As filed with the Securities and Exchange Commission on December 24, 2003
Securities Act Registration No. 333- ________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____ Post-Effective Amendment No. _____
------------------------------------------------------------------------
MAXIM SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
(303) 737-3000
(Registrant's Area Code and Telephone Number)
8515 E. Orchard Road
Greenwood Village, Colorado 80111
(Address of Principal Executive Offices)
----------------------------------------------------------------------
W. T. McCallum President
and Chief Executive Officer
Great-West Life & Annuity Insurance Company
8515 E. Orchard Road
Greenwood Village, Colorado 80111
(Name and Address of Agent for Service)
---------------------------------------------------------------------
Copies and All Correspondence to:
James F. Jorden, Esquire
Jorden Burt LLP
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007-5208
Approximate Date of Proposed Public Offering: As soon as practicable after this
registration statement becomes effective under the Securities Act of 1933, as
amended.
It is proposed that this filing will become effective January 23, 2004, pursuant
to Rule 488 under the Securities Act of 1933, as amended.
No filing fee is due because an indefinite number of shares is deemed to have
been registered in reliance on Section 24(f) of the Investment Company Act of
1940, as amended.
MAXIM SERIES FUND, INC.
CROSS REFERENCE SHEET
Items Required by Form N-14
- ----------------- ------------------------------------------ -------------------------------------------------------
Part A
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
Item No. Form N-14 Item Caption Prospectus Caption
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
1. Beginning of Registration Statement and Cover Page of
Registration Statement; Cross Reference Outside Front Cover
Page of Prospectus Sheet; Front Cover Page of Prospectus
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
3. Fee Table, Synopsis Information and Risk Synopsis - Operating Expenses, Investment Objectives
Factors and Strategies; Information About the Reorganization
- Tax Considerations, Pricing, Purchases,
Redemptions, Distributions, and Exchanges; Principal
Risks of Investing in the Acquiring Portfolios and
Acquired Funds; Additional Information About the
Investment Objectives, Investments, Investment
Strategies and Risks
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
4. Information About
the Transaction
Synopsis -- The
Reorganization;
Information About
the Reorganization
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
5. Information About the Registrant Synopsis - Operating Expenses, Investment Objectives
and Strategies; Principal Risks of Investing in the
Acquiring Portfolios and Acquired Funds; Information
About the Reorganization - Tax Considerations,
Pricing, Purchases, Redemptions, Distributions and
Exchanges; Additional Information About Investment
Objectives, Investments, Investment Strategies and
Risks; Information About the Acquiring Portfolios -
Valuation of the Acquiring Portfolio Shares, The
Acquiring Portfolios' Investment Adviser, The
Acquiring Portfolios' Sub-Advisers, Past Performance
and Financial Highlights of the Acquiring Portfolios
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
6. Information About the Company Being Information About the
Acquired Funds Acquired
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
7. Voting Information Voting Information
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
8. Interest of Certain Persons and Experts Not Applicable
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
Part B
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
Item No. Form N-14 Item Caption Prospectus Caption
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
10. Cover Page Cover Page of Statement of Additional Information
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
11. Table of Contents
Table of Contents
of Statement of
Additional
Information
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
12. Additional Information About the Statement of Additional
Information of Maxim Series Registrant Fund dated January __,
2004
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
13. Additional Information About the Company Not Applicable
Being Acquired
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
14. Financial
Statements
Financial
Statements as Noted
in the Statement of
Additional
Information
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
Part C
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
Item No. Form N-14 Item Caption Prospectus Caption
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
15. Indemnification Indemnification
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
16. Exhibits Exhibits
- ----------------- ------------------------------------------ -------------------------------------------------------
- ----------------- ------------------------------------------ -------------------------------------------------------
17. Undertakings Undertakings
- ----------------- ------------------------------------------ -------------------------------------------------------
ORCHARD SERIES FUND
8515 EAST ORCHARD ROAD
GREENWOOD VILLAGE, COLORADO 80111
January [xx], 2004
Dear Shareholder:
I am writing to ask for your vote on important matters concerning your
investment in certain funds within your qualified plan or variable annuity
contract. You have allocated some or all of your account/contract value to one
or more of the four funds of Orchard Series Fund ("Orchard") that are proposed
to be merged into portfolios of Maxim Series Fund, Inc. ("Maxim"). As a result,
we are providing you with information on a special shareholders meeting (the
"Meeting"), which has been called to consider and vote on an Agreement and Plan
of Reorganization (the "Reorganization") pursuant to which four funds of Orchard
("Acquired Funds") will be merged into two portfolios of Maxim ("Acquiring
Portfolios").
