect to its
securities, including Rule 144A securities, commercial paper and municipal lease
obligations in accordance with the guidelines established by the Board of
Trustees. Under the guidelines, the portfolio manager will consider the
following factors in determining whether a Rule 144A security 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. 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. The Fund may be
restricted in its ability to sell such securities at a time when the sub-advisor
deems it advisable to do so. In addition, in order to meet redemption requests,
the Fund may have to sell other assets, rather than such illiquid securities, at
a time which is not advantageous.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS.
Although it may enter into repurchase and reverse repurchase agreements,
the Fund does not intend to invest more than 5% of its assets in either
repurchase or reverse repurchase agreements. In a repurchase
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<PAGE>
agreement, the 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'. The 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 and costs to the Fund in
connection with bankruptcy proceedings), it is the policy of the Fund to limit
repurchase agreements to those parties whose creditworthiness has been reviewed
and found satisfactory by the investment sub-adviser and approved by the Board
of Trustees of the Fund. In addition, the Fund currently intends to invest
primarily in repurchase agreements collateralized by U.S. government securities
whose value equals at least 100% of the repurchase price, marked-to-market
daily.
In a reverse repurchase agreement, the 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, the Fund will segregate cash and
appropriate liquid assets with the Fund's custodian to cover its obligation
under the agreement. The Fund will enter into reverse repurchase agreements only
with parties the investment sub-adviser deems creditworthy and that have been
reviewed by the Board of Trustees of the Fund.
PASS-THROUGH SECURITIES.
The Fund may invest in various types of pass-through securities, such as
mortgage-backed securities, asset-backed securities and participation interests.
A pass-through security is a share or certificate of interest in a pool of debt
obligations that have been repackaged by an intermediary, such as a bank or
broker-dealer. The purchaser receives an undivided interest in the underlying
pool of securities. The issuers of the underlying securities make interest and
principal payments to the intermediary which are passed through to purchasers,
such as the Fund. 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. The 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 is not backed by the full faith and credit of the
U.S. government.
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<PAGE>
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 the 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 the Fund's higher yielding mortgage-backed
securities might be converted to cash and it will be forced to accept lower
interest rates when that cash is used to purchase additional securities in the
mortgage-backed securities sector or in other investment sectors. Mortgage and
asset-backed securities may have periodic income payments or may pay interest at
maturity (as is the case with Treasury bills or zero-coupon bonds).
Asset-backed securities represent interests in pools of consumer loans and
are backed by paper or accounts receivables originated by banks, credit card
companies or other providers of credit. Generally, the originating bank or
credit provider is neither the obliger or guarantor of the security and interest
and principal payments ultimately depend upon payment of the underlying loans by
individuals. Tax-exempt asset-backed securities include units of beneficial
interests in pools of purchase contracts, financing leases, and sales agreements
that may be created when a municipality enters into an installment purchase
contract or lease with a vendor. Such securities may be secured by the assets
purchased or leased by the municipality; however, if the municipality stops
making payments, there generally will be no recourse against the vendor. The
market for tax-exempt asset-backed securities is still relatively new. These
obligations are likely to involve unscheduled prepayments of principal.
HIGH-YIELD/HIGH-RISK BONDS.
High-yield/high/risk, below investment grade securities (commonly known as
'junk bonds') involve significant credit and liquidity concerns and fluctuating
yields and are not suitable for short-term investing. Higher yields are
ordinarily available on fixed-income securities which are unrated or are rated
in the lower rating categories of recognized rating services such as Moody's and
Standard & Poor's. The Fund may not invest more than 5% of its net assets in
junk bonds. Lower rated bonds also involve the risk that the issuer will not
make interest or principal payments when due. In the event of an unanticipated
default, a 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.
More careful analysis of the financial condition of each issuer of lower rated
securities is therefore necessary. During an economic downturn or substantial
period of rising interest rates, highly leveraged issuers may experience
financial stress which would adversely affect their ability to service their
principal and interest payments obligations, to meet projected business goals
and to obtain additional financing.
The market prices of lower grade securities are generally less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic or political changes or individual developments specific to the
issuer. Periods of economic or political uncertainty and change can be expected
to result in volatility of prices of these securities. Since the last major
economic recession, there has been a substantial increase in the use of
high-yield debt securities to fund highly leveraged corporate acquisitions and
restructurings, so past experience with high-yield securities in a prolonged
economic downturn may not provide an accurate indication of future performance
during such periods. Lower rated securities also may have less liquid markets
than higher rated securities, and their liquidity as well as their value may be
more severely affected by adverse economic conditions. Adverse publicity and
investor perceptions as well as new or proposed laws may also have a greater
negative impact on the market for lower rated bonds.
Unrated securities are not necessarily of lower quality than rated
securities, but the markets for lower rated and nonrated securities are more
limited than those in which higher rated securities are traded. In addition, an
economic downturn or increase in interest rates is likely to have a greater
negative effect on the
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<PAGE>
market for lower rated and nonrated securities, the value of high yield debt
securities held by a Fund, the new asset value of a Fund holding such securities
and the ability of the bonds' issuers to repay principal and interest, meet
projected business goals and obtain additional financing than on higher rated
securities.
WARRANTS AND RIGHTS.
The 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. The Fund does not intend to invest in warrants valued at the lower
of cost or market value, if such value exceeds 5% of the Fund's net assets,
provided that no more than 2% of the Fund's net assets may be invested in
warrants which are not listed on the New York or American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities may be deemed
to be without value.
U.S. GOVERNMENT SECURITIES.
Examples of the types of U.S. government securities that the 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 the right of the issuer to borrow from the Treasury
(such as securities of the Federal Home Loan Bank); by the discretionary
authority of the U.S. government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association); or only by the credit
of the issuing agency.
PORTFOLIO TURNOVER.
As stated in the Prospectus, the Fund generally intends to purchase and
sell securities as deemed appropriate by its portfolio manager to further the
Fund's stated investment objective, and the rate of portfolio turnover is not
expected to be a limiting factor when changes are deemed to be appropriate. For
the fiscal years ended October 31, 1995, 1994 and 1993, the Fund's portfolio
turnover rate was 122.95%, 80.92% and 123.58%, respectively.
These percentages are calculated by dividing the lesser of purchases or
sales of portfolio securities during the fiscal year by the monthly average of
the value of such securities (excluding from the computation all securities,
including options, with maturities at the time of acquisition of one year or
less). For example, a portfolio turnover rate of 100% would mean that all of the
Fund's securities (except those excluded from the calculation) were replaced
once in a period of one year. A high rate of portfolio turnover generally
involves correspondingly greater brokerage commission expenses. Turnover rates
may vary greatly from year to year as well as within a particular year and may
also be affected by cash requirements for redemptions of the Fund's shares and
by requirements, the satisfaction of which enable the Fund to receive favorable
tax treatment. Because the rate of portfolio turnover is not a limiting factor;
however, particular holdings may be sold at any time, if investment judgement or
portfolio operations make a sale advisable. As a result, the annual portfolio
turnover rate in future years may exceed the percentage shown above.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund has entered into a Management and Investment Advisory Agreement
(the 'Advisory Agreement') with Idex Management, Inc. ('IMI'), 201 Highland
Avenue, Largo, Florida 34640. IMI supervises the 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
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<PAGE>
investment advice and recommendations, (ii) supervise the purchase and sale of
securities as directed by appropriate Fund officers, and (iii) be responsible
for the administration of the Fund. For its services, IMI receives an annual
fee, computed daily and paid monthly, equal to 1.00% of the Fund's average daily
net assets. This fee is higher than that paid by many other funds. For the
fiscal years ended October 31, 1995, 1994 and 1993, the Fund incurred investment
advisory fees of $1,471,928, $1,729,516 and $2,048,147, respectively.
