LORD ABBETT SERIES FUND, INC.
THE GENERAL MOTORS BUILDING
767 FIFTH AVENUE
NEW YORK, NY 10153-0203
______________________________________________________________________________
LORD ABBETT SERIES FUND, INC. (THE "FUND"), IS A DIVERSIFIED OPEN-END
MANAGEMENT INVESTMENT COMPANY INCORPORATED UNDER MARYLAND LAW ON AUGUST 28,
1989. THE FUND IS A SERIES FUND CURRENTLY COMPRISED OF THREE SEPARATE
PORTFOLIOS (THE "PORTFOLIOS"). HOWEVER, ONLY SHARES OF THE GROWTH AND INCOME
PORTFOLIO ARE OFFERED AT THIS TIME. SHARES OF THE GLOBAL EQUITY PORTFOLIO ARE
NO LONGER OFFERED FOR SALE. THE DIRECTORS MAY PROVIDE FOR ADDITIONAL
PORTFOLIOS FROM TIME TO TIME. EACH PORTFOLIO ISSUES A SEPARATE CLASS OF
SHARES, WHICH HAS RIGHTS SEPARATE FROM THE OTHER CLASSES OF SHARES.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND THAT A
PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. ADDITIONAL INFORMATION
ABOUT THE FUND HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS AND INCORPORATES BY REFERENCE THE REPORT OF DELOITTE & TOUCHE, LLP
WHICH IS INCLUDED IN THE ANNUAL REPORT TO SHAREHOLDERS. BOTH MAY BE OBTAINED,
WITHOUT CHARGE, BY WRITING TO THE FUND OR BY CALLING 800-831-LIFE.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
SHAREHOLDER INQUIRIES SHOULD BE MADE IN WRITING DIRECTLY TO THE FUND OR BY
CALLING 800-831-LIFE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
AN INVESTMENT IN THE FUND INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS AND OF THE STATEMENT OF ADDITIONAL INFORMATION IS
MAY 1, 1995 , AS AMENDED JUNE 1, 1995.
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CONTENTS PAGE
________ ____
1 FINANCIAL HIGHLIGHTS 1
2 THE FUND 3
3 INVESTMENT OBJECTIVES AND POLICIES 4
4 RISK FACTORS 11
5 PORTFOLIO TURNOVER RATES 13
6 MANAGEMENT 13
7 EXPENSES OF THE FUND 15
8 SHAREHOLDER RIGHTS 15
9 PURCHASE AND REDEMPTION OF SHARES 16
10 DIVIDENDS AND DISTRIBUTIONS 16
11 TAX STATUS 17
12 NET ASSET VALUE 17
13 PERFORMANCE 18
14 GENERAL INFORMATION 18
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1 FINANCIAL HIGHLIGHTS
______________________________________________________________________________
The following tables have been audited by Deloitte & Touche LLP,
independent accountants, in connection with their annual audit of the Fund's
Financial Statements whose report thereon is incorporated by reference into
the Statement of Additional Information and may be obtained on request. The
total return information for the Portfolios of the Fund shown in the Tables
below does not reflect expenses of the Variable Account and the variable
contracts. If such charges were included, the total return figures would be
lower for all periods shown. Further information about the Fund's performance
is contained in the Annual Report to shareholders which may be obtained,
without charge, by calling 800-831-LIFE.
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GROWTH AND INCOME PORTFOLIO
For the Period
Dec. 11, 1989
(Commencement
Year Ended December 31, of Operations) to
to Dec. 31,
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance: 1994 1993 1992 1991 1990 1989
----------- ---------- ---------- ---------- ---------- -------------------
Net asset value, beginning of period $ 13.15 $ 12.27 $ 11.61 $ 9.93 $ 10.07 $ 10.00
- --------------------------------------------- ----------- ---------- ---------- ---------- ---------- -------------------
Income from investment operations
Net investment income .41 .34 .45* .50* .41* .00*
Net realized and unrealized gain (loss)
on investments (.045) 1.48 1.3575 2.18 (.19) .07
Total from investment operations .365 1.82 1.8075 2.68 .22 .07
____________________________________________ _________ ________ ________ ________ ________ _________________
Distributions
Dividends from net investment income (.33) (.27) (.32) (.35) (.29) ---
Distributions from net realized gain (.475) (.67) (.8275) (.65) (.07) ---
Net asset value, end of period $ 12.71 $ 13.15 $ 12.27 $ 11.61 $ 9.93 $ 10.07
- --------------------------------------------- ----------- ---------- ---------- ---------- ---------- -------------------
Total Return 2.76% 14.80% 15.62% 27.00% 2.18% 0.70%
- --------------------------------------------- ----------- ---------- ---------- ---------- ---------- -------------------
Ratios/Supplemental Data: _________ ________ ________ ________ ________ _________________
- ---------------------------------------------
Net assets, end of period (000) $ 114,608 $ 82,219 $ 37,307 $ 18,297 $ 10,754 $ 247
Ratios to Average Net Assets: _________ ________ ________ ________ ________ _________________
- ---------------------------------------------
Expenses, including waiver .59% .57% .51% .13% .46% .28%
Expenses, excluding waiver .59% .57% .65% .72% .91% 1.73%
Net investment income 2.97% 2.76% 3.38% 4.20% 4.38% .00%
Portfolio turnover rate 68.94% 78.26% 107.30% 70.82% 49.06% .00%
- --------------------------------------------- ----------- ---------- ---------- ---------- ---------- -------------------
<FN>
* Net of management fee waiver.