The Reorganization is part of a restructuring designed to eliminate
the offering of overlapping investments with similar investment objectives and
investment strategies that serve as funding vehicles for qualified retirement
plans and variable insurance contracts issued by Great-West Life & Annuity
Insurance Company and its affiliates. The Reorganization is also intended to
address the problem of the Acquired Funds' inefficiencies in tracking their
benchmark indexes because of their decrease in size. Plan fiduciaries for
qualified plans and owners of certain variable annuity contracts for which the
Orchard funds serve as investment options are entitled to provide voting
instructions with respect to their proportionate interests in the Orchard funds.
The Board of Trustees recommends that you vote in favor of the
Reorganization.
Enclosed are the following documents:
o Notice of Special Meeting of Shareholders (which provides information
about the Meeting and the voting procedures involved);
o Prospectus/Proxy Statement for the Meeting (which provides
comprehensive information on the issues to be considered at the
Meeting);
o Annual Report to Shareholders of the Acquired Funds for the
fiscal year ended October 31, 2003 (from which information is
incorporated by reference into the Prospectus/Proxy
Statement);
o Annual Report to Shareholders of Maxim Index 600 Portfolio for
the fiscal year ended December 31, 2002 (from which
information is incorporated by reference into the
Prospectus/Proxy Statement and Statement of Additional
Information);
o Semi-Annual Report to Shareholders of the Maxim Index 600
Portfolio for the six months ended June 30, 2003 (from which
information is incorporated by reference into the
Prospectus/Proxy Statement and Statement of Additional
Information);
o Voting Instruction Card for each fund for which you are entitled to
provide voting instructions; and
o a postage-paid return envelope.
We encourage you to review thoroughly each of the items for which you
are eligible to provide voting instructions. Once you have determined how you
would like to vote, please mark your preferences on your voting instruction
card(s), sign and date each card and mail each to us in the enclosed
postage-paid return envelope.
We appreciate your taking the time to respond on this important matter.
A prompt response will help to ensure that your interests are represented.
Sincerely yours,
Beverly A. Byrne
Secretary
Orchard Series Fund
ORCHARD SERIES FUND
8515 E. Orchard Road
Greenwood Village, Colorado 80111
(303) 737-3000
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
To be held on March 29, 2004
TO SHAREHOLDERS OF ORCHARD SERIES FUND:
NOTICE IS HEREBY GIVEN that a special meeting of the Orchard Series
Fund ("Orchard") will be held at 10:00 a.m., Mountain Time, on March 29, 2004,
at the offices of Orchard, 8515 E. Orchard Road, Greenwood Village, Colorado,
together with any adjournment thereof (the "Meeting"). The Meeting is being held
to consider and vote on an Agreement and Plan of Reorganization (the "Plan")
pursuant to which four funds of Orchard will be merged into two portfolios of
Maxim Series Fund, Inc. ("Maxim"), as well as any other business that may
properly come before the Meeting or an adjournment. Only shareholders of the
Orchard funds that are involved in the reorganization are entitled to vote on
this matter and approval or disapproval of the Plan will be done separately for
those four funds, as follows:
o Proposal 1: Shareholders of the Orchard DJIASM Index Fund will
vote to approve or disapprove the Plan, including the merger of
that fund into the Maxim S&P 500 Index(R) Portfolio;
o Proposal 2: Shareholders of the Orchard S&P 500 Index(R) Fund will
vote to approve or disapprove the Plan, including the merger of
that fund into the Maxim S&P 500 Index(R) Portfolio;
o Proposal 3: Shareholders of the Orchard Nasdaq-100 Index(R) Fund
will vote to approve or disapprove the Plan, including the merger
of that fund into the Maxim S&P 500 Index(R) Portfolio; and
o Proposal 4: Shareholders of the Orchard Index 600 Fund will vote
to approve or disapprove the Plan, including the merger of that
fund into the Maxim Index 600 Portfolio.