The duties and responsibilities of the investment adviser are specified in
the Advisory Agreement, which became effective on April 22, 1991. The Agreement
was approved by the Board of Trustees of the Fund (including a majority of
trustees who are not parties to the Agreement or interested persons, as defined
by the 1940 Act, of any such party.) The Agreement is not assignable and may be
terminated without penalty upon 60 days written notice at the option of either
the Fund or IMI or by a vote of shareholders of the Fund. The 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 of the Fund or by a
majority of the outstanding shares of the Fund and (b) by a majority vote of the
Trustees who are not parties to the Agreement or interested persons of any such
party cast in person at a meeting.
The Agreement also provides that IMI shall not be liable to the Fund or to
any shareholder for any error of judgment or mistake of law or for any loss
suffered by the Fund or by any shareholder in connection with matters to which
the 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.
IMI supervises all of the administrative functions of the Fund, provides
office space, pays its allocable portion of the salaries, fees and expenses of
all Fund officers and of those trustees who are affiliated with IMI. The costs
and expenses, including legal and accounting fees, filing fees and printing
costs in connection with the formation of the Fund and the preparation and
filing of the Fund's initial registration statements under the Securities Act of
1933 and the 1940 Act, are paid by IMI.
The Fund pays fees and expenses of the Fund's non-interested trustees,
custodian and transfer agent fees, brokerage commissions and all other expenses
in connection with the execution of portfolio transactions, administrative,
clerical, recordkeeping, bookkeeping, legal, auditing and accounting expenses,
interest and taxes, expenses of preparing and filing tax returns, expenses of
shareholders' meetings and preparing, printing and mailing proxy statements
(unless otherwise agreed to by the Fund and IMI), expenses of preparing and
typesetting periodic reports to shareholders (except for those reports the Fund
permits to be used as sales literature), and all costs involved in the
registration or qualification of Fund shares under federal and state law.
Whenever, in any fiscal year, the total cost to the Fund of normal operating
expenses chargeable to its income account, including the investment advisory fee
but excluding brokerage commissions, interest and taxes, exceeds on an annual
basis the lesser of the most restrictive expense limitation imposed by any state
in which its shares are offered or 1.5% of the Fund's average daily net assets,
IMI will reimburse the Fund, or waive fees in an amount equal to that excess.
IMI has entered into an Investment Counsel Agreement with Janus Capital
Corporation ('Janus Capital') that became effective April 22, 1991. Further
discussions of the basic fee arrangements and allocation of responsibilities are
set forth in the Prospectus. The Fund incurred investment sub-advisory fees of
$735,964, $864,758 and $1,024,074 for the fiscal years ended October 31, 1995,
1994 and 1993, respectively.
The Investment Counsel Agreement provides for additional compensation to be
paid by IMI to Janus Capital as follows: If on December 31 of 1995 and December
31 of each year thereafter ('Target Date') the aggregate actual net assets on
that date of the Fund and any other registered investment company sponsored by
IMI, containing the name IDEX or with respect to which IMI acts as investment
adviser or administrator, and to which Janus Capital provides investment advice
(the 'Advised Funds') are less than the applicable Target Net Assets specified
in Table 1 below, then IMI shall pay to Janus Capital a percentage, as specified
in Table 2 below, of the Net Fee otherwise payable to InterSecurities, Inc., or
any
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other affiliate of IMI serving as administrator to the Fund for the calendar
year following such date (the 'Administrator').
Table 1
TARGET DATE ADVISED FUNDS TARGET NET ASSETS
----------- -------------------------------
December 31, 1995....................... $950 million
(and December 31 of each
year thereafter)
The Net Fee of the Administrator shall be the fee received by the
Administrator from IMI less any reimbursement from the Administrator in
connection with any applicable Fund expense limitation. The percentage of the
Net Fee so payable to Janus Capital shall be determined by the percentage that
on the applicable Target Date the aggregate actual net assets of the Advised
Funds are less than the applicable Target Net Assets of the Advised Funds
('Shortfall of Target') in accordance with Table 2 below:
Table 2
SHORTFALL OF TARGET PERCENTAGE OF NET FEE
------------------- ---------------------
5% - 10%.......................................... 10%
Over 10% - 20%.................................... 20%
Over 20% - 30%.................................... 30%
Over 30%.......................................... 40%
No additional fees shall be payable to Janus Capital for any year if, for
the five-year period ending December 31 of the preceding year, the respective
total returns of a majority of the Advised Funds that have the objective of
investing primarily in equity securities with such a five-year record (and with
respect to which Janus Capital shall have provided investment advice for all of
such five years and for the then current year), which in 1995 were the Fund,
IDEX Fund and IDEX II Growth, Global, Flexible Income, Balanced and Capital
Appreciation Portfolios, are not in the top one-third of their respective fund
categories as determined by Lipper Analytical Services, Inc. or its successor
(or if no successor exists, by a mutually agreed upon statistical service). No
additional fees were payable by IMI to Janus Capital for 1995 because Advised
Funds Target Net Assets exceeded $950 million on December 31, 1995.
IMI and Janus Capital also serve as investment adviser and sub-adviser,
respectively, to certain other portfolios and mutual funds in the IDEX Group of
Mutual Funds: IDEX Fund, IDEX II Growth, Global, Flexible Income, Balanced and
Capital Appreciation Portfolios. Janus Capital also serves as sub-adviser to
certain portfolios of WRL Series Fund, Inc., a registered investment company.
Janus Capital and its predecessor, Janus Management Corporation, have served as
investment adviser to Janus Fund since 1970 and currently serves as investment
adviser to each portfolio of the Janus Investment Fund and Janus Aspen Series as
well as sub-adviser to other mutual funds. Janus Capital also serves as
investment adviser to individual, corporate, charitable and retirement accounts.
Janus Capital managed over $29 billion in assets as of September 30, 1995.
Janus Capital and AUSA Holding Company ('AUSA') each own 50% of the
outstanding stock of IMI. AUSA also owns 100% of the outstanding shares of the
Fund's distributor and transfer agent. AUSA is wholly-owned by AEGON USA, Inc.,
a financial services holding company located at 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499. AEGON USA, Inc. is a wholly-owned indirect subsidiary of
AEGON nv, a Netherlands corporation and publicly traded international insurance
group. Kansas City Southern Industries, Inc. ('KCSI') owns approximately 83% of
Janus Capital, most of which it acquired in 1984. Thomas H. Bailey, President
and Chairman of the Boards of Janus Capital and IMI, owns approximately 12% of
Janus Capital's voting stock and, by agreement with KCSI, selects a majority of
Janus Capital's Board. KCSI, whose address is 114 West 11th Street, Kansas City,
Missouri 64105-1804, is a publicly traded holding company whose primary
subsidiaries are engaged in transportation and financial services.
21
<PAGE>
Janus Capital provides investment advisory services to IMI for the Fund.
Janus Capital 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 Fund. Securities frequently meet the investment
objectives of the Fund, the other funds and the private accounts. In such cases,
Janus Capital'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 Janus Capital seeks to acquire or sell the same
security at about the same time, either the price obtained by the Fund or the
amount of securities that may be purchased or sold by the 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
Fund. In the event more than one fund or account purchases or sells the same
security on a given date, the purchases and sales transactions are allocated
among the Fund, the other funds and the private accounts in a manner believed by
Janus Capital to be equitable to each.
DISTRIBUTOR
The Fund has entered into an Underwriting Agreement with InterSecurities,
Inc. ('ISI') to act as the principal underwriter of Fund shares. The
Underwriting Agreement will continue from year to year so long as its
continuance is approved at least annually in the same manner as the Advisory
Agreement discussed above. A discussion of ISI's responsibilities and charges as
principal underwriter of Fund shares is set forth in the Prospectus.