See Notes to Financial Statements.
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1
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GLOBAL EQUITY PORTFOLIO
For the Period
April 9, 1990
Year Ended December 31. (Commencement
of Operations) to
to Dec. 31,
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance: 1994 1993 1992 1991 1990
----------- ---------- ---------- --------------- --------------------
Net asset value, beginning of period $ 12.58 $ 10.25 $ 10.75 $ 9.73 $ 10.00
- -------------------------------------------------- ----------- ---------- ---------- --------------- --------------------
Income from investment operations
Net investment income* .27 .26 .29 .28 .24
Net realized and unrealized gain (loss)
on investments (.0575) 2.4725 (.4575) 1.03 (.35)
Total from investment operations .2125 2.7325 (.1675) 1.31 (.11)
_________________________________________________ _________ ________ ________ _____________ __________________
Distributions
Dividends from net investment income (.29) (.32) (.24) (.22) (.16)
Distributions from net realized gain (1.2825) (.0825) (.0925) (.07) ---
Net asset value, end of period $ 11.22 $ 12.58 $ 10.25 $ 10.75 $ 9.73
- -------------------------------------------------- ----------- ---------- ---------- --------------- --------------------
Total Return 1.69% 26.67% (1.54)% 13.48% (1.10)%#
- -------------------------------------------------- ----------- ---------- ---------- --------------- --------------------
Ratios/Supplemental Data: _________ ________ ________ _____________ __________________
- --------------------------------------------------
Net assets, end of period (000) $ 3,251 $ 3,775 $ 3,362 $ 4,407 $ 2,683
Ratios to Average Net Assets: _________ ________ ________ _____________ __________________
- --------------------------------------------------
Expenses, including waiver .09% .09% .10% .10% .21%#
Expenses, excluding waiver 1.33% 1.62% 1.39% 2.15% 2.49%#
Net investment income 2.04% 2.24% 2.72% 2.69% 2.40%#
Portfolio turnover rate 50.63% 131.51% 128.59% 60.84% 25.59%
- -------------------------------------------------- ----------- ---------- ---------- --------------- --------------------
<FN>
* Net of management fee waiver.
# Not annualized.
See Notes to Financial Statements.
</TABLE>
2
<PAGE>
2 THE FUND
______________________________________________________________________________
LORD ABBETT SERIES FUND, INC. is a diversified open-end management
investment company incorporated under the laws of Maryland on August 28, 1989.
The Fund is a series fund currently comprised of three separate
Portfolios. However, only shares of the Growth and Income Portfolio are
offered at this time. Each Portfolio issues a separate class of shares. Each
share of common stock of the Fund has a par value of $.001 per share and has
one vote and an equal right to dividends and distributions with respect to its
Portfolio. All shares have noncumulative voting rights for the election of
Directors. Each share is fully paid, nonassessable and freely transferable.
There are no liquidation, conversion or preemptive rights. The fiscal year-end
of the Fund is December 31.
DISTRIBUTION OF FUND SHARES
Lord, Abbett & Co. ("Lord Abbett"), the Fund's "Investment Manager,"
located at The General Motors Building, 767 Fifth Avenue, New York, New York
10153-0203, is the distributor of the shares of the Growth and Income
Portfolio. Prior to May 1, 1994, the Fund distributed its own shares. The
Growth and Income Portfolio of the Fund bears certain costs of distributing
shares of the Growth and Income Portfolio in accordance with a plan adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act"). (See "Distribution Plan" below.) Shares of the Fund are
currently issued and redeemed only in connection with investment in and
payments under certain variable annuity contracts issued by life insurance
companies and their affiliates ("Life Companies"). The shares of the Fund are
purchased and redeemed at net asset value. Lord Abbett and the Fund each
reserves the right to suspend, change or withdraw the offering of shares of
any Portfolio or Portfolios or any of the terms of such offering.
DISTRIBUTION PLAN
The Board of Directors of the Fund has adopted a Distribution Plan (the
"Plan") for the Growth and Income Portfolio of the Fund which has been
approved by the shareholders of the Growth and Income Portfolio. The Plan has
not been activated to date. Pursuant to the Plan, the Fund, on behalf of the
Growth and Income Portfolio, may make payments to Lord Abbett for remittance
to a Life Company for certain distribution expenses incurred or paid by such
Life Company, provided that such remittances in the aggregate do not exceed
0.15%, on an annual basis, of the average daily net asset value of shares of
the Growth and Income Portfolio sold to such Life Company to be used as
the underlying investment for variable life insurance and variable annuity
contracts ("Variable Contracts"). For the year ended December 31, 1994, no
payments were made pursuant to the Plan.
3
<PAGE>
Distribution expenses for which a Life Company may be reimbursed include,
but are not limited to, expenses of printing and distributing Fund
prospectuses, statements of additional information and shareholder reports to
existing and potential Variable Contract owners and developing and preparing
Fund advertisements and other promotional materials designed to promote the
distribution of Fund shares. Lord Abbett will be required to submit to the
Directors for approval annual distribution expense budgets and quarterly
reports of, and requests for payment of, distribution expenses as to the
Growth and Income Portfolio.