For the fiscal years ended October 31, 1995, 1994 and 1993, ISI received
$205,149, $288,026 and $428,568, respectively, and retained $35,819, $49,383 and
$73,095, respectively, in underwriting commissions on the sale of Fund shares.
ADMINISTRATIVE SERVICES
ISI also serves as administrator to the Fund. This is in addition to ISI's
responsibilities as principal underwriter and distributor of Fund shares. IMI
has entered into an Administrative Services Agreement ('Administrative
Agreement') with ISI. Under the Administrative Agreement, ISI carries out and
supervises all of the administrative functions of the Fund and incurs IMI's
expenses related to such functions. The basic fee arrangement and allocation of
responsibilities is set forth in the Prospectus. The amount payable to ISI under
the Administrative Agreement will be reduced to the extent that additional
compensation is paid by IMI to Janus Capital, as described above under
'Investment Advisory and Other Services.'
The administrative duties of ISI 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 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 the Fund's tax returns and
reports; monitoring and supervising relationships with the Fund's custodian and
transfer agent; monitoring the qualifications of tax deferred retirement plans
providing for investment in shares of the Fund; authorizing expenditures and
approving bills for payment on behalf of the Fund; and providing executive,
clerical and secretarial help needed to carry out its duties.
22
<PAGE>
CUSTODIAN, TRANSFER AGENT AND OTHER AFFILIATES
Investors Fiduciary Trust Company ('IFTC'), 127 West 10th Street, Kansas
City, Missouri 64105, is Custodian for the Fund. The Custodian is in no way
responsible for any of the investment policies or decisions of the Fund, but
holds its assets in safekeeping and collects and remits the income thereon
subject to the instructions of the Fund. For the fiscal years ended October 31,
1995, 1994 and 1993, the Fund paid custodian fees of $32,246, $17,074 and
$41,480, net of earnings credits of $47,622, $42,520 and $35,316 for 1995, 1994
and 1993.
Idex Investor Services, Inc., P. O. Box 9015, Clearwater, Florida
34618-9015, is the Fund's transfer agent, withholding agent and dividend
disbursing agent. Idex Investor Services, Inc. is a wholly-owned subsidiary of
AUSA Holding Company and thus is an affiliate of IMI and ISI. The Fund pays the
transfer agent a monthly per account charge of $1.185 for each of its
shareholder accounts in existence during the prior month, plus $2.48 for each
new account opened in the prior month. For the fiscal year ended October 31,
1995, the Fund paid transfer agency fees and expenses of $312,875.
DST, provider of data processing and recordkeeping services for the Fund's
transfer agent, is a wholly-owned subsidiary of KCSI and thus is an affiliate of
IMI and Janus Capital. The Fund may use another affiliate of DST as introducing
broker for certain Fund portfolio transactions as a means to reduce expenses
through a credit against transfer agency fees with regard to commissions earned
by such affiliate. (See 'Portfolio Transactions and Brokerage.')
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions as to the assignment of portfolio business for the Fund and
negotiation of its commission rates are made by its sub-adviser, whose policy is
to obtain the 'best execution' (prompt and reliable execution at the most
favorable security price) of all portfolio transactions. The Advisory Agreement
and Investment Counsel Agreement specifically provide that in placing portfolio
transactions for the Fund, the sub-adviser may agree to pay brokerage
commissions for effecting a securities transaction in an amount higher than
other brokers or dealers would have charged for effecting that transaction as
authorized, under certain circumstances, by the Securities Exchange Act of 1934.
In selecting brokers and dealers and in negotiating commissions, a
sub-adviser considers a number of factors, that may include but are not limited
to: the sub-adviser's knowledge of currently available negotiated commission
rates or prices of securities currently available 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 a broker or dealer; and research
products and services provided. In recognition of the value of the foregoing
factors, the sub-adviser may place portfolio transactions with a broker with
whom it has negotiated a commission that is in excess of the commission another
broker would have charged for effecting that transaction if the sub-adviser
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research provided by such broker
viewed in terms of either that particular transaction or of the overall
responsibilities of the sub-adviser. Research provided may include furnishing
advice, either directly or through publications or writings, as to the value of
securities, the advisability of purchasing or selling specific securities and
the availability of securities or purchasers or sellers of securities;
furnishing seminars, information, analyses and reports concerning issuers,
industries, securities, trading markets and methods, legislative developments,
changes in accounting practices, economic factors and trends and portfolio
strategy; access to research analysts, corporate management personnel, industry
experts, economists and government officials; comparative performance evaluation
and technical measurement services and quotation services, and products and
other services (such as third party publications, reports and analyses, and
computer and electronic access, equipment, software, information and accessories
that deliver, process or otherwise utilize information, including the research
described above) that assist the sub-
23
<PAGE>
adviser in carrying out its responsibilities. Most brokers and dealers used by a
sub-adviser provide research and other services described above.
The sub-adviser may use research products and services in servicing other
accounts in addition to the Fund. If the sub-adviser determines that any
research product or service has a mixed use, such that it also serves functions
that do not assist in the investment decision-making process, the sub-adviser
may allocate the costs of such service or product accordingly. The portion of
the product or service that the sub-adviser determines will assist it in the
investment decision-making process may be paid for in brokerage commission
dollars. Such allocation may be a conflict of interest for the sub-adviser.
When the 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.
The sub-adviser may also consider the sale or recommendation of Fund shares
by a broker or dealer to its customers as a factor in the selection of brokers
or dealers to execute portfolio transactions. In placing portfolio business with
broker or dealers, the sub-adviser will seek the best execution of each
transaction and all such brokerage placement must be consistent with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
The sub-adviser may place transactions for the purchase or sale of
portfolio securities with affiliates of IMI, ISI or the sub-adviser, including
DST Securities, Inc. or ISI. The sub-adviser may place transactions if it
reasonably believes that the quality of the transaction and the associated
commission are fair and reasonable and if, overall, the associated transaction
costs, net of any credits described above under 'Custodian, Transfer Agent and
Other Affiliates,' are lower than those that would otherwise be incurred. Under
rules adopted by the Securities and Exchange Commission, the Fund's Board of
Trustees conducts periodic compliance reviews of such brokerage allocations and
reviews certain procedures adopted by the Board of Trustees to ensure compliance
with these rules as often as necessary to determine their continued
appropriateness. No affiliated brokerage commissions were paid for the fiscal
year ended October 31, 1995.
As of October 31, 1995, IDEX Fund 3 owned $4,452,488 of the common stock of
Merrill Lynch and Company, Inc. ('Merrill Lynch'). Merrill Lynch is one of the
ten brokers or dealers that received the greatest dollar amount of brokerage
commissions from the Fund during the fiscal year ended October 31, 1995.
During the fiscal years ended October 31, 1994 and 1993, the Fund paid
brokerage commissions in the amount of $2,094 and $21,377, respectively, to an
affiliated broker. The Fund received transfer agency fee credits of $1,571 and
$16,033 for the fiscal years ended October 31, 1994 and 1993, respectively, as a
result of such affiliated brokerage.
The total amount of brokerage commissions, including affiliated brokerage
commissions, paid by the Fund for the fiscal years ended October 31, 1995, 1994
and 1993 was $312,945, $257,714 and $314,433, respectively.
During the fiscal year ended October 31, 1995, IDEX Fund 3 had transactions
in the amount of $9,256,780, which resulted in brokerage commissions of $19,906
that were directed to brokers for brokerage and research services provided.
TRUSTEES AND OFFICERS
The following information includes the name, address(1), date of birth,
relationship with the Fund and principal occupations of the trustees and
officers of the Fund during at least the last five years.
- ------------------------
(1) The principal business address of each person listed, unless otherwise
indicated, is P.O. Box 9015, Clearwater, FL 34618-9015.