Variable annuity contract owners should refer to the fee table section of
their separate account prospectuses for further information with respect to
the effect of the Plan on their annuity contract expenses.
3 INVESTMENT OBJECTIVES AND POLICIES
______________________________________________________________________________
Each Portfolio of the Fund has a different investment objective which it
pursues through separate investment policies as described below. Each
Portfolio is managed separately by Lord Abbett and the risks and opportunities
of each Portfolio should be examined separately. The differences in objectives
and policies among the Portfolios can be expected to affect the return of each
Portfolio and the degree of market and financial risk of each Portfolio.
There is no assurance that the investment objectives of the various
Portfolios will be met.
GROWTH AND INCOME PORTFOLIO
The investment objective of the Growth and Income Portfolio is long-term
growth of capital and income without excessive fluctuation in market value.
The Fund intends to keep the Portfolio's assets invested in those
securities which are selling at reasonable prices in relation to value and, to
do so, it may have to forego some opportunities for gains when, in the
Fund's judgment, they carry excessive risk.
The Portfolio will try to anticipate major changes in the economy and
select stocks which it believes will benefit most from these changes.
The Portfolio will normally invest in common stocks (including securities
convertible into common stocks) of large, seasoned companies in sound
financial condition, which common stocks are expected to show above-average
price appreciation. Although the prices of common stocks fluctuate and their
dividends vary, historically, common stocks have appreciated in value and
their dividends have increased when the companies they represent have
prospered and grown.
4
<PAGE>
The Portfolio constantly seeks to balance the opportunity for profit
against the risk of loss. In the past, very few industries have continuously
provided the best investment opportunities. The Portfolio will take a flexible
approach and adjust the Portfolio to reflect changes in the opportunity for
sound investments relative to the risks assumed. Therefore, the Portfolio will
sell stocks that are judged to be overpriced and reinvest the proceeds in
other securities which are believed to offer better values for the Portfolio.
The Portfolio will not purchase securities for trading purposes. To
create reserve purchasing power and also for temporary defensive purposes, the
Portfolio may invest in straight bonds and other fixed-income securities.
GLOBAL EQUITY PORTFOLIO
The investment objective of the Global Equity Portfolio is long-term
growth of capital and income consistent with reasonable risk. The production
of current income is a secondary consideration for the Portfolio.
To best serve the needs of most long-term investors, the Portfolio seeks
capital growth without excessive fluctuations in market value. The Portfolio
attempts to invest in securities representing good values which are expected
to decline less in price than other securities. In an effort to obtain such
values, the Portfolio will try to invest in those domestic and foreign
securities which are selling at reasonable prices in relation to other
domestic and foreign securities' values considering the policies and factors
below and, in doing so, may forego some opportunities for gains when it is
believed they carry excessive risk.
The Portfolio will try to anticipate major changes in the world economy
and select domestic and foreign securities which it believes will benefit most
from these changes. The Portfolio normally invests primarily in common stocks
(including securities convertible into common stocks) of domestic and foreign
companies in sound financial condition which common stocks are expected
to show above-average price appreciation. Although the prices of common
stocks fluctuate and their dividends vary, historically, common stocks have
appreciated in value and their dividends have increased when the companies
they represent have prospered and grown.
The Portfolio constantly seeks to balance the opportunity for profit
against the risk of loss. In the past, very few industries or economies have
continuously provided the best investment opportunities. The policy of the
Portfolio is to take a flexible approach and to adjust the Portfolio to
reflect changes in the opportunity for sound investments relative to the
risks assumed. Therefore, domestic and foreign securities judged to be
overvalued will be sold and the proceeds will be reinvested in other
securities believed to offer better values.
5
<PAGE>
Under normal circumstances the Portfolio will invest its total assets in
domestic and foreign securities with at least 65% of such assets invested in
equity securities primarily traded in at least three countries, including the
United States. However, for temporary defensive purposes, this guideline may
not be followed.
The Portfolio's investment in foreign securities may be subject to
non-U.S. income or withholding tax, resulting in a lower rate of return on
investments.
In selecting industries and companies representing good value for the
Portfolio, consideration will be given to, among other factors, overall growth
prospects, competitive position in domestic and foreign markets, technology,
research and development, productivity, labor costs, raw material costs and
sources, profit margins, return on investment, capital resources, management
and government regulation.
Country Diversification - Global Equity Portfolio. It is the present
intention of the Portfolio to invest its assets in securities which are
primarily traded in the United Kingdom, Western Europe (Austria, Germany, the
Netherlands, France, Switzerland, Italy, Belgium, Norway, Sweden, Denmark and
Spain), Australia, Canada, the Far East (Japan, Hong Kong and Singapore) and
the United States. However, investment may be made from time to time in
securities which are primarily traded in other developed countries. Except for
the guidelines described above with respect to investing in at least three
countries, including the United States, there are no limitations on how much
of the Portfolio's assets can be invested in securities primarily traded in
any one country.