24
<PAGE>
- ------------------------
Peter R. Brown
1475 Belcher Road South
Largo, FL 34640
05/10/28
Trustee of IDEX Fund 3, IDEX Fund and IDEX II Series Fund; Director of WRL
Series Fund, Inc. (investment company); Chairman of the Board of Peter Brown
Construction Co., Largo, Florida (construction, contractors and engineers); Rear
Admiral (Retired), U.S. Navy Reserve, Civil Engineer Corps.
- ------------------------
James L. Churchill
12 Lavington Road
Long Cove
Hilton Head, SC 29928
05/07/30
Trustee of IDEX Fund 3, IDEX Fund and IDEX II Series Fund; currently retired;
formerly, President (1981-1990) and Executive Vice President (1979-1981) of the
Avionics Group of Rockwell International Corporation, Cedar Rapids, Iowa
(supplier of aviation electronics).
- ------------------------
Becky A. Ferrell(2)
12/10/60
Vice President (September, 1995-Present), Assistant Vice President (March,
1994-September, 1995), Counsel and Secretary (March, 1994-present) of IDEX Fund
3, IDEX Fund and IDEX II Series Fund (March, 1994-present); Vice President
(September, 1995-Present), Assistant Vice President and Secretary, WRL Series
Fund, Inc. (March, 1994 - present) (investment company); Assistant Vice
President, Counsel and Assistant Secretary of InterSecurities, Inc. (March,
1994 - present) (broker-dealer); Attorney (August, 1993 - present), Western
Reserve Life Assurance Co. of Ohio (life insurance); Attorney, Hearne, Graziano,
Nader & Buhr, P.A. (September, 1992 - August, 1993) (law firm); Legal Writing
Instructor, Florida State University College of Law (August, 1991 - June, 1992)
(law school); Teaching Assistant, English, University of South Florida (August,
1990 - July, 1991) (university); Associate Attorney, Johnson, Blakely, Pope,
Bokor, Ruppel & Burns, P.A. (August, 1989 - July, 1990) (law firm); Attorney,
Schifino, Fleischer & Neal, P.A. (August, 1986 - August, 1989) (law firm);
Attorney, Trenam, Simmons, Kemker, Scharf, Barkin, Frye & O'Neill, P.A. (August,
1984 - August, 1986) (law firm).
- ------------------------
Richard B. Franz II(2)
07/12/50
Treasurer of IDEX Fund 3, IDEX Fund and IDEX II Series Fund (May 1988 to
present); Treasurer of WRL Series Fund, Inc. (May 1988 to present) (investment
company); Treasurer of InterSecurities, Inc. (May 1988 to present); Treasurer of
ISI Insurance Agency, Inc. (September 1992 to present); Treasurer of Idex
Management, Inc. (May 1988 to present); Treasurer of Idex Investor Services,
Inc. (May 1988 to present); Senior Vice President and Treasurer of Pioneer
Western Corporation and Treasurer of its subsidiaries (May 1988 to February
1991); Senior Vice President, Treasurer and Chief Financial Officer of Western
Reserve Life Assurance Co. of Ohio (November 1987 to present).
- ------------------------
(2) Interested Person (as defined in the Investment Company Act of 1940) of the
Fund.
25
<PAGE>
- ------------------------
William H. Geiger(2)
06/01/47
Vice President (November 1990 to present), Secretary (June 1990 to March 1994)
and Assistant Secretary (March 1994 to present) of IDEX Fund 3, IDEX Fund and
IDEX II Series Fund; Secretary (June 1990 to March 1994) and Assistant Secretary
(March 1994 to present) of WRL Series Fund, Inc. (investment company); Senior
Vice President, Secretary and General Counsel (July 1990 to present) of Western
Reserve Life Assurance Co. of Ohio (life insurance); Secretary of Idex
Management, Inc. (November 1990 to present); Secretary (May 1990 to present) and
Director (April 1991 to present) of InterSecurities, Inc.; Secretary of ISI
Insurance Agency, Inc. (September 1992 to present); Secretary of Idex Investor
Services, Inc. (May 1990 to present); Vice President, Secretary and General
Counsel of Pioneer Western Corporation and Secretary of its subsidiaries (May
1990 to February 1991) (financial services); Secretary and General Counsel of
Orange State Life and Health Insurance Company and its affiliates (March 1980 to
April 1990) (life and health insurance).
- ------------------------
Charles C. Harris
35 Winston Drive
Clearwater, FL 34616
07/15/30
Trustee of IDEX Fund 3, IDEX Fund and IDEX II Series Fund; Director of WRL
Series Fund, Inc. (investment company); currently retired (1988 - present);
Senior Vice President, Treasurer (1966 - 1988), Western Reserve Life Assurance
Co. of Ohio (life insurance); Vice President, Treasurer (1968 - 1988), Director
(1968 - 1987), Pioneer Western Corporation (financial services); Vice President
of WRL Series Fund, Inc. (1986 - December, 1990) (investment company).
- ------------------------
G. John Hurley(2)
09/12/48
President and Chief Executive Officer (September 1990 to present), Trustee (June
1990 to present) and Executive Vice President (June 1988 to September 1990) of
IDEX Fund 3, IDEX Fund and IDEX II Series Fund; Executive Vice President (June
1993 to present) and Director (March, 1994 to present) of WRL Series Fund, Inc.
(investment company); President, Chief Executive Officer and Director of
InterSecurities, Inc. (May 1988 to present) (broker-dealer); President of ISI
Insurance Agency, Inc. (September 1992 to present); Executive Vice President of
Western Reserve Life Assurance Co. of Ohio (April 1993 to present) (life
insurance); President, Chief Executive Officer and Director of PW Securities,
Inc. (1983 to November 1990) (broker-dealer); President, Chief Executive Officer
and Director (September 1990 to present) and Executive Vice President and
Director (May 1988 to September 1990) of Idex Management, Inc.; President and
Director of Idex Investor Services, Inc. (May 1988 to present); Assistant Vice
President of AEGON USA Managed Portfolios, Inc. (September 1991 to September
1992) (financial services); Vice President of Pioneer Western Corporation (May
1988 to February 1991) (financial services). Mr. Hurley was employed by Pioneer
Western Corporation in various executive positions from 1972 until February,
1991.
26
<PAGE>
- ------------------------
John R. Kenney(2)
02/08/38
Trustee (1987 to present), Chairman (December 1989 to present) and President and
Chief Executive Officer (1987 to September 1990) of IDEX Fund 3, IDEX Fund and
IDEX II Series Fund; Chairman of the Board of WRL Series Fund, Inc. (1986 to
present) (investment company); President and Director (1985 to September 1990)
and Director (December 1990 to present) of Idex Management, Inc.; Chairman (1988
to present) and Director (1985 to present) of InterSecurities, Inc.
(broker-dealer); Director of ISI Insurance Agency, Inc. (October 1992 to
present); President and Chief Executive Officer, (1978 to 1987), Chairman and
Chief Executive Officer (1987 to 1992) and Chairman, President and Chief
Executive Officer (1992 to present) of Western Reserve Life Assurance Co. of
Ohio (life insurance); Senior Vice President of AEGON USA, Inc. (May 1992 to
present) (financial services holding company); Chairman and Chief Executive
Officer (1988 to February 1991), President and Chief Executive Officer (1988 to
1989), Executive Vice President (1972 to 1988) and Director (1976 to February
1991) of Pioneer Western Corporation (financial services). Mr. Kenney is also
the brother-in-law of Jack Zimmerman, a Trustee of the Fund.