Foreign Currency Hedging Techniques - Global Equity Portfolio. The
Portfolio may utilize various foreign currency hedging techniques described
below, including forward foreign currency contracts and foreign currency put
and call options.
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of a specific currency at a set price on a future date.
The Portfolio may enter into forward foreign currency contracts (but not in
excess of the amount the Portfolio has invested in non-U.S. dollar-denominated
securities at the time any such contract is entered into) in primarily two
circumstances. First, when the Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, the
Portfolio may desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for the purchase or sale of the amount of
foreign currency involved in the underlying security transaction, the
Portfolio will be able to protect against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased
or sold and the date on which payment is made or received.
Second, when it is believed that the currency of a particular foreign
country may suffer a decline against the U.S. dollar, the Portfolio may enter
into a forward
6
<PAGE>
contract to sell the amount of foreign currency approximating the value of
some or all of the Portfolio's securities denominated in such foreign
currency. Precise matching of the forward contract amount and the value of
the securities involved will not generally be possible since the future value
of such securities denominated in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
Portfolio does not intend to enter into such forward contracts under this
second circumstance on a regular or continuous basis.
The Fund's custodian will segregate cash or liquid high-grade debt
securities belonging to the Portfolio in an amount not less than the value of
the Portfolio's assets committed to forward foreign currency contracts entered
into under such a transaction. If the value of the securities segregated
declines, additional cash or debt securities will be added on a daily basis
(i.e., marked to market) so that the segregated amount will not be less than
the amount of the Portfolio's commitments with respect to such contracts.
The Portfolio may also purchase foreign currency put options on U.S.
exchanges or U.S. over-the-counter markets. A put option gives the Portfolio,
upon payment of a premium, the right to sell a currency at the exercise price
until the expiration of the option and serves to insure against adverse
currency price movements in the underlying portfolio assets denominated in
that currency. The premiums paid for such foreign currency put options will
not exceed 5% of the net assets of the Portfolio at the time of such payment.
Exchange-listed options markets in the United States include several
major currencies, and trading may be thin and illiquid. A number of major
investment firms trade unlisted options which are more flexible than
exchange-listed options with respect to strike price and maturity date. These
unlisted options generally are available on a wider range of currencies,
including those of most of the developed countries mentioned above. Unlisted
foreign currency options are generally less liquid than listed options and
involve the credit risk associated with the individual issuer. Investment in
unlisted options together with other illiquid securities is subject to a limit
of 5% of the Portfolio's net assets. See "Restricted or Not Readily Marketable
Securities for the Fund's Portfolios" in the Statement of Additional
Information.
A call option written by the Portfolio gives the purchaser, upon payment
of a premium, the right to purchase from the Portfolio a currency at the
exercise price until the expiration of the option. The Portfolio may write a
call option on a foreign currency only in conjunction with a purchase of a put
option on that currency by the Portfolio. Such a strategy is designed to
reduce the cost of downside currency protection by limiting currency
appreciation potential. The face value of such writing may not exceed 90% of
the face value of the put option with respect to which such call option was
written.
7
<PAGE>
Limitations imposed by the Internal Revenue Code on regulated investment
companies may restrict the Portfolio's ability to engage in transactions in
options and forward contracts.
The Fund's custodian will segregate cash or liquid high-grade debt
securities belonging to the Portfolio in an amount not less than the value of
the Portfolio's assets committed to writing options. If the value of the
securities segregated declines, additional cash or debt securities will be
added on a daily basis (i.e., marked to market), so that the segregated amount
will not be less than the amount of the Portfolio's commitments with respect
to such written options.
GROWTH PORTFOLIO
The investment objective of the Growth Portfolio is to seek capital
appreciation through investments primarily in equity securities which are
believed to be undervalued in the marketplace.
The Portfolio invests primarily in common stocks (including securities
convertible into common stocks) of companies with good prospects for
improvement in earnings trends or with asset values that are not yet fully
recognized in the investment community. Selection of stocks is based on
appreciation potential and without regard to current income.
The Portfolio will be diversified among many issues representing many
different industries. The holdings in the Portfolio typically will be selected
for their potential for significant market appreciation from growing
recognition of substantial improvement in the companies' financial results, or
increasing anticipation of such improvement. This potential may derive from
such factors as (i) changes in the economic and financial environment, (ii)
new or improved products or services, (iii) new or rapidly expanding markets,
(iv) changes in management or structure of the company, (v) price increases
due to shortages of resources or productive capacity, (vi) improved
efficiencies resulting from new technologies or changes in distribution, or
(vii) changes in governmental regulations, political climate or competitive
conditions. The companies represented will have a strong or, in the
Portfolio's perception, an improving financial position and their outstanding
stock will ordinarily have an aggregate market value of not less than
approximately $50 million. At the time of purchase, the securities may be
largely neglected by the investment community or, if widely followed, they may
be out of favor or at least controversial.
While the Portfolio may take short-term gains if deemed appropriate,
normally it will hold securities in order to realize long-term capital gains.
8
<PAGE>
OTHER INVESTMENT POLICIES AND TECHNIQUES OF THE PORTFOLIOS
When the Fund believes that a Portfolio should assume a temporary
defensive position because of unfavorable investment conditions, the affected
Portfolio may temporarily hold its assets in cash and short-term money market
instruments.