- ------------------------
Leslie E. Martin(2)
09/19/55
Vice President and National Marketing Manager (January 1993 to present) of IDEX
Fund 3, IDEX Fund and IDEX II Series Fund; Vice President of Marketing (January
1992 to present) of InterSecurities, Inc. (broker-dealer); and Vice President of
Marketing of Social Responsibility Investment Group (April 1991 to January 1992)
(investment company); and Vice President of Regional Marketing of Calvert Group
(June 1988 to January 1991) (investment company).
- ------------------------
Thomas R. Moriarty(2)
05/03/51
Senior Vice President (March 1995 to present), Vice President and Principal
Accounting Officer (November 1990 to March, 1995) and Principal Accounting
Officer (1988 to September 1990) of IDEX Fund 3, IDEX Fund and IDEX II Series
Fund; Senior Vice President (June 1991 to present) and Vice President (1988 to
June 1991) of InterSecurities, Inc. (broker-dealer); Senior Vice President of
ISI Insurance Agency, Inc. (September 1992 to present); President (November 1990
to present) and Vice President (1988 to November 1990) of PW Securities, Inc.
(broker-dealer); Senior Vice President (June 1991 to present) and Vice President
(1988 to June 1991) of Idex Investor Services, Inc.; Vice President (November
1990 to present); Assistant Vice President (1988 to September 1990) of Idex
Management, Inc., Vice President of Western Reserve Life Assurance Co. of Ohio
(June 1993 to present) (life insurance); Assistant Vice President of AEGON USA
Managed Portfolios, Inc. (September 1991 to September 1992) (financial
services); President (November 1990 to December 1992) and Vice President (1988
to November 1990) of PW Securities, Inc. (broker-dealer). Mr. Moriarty was
employed by Pioneer Western Corporation in various executive positions from 1984
to February, 1991.
27
<PAGE>
- ------------------------
Christopher G. Roetzer(2)
01/11/63
Principal Accounting Officer (March 1995 to present), Assistant Vice President
(November 1990 to present) of IDEX Fund, IDEX II Series Fund and IDEX Fund 3;
Assistant Vice President and Controller (May 1988 to present) of
InterSecurities, Inc. (broker-dealer); Assistant Vice President of ISI Insurance
Agency, Inc. (September 1992 to present); Assistant Vice President and
Controller of Idex Investor Services, Inc. (May 1988 to present); Assistant Vice
President of Idex Management, Inc. (November 1990 to present); Assistant Vice
President and Assistant Controller (April 1988 to May 1988) and Accounting
Manager (June 1986 to April 1988) of Western Reserve Life Assurance Co. of Ohio
(life insurance); and Auditor (September 1984 to June 1986) of Peat, Marwick,
Mitchell & Co. (CPA firm).
- ------------------------
William W. Short, Jr.
12420 73rd Court North
Largo, FL 34623
02/25/36
Trustee of IDEX Fund 3, IDEX Fund and IDEX II Series Fund; President and sole
shareholder of Shorts, Inc. (men's retail apparel); Chairman of Southern Apparel
Corporation and S.A.C. Distributors (nationwide wholesale apparel distributors),
Largo, Florida; Director of Barnett Banks of Pinellas County; Trustee of Morton
Plant Hospital Foundation; former Chairman of Advisory Board of First Florida
Bank, Pinellas County, Florida.
- ------------------------
Jack E. Zimmerman
507 Saint Michel Circle
Kettering, OH 45429-1972
02/03/28
Trustee of IDEX Fund 3, IDEX Fund and IDEX II Series Fund; Director (1987 to
present), Western Reserve Life Assurance Co. of Ohio (life insurance); currently
retired; formerly, Director, Regional Marketing, Martin Marietta Corporation,
Dayton, Ohio (August 1986 to January 1993) (aerospace industry); Director of
Strategic Planning of Martin Marietta Baltimore Aerospace (January 1986 to
August 1986). Mr. Zimmerman is also the brother-in-law of John Kenney, Trustee
and Chairman of the Fund.
The Fund pays no salaries or compensation to any of its officers, all of
whom are officers or employees of either IMI or its affiliates. Disinterested
Trustees (i.e., Trustees who are not affiliated with IMI, Janus Capital or ISI)
receive: (a) a total annual retainer fee of $13,000 from IDEX Fund 3, IDEX Fund
and IDEX II Series Fund, of which the Fund pays a pro rata share allocable to it
based on its relative assets; plus (b) $500 and incidental expenses per meeting
attended. Three of the Disinterested Trustees have been elected to serve on the
Funds' Audit Committee, which meets twice annually. Each Audit Committee member
receives a total of $250 per Audit Committee meeting from IDEX Fund, IDEX II
Series Fund and IDEX Fund 3 in addition to the regular meetings attended. Any
fees and expenses paid to Trustees who are affiliates of IMI or ISI (Messrs.
Kenney and Hurley named in chart below) are paid by IMI and/or ISI and not by
the Fund or the Fund Complex. The Fund did not offer its Trustees or officers
any pension or retirement benefits during or prior to the fiscal year ended
October 31, 1995. The following table provides compensation amounts paid to
Disinterested Trustees of the Fund for the fiscal year ended October 31, 1995.
28
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
AGGREGATE TOTAL COMPENSATION PAID TO TRUSTEES FROM
COMPENSATION FROM IDEX FUND 3 AND IDEX FUND, IDEX II
NAME OF PERSON, POSITION IDEX FUND 3 SERIES FUND, AND WRL SERIES FUND, INC.
- ------------------------ ------------------------ ----------------------------------------
<S> <C> <C>
Peter R. Brown, Trustee $3,617 $22,250
James L. Churchill, Trustee $3,549 $21,750
Charles C. Harris, Trustee $3,549 $21,750
G. John Hurley, Trustee $ -0- $ -0-
John R. Kenney, Trustee $ -0- $ -0-
William W. Short, Jr., Trustee $3,617 $22,250
Jack E. Zimmerman, Trustee $3,549 $21,750
<FN>
- ------------------------
* The Fund Complex includes the Fund, IDEX Fund, IDEX II Series Fund and WRL
Series Fund, Inc.
</FN>
</TABLE>
The Board of Trustees has adopted a policy whereby any Disinterested
Trustee of the Fund in office on September 1, 1990, and who has served at least
three years as a trustee may, subject to certain limitations, elect upon his
resignation to serve as a trustee emeritus for a period of two years. A trustee
emeritus has no authority, power or responsibility with respect to any Fund
matter. While serving as such, a trustee emeritus is entitled to receive from
the Fund an annual fee equal to one-half the fee then payable per annum to
Disinterested Trustees of the Fund, plus reimbursement of expenses incurred for
attendance at Board meetings.
The Fund has an executive committee whose members currently are John R.
Kenney, G. John Hurley and Peter R. Brown. The executive committee may perform
all of the functions which may be performed by the Board of Trustees, except as
set forth in the Declaration of Trust and By-Laws of the Fund or as prohibited
by applicable law.
Commencing on January 1, 1996, a non-qualified deferred compensation plan
(the 'Plan') became available to Trustees who are not interested persons of the
Fund. Under the Plan, compensation may be deferred that would otherwise be
payable by the Fund, IDEX II Series Fund, IDEX Fund 3 and/or WRL Series Fund,
Inc., to a Disinterested Trustee or Director on a current basis for services
rendered as Trustee. Once any necessary regulatory approvals are obtained,
deferred compensation amounts will accumulate based on the value of Class A
shares of a Portfolio of the IDEX II Series Fund (without imposition of sales
charge), as elected by the Trustee. It is not anticipated that the Plan will
have any impact on the Fund.
During the fiscal year ended October 31, 1995, the Fund paid $24,985 in
trustees' fees and expenses, and no trustee emeritus fees. The trustees and
officers of the Fund held in the aggregate less than 1% of the Fund's
outstanding shares as of December 2, 1995.