See "Risk Factors" below for a discussion of special diversification
standards which the Portfolios will meet.
The Fund intends to utilize from time to time one or more of the
investment techniques identified below and described in the Statement of
Additional Information, including covered call options, rights and warrants
and repurchase agreements. It is the Fund's current intention that no more
than 5% of each Portfolio's net assets will be at risk in the use of any one
of such investment techniques identified below. While some of these techniques
involve risk when utilized independently, the Fund intends to use them to
reduce risk and volatility in its Portfolios, although this result cannot be
assured by the use of such investment techniques.
Covered Call Options. The Fund may write call options on securities it
owns. A call option on stock gives the purchaser of the option, upon payment
of a premium to the writer of the option, the right to call upon the writer to
deliver a specified number of shares of a stock on or before a fixed date at a
predetermined price.
Rights and Warrants. The Fund may invest in rights and warrants to
purchase securities. Included within these purchases, but not exceeding 2% of
the value of each Portfolio's net assets, may be warrants which are not listed
on the New York Stock Exchange or American Stock Exchange.
Repurchase Agreements. The Fund may enter into repurchase agreements
with respect to a security. A repurchase agreement is a transaction by which
the Fund acquires a security and simultaneously commits to resell that
security to the seller (a bank or securities dealer) at an agreed-upon price
on an agreed-upon date. The Fund requires at all times that the repurchase
agreement be collateralized by cash or U.S. Government securities having a
value equal to, or in excess of, the value of the repurchase agreement. Such
agreements permit the Fund to keep all of its assets at work while retaining
flexibility in pursuit of investments of a longer-term nature.
OTHER POLICIES OF THE PORTFOLIOS
It is the Fund's current intention that no more than 5% of each
Portfolio's net assets will be at risk in the use of any one of the policies
identified below.
9
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Closed-End Investment Companies. The Fund may invest in shares of
closed-end investment companies if bought in primary or secondary offerings
with a fee or commission no greater than the customary broker's commission.
Shares of such investment companies sometimes trade at a discount or premium
in relation to their net asset value.
Lending of Portfolio Securities. The Fund may seek to earn income by
lending its Portfolio securities if the loan is collateralized and complies
with regulatory requirements.
Emergency Borrowing. The Fund will be permitted to borrow money up to
one-third of the value of each Portfolio's total assets taken at current value
but only from banks as a temporary measure for extraordinary or emergency
purposes. Beyond 5% of each Portfolio's total assets (at current value), this
borrowing may not be used for investment leverage to purchase securities. As
a matter of operating policy, each Portfolio will not borrow more than 25% of
its total assets taken at current value.
CHANGE IN INVESTMENT OBJECTIVES
The Fund will not change the investment objectives of a Portfolio without
Portfolio shareholder approval as described below in "Investment
Restrictions." However, the Fund's policies and techniques are not
fundamental. Therefore, if it is determined that an objective of a Portfolio
can best be achieved by a substantive change in such a policy or technique,
the change will be made without Portfolio shareholder approval by disclosing
it in the Prospectus.
INVESTMENT RESTRICTIONS
In addition to the investment objectives set forth above, certain
restrictions relating to the investment of assets of the Portfolios are set
forth in the Statement of Additional Information. These investment
restrictions are also deemed fundamental and neither such restrictions
nor the investment objectives of the Portfolios may be changed without the
approval of the holders of a majority of the outstanding shares of the
Portfolio affected (which for this purpose and under the 1940
Act means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are present or represented by
proxy or (ii) more than 50% of the outstanding shares). A change in a
restriction or objective affecting only one Portfolio may be effected with the
approval of a majority of the outstanding shares of such Portfolio.
10
<PAGE>
4 RISK FACTORS
_____________________________________________________________________________
The Fund was established as the underlying investment for Variable
Contracts issued by Cova Financial Services Life Insurance Company
(formerly known as Xerox Financial Services Life Insurance Company) and
its affiliated insurance companies.
Section 817(h) of the Internal Revenue Code of 1986, as amended (the
"Code"), imposes certain diversification standards on the underlying assets of
Variable Contracts held in the Portfolios of the Fund. The Code provides that
a variable contract shall not be treated as an annuity contract or life
insurance for any period (and any subsequent period) for which the investments
are not, in accordance with regulations prescribed by the Treasury Department,
adequately diversified. Disqualification of a Variable Contract as an
annuity contract or life insurance would result in imposition of federal
income tax on contract owners with respect to earnings allocable to the
Variable Contract prior to the receipt of payments under the Variable
Contract. Section 817(h)(2) of the Code is a safe harbor provision which
provides that contracts such as the Variable Contracts meet the
diversification requirements if, as of the close of each quarter, the
underlying assets meet the diversification standards for a regulated
investment company and no more than fifty-five percent (55%) of the total
assets consists of cash, cash items, U.S. Government securities and securities
of other regulated investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts. The Regulations amplify the
diversification requirements for variable contracts set forth in Section
817(h) of the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be
deemed adequately diversified if (i) no more than 55 percent of the value of
the total assets of the portfolio is represented by any one investment; (ii)
no more than 70 percent of such value is represented by any two investments;
(iii) no more than 80 percent of such value is represented by any three
investments; and (iv) no more than 90 percent of such value is represented by
any four investments. For purposes of these Regulations, all securities of
the same issuer are treated as a single investment.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
Each Portfolio of the Fund will be managed in such a manner as to comply
with these diversification requirements. It is possible that in order to
comply with the diversification requirements, less desirable investment
decisions may be made which would affect the investment performance of the
Portfolios.