PURCHASE OF SHARES
As stated in the Prospectus, shares of the Fund can be purchased through
ISI or through broker-dealers or other financial institutions that have sales
agreements with ISI. Shares of the 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 plus the applicable sales charge. The Prospectus contains
detailed information about the purchase of shares.
NET ASSET VALUE DETERMINATION
As stated in the Prospectus, the net asset value of Fund shares is
determined once daily as of the close of the regular session of business on the
New York Stock Exchange (the 'Exchange'), currently 4:00 p.m. Eastern time,
Monday through Friday, except on (i) days on which changes in value of the
Fund's portfolio securities will not materially affect the net asset value of
shares of the Fund, (ii) days during which no
29
<PAGE>
shares of the Fund are tendered for redemption and no orders to purchase shares
of the Fund are received; or (iii) customary national holidays on which the
Exchange is closed. The per share net asset value of the Fund is determined by
dividing the total value of the securities and other assets, less liabilities,
by the total number of shares outstanding. Investment securities are valued at
the closing price for securities traded on a principal securities exchange (U.S.
or foreign) or on the NASDAQ National Market. Investment securities traded on
the over-the-counter market and listed securities for which no sales are
reported for the trading period immediately preceding the time of determination
are valued at the last bid price. Foreign currency denominated assets and
liabilities are converted into U.S. dollars at the closing exchange rate each
day. Other securities for which quotations are not readily available are valued
at fair values determined in such manner as the sub-adviser, under the
supervision of the Board of Trustees, determines in good faith.
The offering price per share as of October 31, 1995 was calculated as
follows:
Net asset value per share..................................... $20.03
(net assets divided by shares outstanding)
Add maximum selling commissions............................... $ 1.86
(8.5% of offering price per share) ------
Offering price per share...................................... $21.89
======
DIVIDENDS AND OTHER DISTRIBUTIONS
As indicated in the Prospectus, an investor may choose among several
options with respect to dividends and capital gain distributions payable to the
investor. Dividends or other distributions will be paid in full and fractional
shares at the net asset value determined as of the ex-dividend date, unless the
shareholder has elected another distribution option as described in the
Prospectus. Transaction confirmations and checks for payments designated to be
made in cash generally will be mailed on the payable date.
SHAREHOLDER ACCOUNTS
Detailed information about general procedures for Shareholder Accounts and
specific types of accounts is set forth in the Prospectus.
RETIREMENT PLANS
As stated in the Prospectus, the Fund offers several types of retirement
plans that an investor may establish to invest in Fund shares 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 ISI. These plans require the completion of separate applications which
are also available from ISI. Investors Fiduciary Trust Company, Kansas City,
Missouri, acts as the custodian or trustee under these plans for which it
charges an annual fee of up to $12.00 on each such account with a maximum of $24
per tax identification number. Shares of the Fund are also available for
investment by Code Section 403(b)(7) retirement plans for employees of
charities, schools and other qualifying employers.
To receive additional information or forms regarding these plans, please
call Customer Service at (800) 851-9777 or write the Transfer Agent at P.O. Box
9015, Clearwater, Florida, 34618-9015. No contribution to a retirement plan can
be made until the appropriate forms to establish the plan have been completed.
It is advisable for an investor considering the funding of any retirement plan
to consult with an attorney, retirement plan consultant or financial or tax
adviser 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 a price equal to the
net asset value per share next determined following receipt of a valid
redemption request by the Transfer Agent, in proper form as
30
<PAGE>
prescribed in the Prospectus. Payment will ordinarily be made within three
business days of the receipt of a valid redemption request. 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. The
Prospectus describes the requirements and procedures for the redemption and
repurchase of shares.
Shares will normally be redeemed for cash, although the 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 the Fund's assets at its discretion. The Fund has,
however, elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the 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 Securities and Exchange Commission, or the Exchange is closed except for
holidays and weekends, (2) the Securities and Exchange Commission permits such
suspension and so orders, or (3) an emergency exists as determined by the
Securities and Exchange Commission so that disposal of securities and
determination of net asset value is not reasonably practicable.
TAXES
The Fund has, since inception, qualified and intends to continue to qualify
as a regulated investment company ('RIC') by satisfying certain requirements
prescribed by the Internal Revenue Code of 1986, as amended (the 'Code'). In
order to qualify for that treatment the Fund must distribute to its shareholders
for each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income and net short-term capital gain)
and must meet several additional requirements. 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 other income
derived with respect to its business of investing in securities ('Income
Requirement'); (2) the Fund must derive less than 30% of its gross income each
taxable year from the sale or other disposition of securities that were held for
less than three months ('Short-Short Limitation'); (3) at the close of each
quarter of the 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, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the outstanding voting securities of the issuer; and (4) at the close of each
quarter of the 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.
The 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 gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts. The Fund
intends to distribute annually a sufficient amount of any income and capital
gains so as to avoid liability for this excise tax.
Dividends and interest received by the 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. The Fund will report to its
shareholders shortly after each taxable year their respective
31
<PAGE>
shares of the income from sources within, and taxes paid to, foreign countries
and U.S. possessions if it makes this election.
The Fund 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, the 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 the 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), even if they are not distributed to the Fund; those amounts would
be subject to the distribution requirements described above. In most instances
it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the income received in connection therewith by the
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 the Fund with respect to its business
of investing in securities or foreign currencies, will qualify as permissible
income under the Income Requirement. However, income from the of foreign
currencies, that are not directly related to the Fund's principal business of
investing in securities (or options disposition and futures with respect
thereto) also will be subject to the Short-Short Limitation if the securities
are held for less than three months.
If the 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 included in gross income for purposes of that limitation. The 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, the 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 gain distributions by the
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 the 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, no shareholder owned beneficially or of
record 5% or more of the outstanding shares of beneficial interest of the Fund
as of December 2, 1995.
32
<PAGE>
MISCELLANEOUS INFORMATION
ORGANIZATION
The Fund is a series of IDEX Fund 3, a Massachusetts business trust (the
'Trust'), that was formed by a Declaration of Trust dated December 1, 1986. The
Fund currently is the only series of the Trust and its operations are governed
by a Restatement of Declaration of Trust ('Declaration of Trust') dated as of
August 30, 1991.
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 rights, and no
conversion or subscription rights. Shares of the Fund are fully transferable but
the Fund is not bound to recognize any transfer until it is recorded on its
books.
Shares of a series share equally with all other shares of the same series
in dividends and other distributions, and in the event of liquidation, are
entitled to receive equal shares of the net assets of that series. On any matter
submitted to a vote of shareholders of a series, each full issued and
outstanding share of that series has one vote.
The Declaration of Trust provides that each of the trustees will continue
in office until the termination of the Trust or his earlier death, resignation,
bankruptcy or removal. A meeting will be called for the election of trustees
upon the written request of holders of 10% or more of the outstanding shares of
the Trust. Vacancies may be filled by majority of the remaining trustees,
subject to certain limitations imposed by the 1940 Act. Therefore, it is not
anticipated that annual or regular meetings of shareholders normally will be
held, unless otherwise required by the Declaration of Trust or the 1940 Act.
Subject to the foregoing, shareholders have the power to vote for the election
and removal of trustees, to terminate or reorganize the Fund, to amend the
Declaration of Trust, on whether to bring certain derivative actions and on any
other matters on which a shareholder vote is required by the 1940 Act, the
Declaration of Trust, the Fund's bylaws or the trustees.
LEGAL COUNSEL AND AUDITORS
Sutherland, Asbill & Brennan, 1275 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as counsel to the Fund and certain of its affiliates.
Price Waterhouse LLP, 1055 Broadway, Kansas City, Missouri 64105, serves as
independent accountants for the Fund.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus for the Fund
does not contain all the information set forth in the registration statement and
exhibits relating thereto, which the Fund has filed with the Securities and
Exchange Commission, Washington, D.C. under the Securities Act of 1933 and the
1940 Act, to which reference is hereby made.
PERFORMANCE INFORMATION
The Prospectus contains a brief description of how performance is
calculated.
Quotations of average annual total return for the 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:
T = ((ERV /division sign/ by P)1/N)-1
(where P = a hypothetical initial investment of $1,000; T = the average annual
total return; N = the number of years; and ERV = the ending redeemable value of
a hypothetical $1,000 investment made at the
33
<PAGE>
beginning of the period). All average annual total return figures reflect the
deduction of a proportional share of Fund expenses on an annual basis, and
assume that the maximum sales load is deducted from the initial $1,000
investment and all dividends and distributions are paid in additional Fund
shares.
For the fiscal year ended October 31, 1995, the five-year period ended
October 31, 1995, and the period from inception (April 20, 1987) through October
31, 1995, the average annual total return for the Fund was 23.20%, 17.89, and
13.86%, respectively, assuming deduction of the maximum sales charge of 8.5% in
effect since inception and through the fiscal year ended October 31, 1995.
Assuming no deduction of the maximum sales charge of 8.5%, the average annual
total return for the Fund was 34.66%, 20.06%, and 15.13%, for those same
periods.
For the fiscal year ended October 31, 1995, the five-year period ended
October 31, 1995 and the period from inception (April 20, 1987) through October
31, 1995, the cumulative total return for the Fund was 34.66%, 148.87%, and
233.02%, respectively.
As stated in the Prospectus, from time to time in advertisements or sales
material, the 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 THE WALL STREET JOURNAL,
THE BOSTON GLOBE, THE NEW YORK TIMES, THE LOS ANGELES TIMES, CHRISTIAN SCIENCE
MONITOR, USA TODAY, THE TAMPA TRIBUNE, THE ST. PETERSBURG TIMES, FINANCIAL
TIMES, THE HARTFORD CURRANT, INTERNATIONAL HERALD TRIBUNE, INVESTOR'S BUSINESS
DAILY, THE 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, THE ECONOMIST, BANK LETTER, BOSTON BUSINESS JOURNAL, RESEARCH
RECOMMENDATIONS, FACS OF THE WEEK, MONEY, MODERN MATURITY, FORBES, FORTUNE,
FINANCIAL PLANNER, AMERICAN BANKER, U.S. BANKER, ABA BANKING JOURNAL,
INSTITUTIONAL INVESTOR (U.S./EUROPE), REGISTERED REPRESENTATIVE, INDEPENDENT
AGENT, AMERICAN DEMOGRAPHICS, TRUSTS & ESTATES, CREDIT UNION MANAGEMENT,
PERSONAL INVESTOR, NEW ENGLAND 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). The Fund
may also advertise nonstandardized performance information which is for periods
in addition to those required to be presented or which provides actual
year-by-year return, or any combination thereof. In addition, the Fund may, as
appropriate, compare its performance to that of other types of investments such
as certificates of deposit, savings accounts and U.S. Treasury securities, or to
certain interest rate and inflation indices, such as the Consumer Price Index.
The 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.
FINANCIAL STATEMENTS
Audited Financial Statements for the year ended October 31, 1995 are
incorporated by reference from the Fund's Annual Report dated October 31, 1995.
34
<PAGE>
IDEX FUND 3
OTHER INFORMATION
PART C
ITEM 24 FINANCIAL STATEMENTS AND EXHIBITS
List all financial statements and exhibits filed as part of the
Registration Statement.
(a) Financial Statements:
(1) The audited financial statements of IDEX Fund 3 for the fiscal
year ended October 31, 1995 included in IDEX Fund 3's 1995
Annual Report to Shareholders are incorporated by reference
into the Statement of Additional Information.
(2) Financial Highlights of IDEX Fund 3 are included on page 2 of
the Prospectus.
(b) Exhibits:
Exhibit 1 Restatement of Declaration of Trust 1
Exhibit 2 Bylaws, as amended 1
Exhibit 3 Not Applicable
Exhibit 4 Specimen Share Certificate 1
Exhibit 5 (a) Management and Investment Advisory Agreement 1
(b) Investment Counsel Agreement 1
(c) Administrative Services Agreement 1
Exhibit 6 (a) Underwriting Agreement 1
(b) Dealer's Sales Agreement 1
(c) Wholesaler's Agreement 1
Exhibit 7 Trustees/Directors Deferred Compensation Plan 1
- -----------------
1 Filed previously with Pre-Effective Amendment No. 11 to
Registration Statement (Registration No. 33-11805) on Form
N-1A on December 29, 1995.
C-1
<PAGE>
Exhibit 8 Custody Agreement 2
Exhibit 9 Transfer Agency Agreement with Idex Investor
Services, Inc. 1
Exhibit 10 Opinion of Counsel 1
Exhibit 11 (a) Consent of Price Waterhouse
(b) Consent of Sutherland Asbill & Brennan
Exhibit 12 Not Applicable
Exhibit 13 Investment Letter from Sole Shareholder 2
Exhibit 14 (a) Model Individual Retirement Plan 3
(b) Prototype Money Purchase Pension and Profit
Sharing Plan 4
(c) Model Section 403(b)(7) Plan 2
(d) Model 401(k) Plan 3
Exhibit 15 Not Applicable
Exhibit 16 Computation of Performance Quotation 5
Exhibit 18 Powers of Attorney 1
Exhibit 27 Financial Data Schedule 1
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
To the knowledge of the Registrant, IDEX Fund 3 is not controlled by or
under common control with any other person. The Registrant has no subsidiaries.
- --------------------
2 Filed previously with Pre-Effective Amendment No. 1 to Registration
Statement (Registration No. 33-11805) on Form N-1A on April 3,
1987.
3 Filed previously with Pre-Effective Amendment No. 10 to
Registration Statement (Registration No. 33-11805) on Form N-1A on
March 1, 1995.
4 Filed previously with Post-Effective Amendment No. 5 to
Registration Statement (Registration No. 33-11805) on Form N-1A on
March 1, 1991.
5 Filed previously with Post-Effective Amendment No. 1 to
Registration Statement (Registration No. 33-11805) on Form N-1A on
April 3, 1987.
C-2
<PAGE>
ITEM 26 NUMBER OF HOLDERS OF SECURITIES
The number of record holders of shares of beneficial interest of the
Registrant (the only class of securities outstanding) as of December 15, 1995,
was as follows:
NUMBER OF RECORD HOLDERS
------------------------
Shares of Beneficial Interest............................11,030
ITEM 27 INDEMNIFICATION
Provisions relating to indemnification of the Registrant's Trustees and
employees are included in Registrant's Restatement of Declaration of Trust and
Bylaws which are incorporated herein by reference.
ITEM 28 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The only business of Idex Management, Inc. is to serve as the
investment adviser of IDEX Fund; IDEX II Growth Portfolio, IDEX II Global
Portfolio, IDEX II Flexible Income Portfolio, IDEX II Balanced Portfolio and
IDEX II Capital Appreciation Portfolio of IDEX II Series Fund; and IDEX Fund 3.
Janus Capital Corporation ("Janus Capital") serves as sub-adviser to
certain portfolios and mutual funds in the IDEX Group of Funds and as investment
adviser to each portfolio of Janus Investment Fund and Janus Aspen Series and as
adviser or sub-adviser to several other mutual funds and private and retirement
accounts. Janus Capital also serves as sub-adviser to certain portfolios of the
WRL Series Fund, Inc. Thomas H. Bailey, Chairman, President, Director and Chief
Executive Officer of Janus Capital and Chairman of the Board of Directors of
Idex Management, Inc., has no business, profession, vocation or employment of a
substantial nature other than his positions with Idex Management, Inc., Janus
Investment Fund, Janus Aspen Series and Janus Capital. Steven R. Goodbarn, Vice
President of Finance, Treasurer and Chief Financial Officer of Janus Capital,
Treasurer and Chief Financial Officer of Janus Investment Fund and Janus Aspen
Series and Director of Idex Management, Inc., has no substantial business,
profession, vocation or employment other than his positions with Janus Capital,
Janus Investment Fund, Janus Aspen Series and Idex Management, Inc. James P.