11
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Investment in the shares of the Global Equity Portfolio requires
consideration of certain factors that are not normally involved in investments
in U.S. securities. Generally, most of the assets of the Global Equity
Portfolio will be denominated or traded in foreign currencies. Accordingly, a
change in the value of any foreign currency relative to the U.S. dollar will
result in a corresponding change in the U.S. dollar value of the assets of the
Global Equity Portfolio denominated or traded in that currency. The
performance of the Global Equity Portfolio will be measured in U.S. dollars,
the base currency of the Global Equity Portfolio. In addition, the Global
Equity Portfolio may be subject to foreign withholding taxes which would
reduce the yield on its investments.
Securities markets of foreign countries in which the Global Equity
Portfolio may invest generally are not subject to the same degree of
regulation as the U.S. markets and may be more volatile and less liquid than
the major U.S. markets. Lack of liquidity may affect the Global Equity
Portfolio's ability to purchase or sell large blocks of securities and thus
obtain the best price. There may be less publicly available information on
publicly-traded companies, banks and governments in foreign countries than is
generally the case for such entities in the United States. The lack of
uniform accounting standards and practices among countries impairs the
validity of direct comparisons of valuation measures (such as price/earnings
ratios) for securities in different countries. In addition, the Global Equity
Portfolio may incur costs associated with currency hedging and the conversion
of foreign currency into U.S. dollars and may be adversely affected by
restrictions on the conversion or transfer of foreign currency. Other
considerations include political and social instability, expropriation, higher
transaction costs and different securities settlement practices. Settlement
periods of foreign securities, which are sometimes longer than those for
securities of U.S. issuers, may affect portfolio liquidity. These different
settlement practices may cause missed purchasing opportunities and/or the loss
of interest on money market and debt investments pending further equity or
long-term debt investments. In addition, foreign securities held by the
Global Equity Portfolio may be traded on days that the Fund does not value the
Global Equity Portfolio's securities, such as Saturdays and customary business
holidays, and, accordingly, the Global Equity Portfolio's net asset value may
be significantly affected on days when shareholders do not have access to the
Global Equity Portfolio.
The prices of long-term securities are more volatile than those of
short-term debt securities. When interest rates go up or down, the market
value of such long-term debt securities tends to go down or up, respectively,
to a greater extent than in the case of short-term debt securities.
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5 PORTFOLIO TURNOVER RATES
_____________________________________________________________________________
For the years ended December 31, 1993 and 1994, the portfolio turnover
rates of the Growth and Income Portfolio were 78.26% and 68.94%, respectively.
For the years ended December 31, 1993 and 1994, the portfolio turnover rates
of the Global Equity Portfolio were 131.51% and 50.63%, respectively. With
respect to the Global Equity Portfolio, these changes, dictated by market
conditions, resulted in a higher turnover of portfolio assets in 1993
than 1994, i.e. 131% versus 50%. Higher portfolio turnover rates may
involve correspondingly higher brokerage costs which would have to be borne
directly by the Fund and ultimately by its shareholders.
6 MANAGEMENT
_____________________________________________________________________________
The Fund is managed by its officers on a day-to-day basis under the
overall direction of its Board of Directors. The Fund employs Lord Abbett as
investment manager for the Portfolios pursuant to a Management Agreement.
Lord Abbett has been an investment manager for over 62 years and currently
manages approximately $16 billion in a family of mutual funds and other
advisory accounts. Lord Abbett provides the Fund with investment management
services and executive and other personnel, pays the remuneration of its
officers, provides the Fund with office space and pays for ordinary and
necessary office and clerical expenses relating to research, statistical work
and supervision of the Portfolios and certain other costs. The Fund pays all
other expenses not expressly assumed by Lord Abbett, including, without
limitation, outside Directors' fees and expenses, association membership dues,
legal and auditing fees, shareholder servicing costs, expenses relating to
shareholder meetings, expenses of preparing, printing and mailing stock
certificates and shareholder reports, expenses of registering the Fund's
shares under federal and state securities laws, expenses of printing and
mailing prospectuses to existing shareholders, insurance premiums and
brokerage and other expenses relating to the execution of Portfolio
transactions. Lord Abbett provides similar services to fifteen other funds
having their own investment objectives and also advises other investment
clients. Lord Abbett and Cova Financial Services Life Insurance Company
( then known as Xerox Financial Services Life Insurance Company) provided
operating funds to the Fund through their purchase of the initial
shares of the Fund.
Mr. W. Thomas Hudson, Jr. is Executive Vice President of the Fund and is
primarily responsible for the day-to-day management of the Growth and Income
Portfolio. Mr. Hudson has been employed by Lord Abbett for twelve years.
Mr. E. Wayne Nordberg is a Partner of Lord Abbett and is primarily
responsible for the day-to-day management of the Global Equity Portfolio. Mr.