Craig, James P. Goff, Scott W. Schoelzel, Ronald V. Speaker and Helen Y. Hayes
are Vice Presidents of Janus Capital, and have no substantial business,
profession, vocation or employment other than their positions with Janus
Capital, Janus Investment Fund and Janus Aspen Series. David C. Tucker is Vice
President, Secretary and General Counsel of Janus Capital, and Vice President
and General Counsel of Janus Investment Fund and Janus Aspen Series; he has no
substantial business, profession, vocation or employment other than his
positions with Janus Capital, Janus Investment Fund and Janus Aspen Series.
Michael N. Stolper, a director of Janus Capital, is President of Stolper &
Company, Inc., 525 "B" Street, Suite 1080, San Diego, CA 92101, an investment
performance consultant. Michael E. Herman, a director of Janus Capital, is
Chairman of the Finance Committee of Ewing Marion Kauffman Foundation, 4900 Oak,
Kansas City, MO 64112. Thomas A. McDonnell, a director of Janus Capital, is
President, Chief Executive Officer and a director of DST Systems, Inc., 1004
Baltimore Avenue, Kansas City, MO 64105, a provider of data processing and
recordkeeping services for various mutual funds (including the IDEX Funds), and
Executive Vice President and a director of Kansas City Southern Industries,
Inc., 114 W. 11th Street, Kansas City, MO, 64105, a publicly traded holding
company whose primary subsidiaries are engaged in transportation, information
processing
C-3
<PAGE>
and financial services. The only business, professions, vocations or employments
of a substantial nature of Messrs. Kenney, Hurley, Moriarty, Geiger, Franz and
Ms. Ferrell, the remaining officers and directors of Idex Management, Inc., are
described under "Trustees and Officers" in the Statement of Additional
Information included in this Registration Statement.
ITEM 29 PRINCIPAL UNDERWRITER
(a) The Registrant has entered into an Underwriting Agreement with
InterSecurities, Inc. ("ISI"), whose address is P.O. Box 9015, Clearwater, FL
34618-9015, to act as the principal underwriter of Fund shares. ISI also serves
as the principal underwriter to IDEX Fund, IDEX II Series Fund and WRL Series
Fund, Inc., each a registered investment company within the Fund complex.
(b) Directors and Officers of Principal Underwriter
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH UNDERWRITER POSITIONS AND OFFICES WITH REGISTRANT
- ---- -------------------------------------- -------------------------------------
<S> <C> <C>
John R. Kenney Chairman and Director Chairman and Trustee
G. John Hurley President, Chief Executive Officer President, Chief Executive
and Director Officer and Trustee
J. Will Paull Director N/A
William H. Geiger Director and Secretary Vice President and Assistant
Secretary
Thomas R. Moriarty Senior Vice President Senior Vice President
Donald L. Cudney Senior Vice President N/A
Becky A. Ferrell Assistant Vice President, Counsel Vice President, Counsel
and Assistant Secretary and Secretary
Richard B. Franz II Treasurer Treasurer
Christopher G. Roetzer Assistant Vice President Assistant Vice President
and Principal Accounting Officer
Cynthia L. Remley Vice President, Counsel and N/A
Assistant Secretary
Terry L. Garvin Vice President N/A
Gordon E. Hippner Vice President N/A
C-4
<PAGE>
Gerard P. Kirk Vice President N/A
Leslie E. Martin, III Vice President Vice President
Stanley R. Orr Vice President N/A
William G. Cummings Vice President N/A
Pamela C. Dils Assistant Vice President and N/A
Assistant Secretary
Kristy L. Dowd Assistant Vice President N/A
Diane Rogers Assistant Vice President N/A
Sammie Jo McClintick Assistant Vice President N/A
Ronald J. Klimas Assistant Vice President N/A
Russell W. Crooks Assistant Vice President N/A
Greg Limardi Assistant Vice President N/A
Laura Schneider Assistant Secretary N/A
Stuart Walsky Assistant Vice President N/A
</TABLE>
ITEM 30 LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder are
maintained as follows:
(a) Shareholder records are maintained by the Registrant's transfer
agent, Idex Investor Services, Inc., P. O. Box 9015, Clearwater, FL 34618-9015.
(b) All other accounting records of the Registrant are maintained at
the offices of the Registrant at 201 Highland Avenue, Largo, FL, 34640 or 33 N.
Garden Avenue, Suites 1000 & 1100, Clearwater, FL 34615, and are in the physical
possession of the officers of the Fund, or at the offices of the Custodian,
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, MO 64105.
C-5
<PAGE>
ITEM 31 MANAGEMENT SERVICES
The Registrant has no management-related service contract which is not
discussed in Parts A and B of this form. See the sections of the Prospectus and
Statement of Additional Information entitled "Investment Advisory and Other
Services" for a discussion of the management and advisory services furnished by
Idex Management, Inc., Janus Capital Corporation and InterSecurities, Inc.
pursuant to the Management and Investment Advisory Agreement, the Investment
Counsel Agreement, the Administrative Services Agreement and the Underwriting
Agreement.
ITEM 32 UNDERTAKINGS
(a) Not applicable
(b) Not applicable
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of its latest annual report to
shareholders, upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Largo and
State of Florida, this 27th day of February, 1996.
IDEX Fund 3
By: /s/ G. JOHN HURLEY
--------------------------
G. John Hurley
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933 and Investment
Company Act of 1940, this Post-Effective Amendment to its Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated:
/s/ JOHN R. KENNEY Chairman and Trustee February 27, 1996
- ----------------------------
John R. Kenney
/s/ G. JOHN HURLEY President and Trustee February 27, 1996
- ---------------------------- (Principal Executive
G. John Hurley Officer)
/s/ RICHARD B. FRANZ II Treasurer February 27, 1996
- ----------------------------
Richard B. Franz II
/s/ CHRISTOPHER G. ROETZER Assistant Vice President and February 27, 1996
- ---------------------------- Principal Accounting
Christopher G. Roetzer Officer
/s/ PETER R. BROWN * Trustee February 27, 1996
- ----------------------------
Peter R. Brown *
/s/ JAMES L. CHURCHILL * Trustee February 27, 1996
- ----------------------------
James L. Churchill *
<PAGE>
/s/ CHARLES C. HARRIS * Trustee February 27, 1996
- ----------------------------
Charles C. Harris
/s/ WILLIAM W. SHORT, JR. * Trustee February 27, 1996
- ----------------------------
William W. Short, Jr. *
/s/ JACK E. ZIMMERMAN * Trustee February 27, 1996
- ----------------------------
Jack E. Zimmerman *
/s/ G. JOHN HURLEY
- ----------------------------
*Signed by G. John Hurley
Attorney in Fact
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 12 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated December 13, 1995, relating to the financial
statements and financial highlights appearing in the October 31, 1995 Annual
Report to Shareholders of the IDEX Fund 3, which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
heading "Legal Counsel and Auditors" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
Kansas City, Missouri
February 27, 1996
[Letterhead]
CONSENT OF SUTHERLAND, ASBILL & BRENNAN
We consent to the reference to our firm under the heading
"Legal Counsel and Auditors" in the statement of additional information included
in Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A
for IDEX Fund 3 (File No. 33-11805). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
/s/ Sutherland, Asbill & Brennan
---------------------------------
SUTHERLAND, ASBILL & BRENNAN
Washington, D.C.
February 27, 1996