Nordberg has been employed by Lord Abbett since 1988.
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Lord Abbett has entered into a Sub-Investment Management Agreement with
Dunedin Fund Managers Limited, as Sub-Adviser, under which it provides Lord
Abbett with advice with respect to that portion of the Global Equity
Portfolio's assets invested in countries other than the United States (the
"foreign assets"). The Sub-Adviser and its predecessors date back 122 years
to 1873. The Sub-Adviser manages about $8 billion which is invested globally.
In performing these services, the Sub-Adviser furnishes Lord Abbett with
advice and recommendations with respect to the foreign assets, including
advice on the allocation of investments among foreign securities markets and
foreign equity and debt securities, and, subject to consultation with Lord
Abbett, advice as to cash holdings and what securities in the portfolio of
foreign assets should be purchased, held or disposed of. The Sub-Adviser also
gives advice with respect to foreign currency matters.
Subject to the review of the Board of Directors, Lord Abbett, in
consultation with the Sub-Adviser, will determine at least quarterly the
percentage of the assets of the Global Equity Portfolio that shall be
allocated to Lord Abbett or the Sub-Adviser for investment management. With
respect to the assets of the Portfolio allocated to the Sub-Adviser for
investment management, the Sub-Adviser performs its services subject to the
overall supervision and review of Lord Abbett. From time to time or at any
time requested by Lord Abbett or the Fund's directors, the Sub-Adviser will
make reports to Lord Abbett or the Fund, as requested, of the Sub-Adviser's
performance of the services described in the Sub-Investment Management
Agreement.
Under the Management Agreement, the Fund is obligated to pay Lord Abbett
a monthly fee, based on average daily net assets for the Portfolios for each
month, at an annual rate of .75 of 1% with respect to the Global Equity
Portfolio and Growth Portfolio and .5 of 1% with respect to the Growth and
Income Portfolio. In addition, the Fund will pay all expenses not expressly
assumed by Lord Abbett. Lord Abbett will pay the Sub-Adviser a monthly fee
based on the average daily net assets of the Global Equity Portfolio for each
month equal, on an annual basis, to .375 of 1%. Although not obligated to,
Lord Abbett currently waives its advisory fees for the Global Equity
Portfolio. For the year ended December 31, 1994, the amount of the advisory
fee for the Growth and Income Portfolio was $518,190. For the year ended
December 31, 1994, Lord Abbett waived all ($17,889) of its advisory fee with
respect to the Global Equity Portfolio. No advisory fees were received or
waived by Lord Abbett with respect to the Growth Portfolio as it has not yet
commenced operations.
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7 EXPENSES OF THE FUND
_____________________________________________________________________________
The organizational expenses of the Fund are being amortized on a
straight-line basis over a period of five years (beginning with the
commencement of operations). If any of the initial shares (issued to Lord
Abbett and Cova Financial Services Life Insurance Company) are redeemed
during the amortization period by any holder thereof, the redemption proceeds
will be reduced by any unamortized organizational expenses in the same
proportion as the number of initial shares being redeemed bears to the number
of initial shares outstanding at the time of the redemption.
Lord Abbett may waive its management fee and/or advance other expenses of
the Fund. Although each Portfolio must bear the expenses directly
attributable to it, the Portfolios are expected to experience cost savings
over the aggregate amount that would be payable if each Portfolio were a
separate fund, because they have the same Directors, accountants, attorneys
and share other general and administrative expenses. Any expenses which are
not directly attributable to a specific Portfolio are allocated on the basis
of the net assets of the respective Portfolios. For the year ended December
31, 1994, the expenses borne by the Growth and Income Portfolio amounted to
$590,650 or .59% of its average daily net assets and the expenses borne by
the Global Equity Portfolio amounted to $3,285 or .09% of its average daily
net assets.
8 SHAREHOLDER RIGHTS
_____________________________________________________________________________
Each Portfolio issues its own class of shares and may issue separate
classes of shares with respect to such Portfolio. Each share represents an
equal proportionate interest in the assets of the Portfolio with each other
share in the Portfolio. On any matter submitted to a vote of shareholders,
all shares of the Fund then issued and outstanding and entitled to vote shall
be voted in the aggregate and not by class except for matters concerning only
one class. The holder of each share of stock of the Fund will be entitled to
one vote for each full share and a fractional vote for each fractional share
of stock. Shares of one class may not bear the same economic relationship to
the Fund as shares of another class.
In accordance with its view of present applicable law, the Fund views the
separate account(s) of Life Companies as shareholders of the Fund having the
right to vote Fund shares at any meeting of shareholders and will provide
pass-through voting privileges to all contract owners. Life Companies will
vote shares of the Fund held in the separate account(s) for which no timely
voting instructions from contract owners are received, as well as shares they
own, in the same proportion as those shares for which voting instructions are
received. Additional information concerning voting rights is described in the
separate account prospectuses.
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The Fund's By-Laws provide that the Fund shall not hold an annual meeting
of its shareholders in any year unless one or more matters are required to be
acted on by shareholders under the 1940 Act, or unless
called at the request in writing of a majority of the Board of Directors or by
shareholders holding at least one-quarter of the shares of the Fund
outstanding and entitled to vote at the meeting. The Fund will hold a
shareholder meeting to fill existing vacancies on the Board in the event that
less than a majority of Directors were elected by the shareholders. The
Directors shall also call a meeting of shareholders for the purpose of voting
upon the question of removal of any Director when requested in writing to do
so by the record holders of not less than 10 percent of the outstanding
shares. Under the By-Laws of the Fund and in accordance with the 1940
Act, shareholder approval of the independent auditors of the Fund will not be
required except when shareholder meetings are held. The Fund has an
obligation to assist shareholder communications.
9 PURCHASE AND REDEMPTION OF SHARES
_____________________________________________________________________________
Shares are currently only sold to the separate accounts of Cova
Financial Services Life Insurance Company and its affiliates ("Cova
Life") at net asset value (see below). Redemptions will be effected by
the separate accounts to meet obligations under the Variable Contracts.
Contract owners do not deal directly with the Fund with respect to
acquisition or redemption of shares.
In selecting broker-dealers to execute portfolio transactions for the
Fund's Portfolios, if two or more broker-dealers are considered capable of
best execution, the Fund may prefer the broker-dealer who has sold Fund shares
through the sale of such Variable Contracts.
10 DIVIDENDS AND DISTRIBUTIONS
_____________________________________________________________________________
All dividends and distributions are distributed to the shareholders and
will be payable in shares or cash at the election of shareholders. Cova
Life, with respect to shares held by its separate accounts, has elected, and
intends to continue to elect, to receive dividends and distributions in
shares. Dividends and distributions are made at such frequency and in such
amount as to assure compliance with the Internal Revenue Code.
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11 TAX STATUS
_____________________________________________________________________________
It is the intention of the Fund to have each Portfolio qualify, and for
the fiscal year ended December 31, 1994, each did qualify, as
a "regulated investment company" under Subchapter M of the Internal Revenue
Code. The Fund distributes all of its net income and gains to its
shareholders (the separate accounts). Each Portfolio is treated as a separate
entity for federal income tax purposes and, therefore, the investments and
results of the Portfolio are determined separately for purposes of determining
whether the Portfolio qualifies as a "regulated investment company and for
purposes of determining net ordinary income (or loss) and net realized capital
gains (or losses).
12 NET ASSET VALUE
_____________________________________________________________________________
Portfolio shares are sold and redeemed at a price equal to the share's
net asset value. Net asset value per share is determined as of the close of
the New York Stock Exchange on each day that the New York Stock Exchange is
open for business by dividing each Portfolio's total net assets by the number
of shares outstanding at the time of calculation. The daily net asset value
per share is also determined once daily on each day (other than a day during
which no such shares were tendered for redemption and no order to purchase or
sell such shares was received by the Fund) in which there is a sufficient
degree of trading in a Portfolio's securities that the current net asset value
of the Portfolio's shares might be materially affected by changes in the value
of the securities.
Total assets are determined by adding the total current value of the
Portfolio's securities, cash, receivables and other assets and subtracting
liabilities. Portfolio shares are sold and redeemed at the net asset value
next determined after receipt of the sales order or request for redemption.
Securities that are listed on a securities exchange are valued at their
closing sales price on the day of the valuation. Price valuations for listed
securities are based on market quotations where the security is primarily
traded or, if not available, are valued at the mean of the bid and asked
prices on any valuation date. Unlisted securities in a Portfolio are
primarily valued based on their latest quoted bid price or, if not available,
are valued by a method determined by the Directors to accurately reflect fair
value. Money market instruments maturing in 60 days or less are valued on the
basis of amortized cost, which means that they are valued at their acquisition
cost to reflect a constant amortization rate to maturity of any premium or
discount, rather than at current market value.
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13 PERFORMANCE
_____________________________________________________________________________
From time to time, advertisements and other sales materials for the Fund
may include information concerning the historical performance of the Fund.
Total return information will include the Portfolio's average annual
compounded rate of return for a given period, based upon the value of the
shares acquired through a hypothetical $1000 investment at the beginning of
the specified period and the net asset or redemption value of such shares at
the end of the period, assuming reinvestment of all dividends and
distributions at net asset value. In lieu of or in addition to total return
calculations, such information may include performance rankings and similar
information from independent organizations such as Lipper Analytical Services,
Inc., Business Week, Forbes or other industry publications.
Total return figures utilized by the Fund are based on historical
performance and are not intended to indicate future performance. Total return
and net asset value per share can be expected to fluctuate over time. Further
information about the Fund's performance is contained in the Annual Report to
shareholders which may be obtained, without charge, by calling 800-831-LIFE.
14 GENERAL INFORMATION
_____________________________________________________________________________
The Fund's custodian is Morgan Guaranty Trust Company of New York, 60
Wall Street, New York, New York 10005. The Fund's transfer agent and dividend
disbursing agent is DST Systems, Inc., Kansas City, Missouri 64141. The
Fund's auditors are Deloitte & Touche LLP, Two World Financial Plaza, New
York, New York 10281. The Fund's counsel is Debevoise & Plimpton, 875 Third
Avenue, New York, New York 10022.
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Account For Performance
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY
CONTRACT
Issued by Cova Financial Services Life Insurance Company
Distributed by Cova Life Sales Company
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