A copy of the Plan is attached as Exhibit A to the Prospectus/Proxy
Statement provided with this Notice.
The Board of Trustees of Orchard has fixed the close of business on
December 31, 2003, as the "Record Date" for the determination of shareholders
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
Shares of the Orchard funds are available only as investment options for certain
variable annuity contracts ("variable contracts") issued by Great-West Life &
Annuity Insurance Company, First Great-West Life & Annuity Insurance Company and
New England Financial (together, the "Life Companies") and certain qualified
retirement plans for which the Life Companies provide administrative services.
The Life Companies hereby solicit and agree to vote in proportion the shares of
the applicable Orchard funds at the Meeting in accordance with timely voting
instructions received from owners of variable contracts having contract values
allocated to separate accounts invested in these shares as of the Record Date.
All shares of the Orchard funds held by an insurance company, whether as
reserves for its obligations to variable annuity contract owners or otherwise,
will be voted in proportion to the voting instructions received by that
insurance company from its contract owners. The number of shares for which a
contract owner is entitled to provide voting instructions will be determined by
dividing his or her contract value allocated to the Orchard fund on the Record
Date by the share value of that fund on the Record Date.
You may revoke your voting instructions at any time before they are
exercised by the subsequent execution and submission of revised instructions, by
giving written notice of revocation to the undersigned at any time before the
proxy is exercised, or by voting in person at the Meeting. If you do not expect
to attend the Meeting in person, please fill in, sign and return promptly the
enclosed voting instruction card in the enclosed envelope, which needs no
postage if mailed in the United States.
If a Voting Instruction Card is not marked to indicate voting
instructions, but is signed, dated and returned, it will be treated as an
instruction to vote the shares in favor of each of the proposals for which
Shareholder is entitled to provide voting instructions.
If the necessary quorum to transact business or the vote required to
approve or disapprove a proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments at the Meeting, in
accordance with applicable law, to permit further solicitation of voting
instructions. The persons named as proxies will vote in favor of such an
adjournment with respect to those voting instructions which have been voted in
favor of the proposals and will vote against such an adjournment those voting
instructions which have been voted against the proposal.
Your Board of Trustees unanimously recommends that you vote in favor of
each proposal.
Please review the enclosed Prospectus/Proxy Statement for additional
information regarding the Plan.
By Order of the Board of Trustees,
Beverly A. Byrne
Secretary
Greenwood Village, Colorado
January [xx], 2004
PART A:
INFORMATION REQUIRED IN THE PROSPECTUS/PROXY STATEMENT
-7-
PROSPECTUS/PROXY STATEMENT
Dated January [xx], 2004
ACQUISITION OF THE ASSETS OF: BY AND IN EXCHANGE FOR THE SHARES OF:
Orchard DJIASM Index Fund Maxim S&P 500 Index(R) Portfolio
Orchard S&P 500 Index(R) Fund Maxim S&P 500 Index(R) Portfolio
Orchard Nasdaq-100 Index(R) Fund Maxim S&P 500 Index(R) Portfolio
Orchard Index 600 Fund Maxim Index 600 Portfolio
each a series of: each a series of:
Orchard Series Fund Maxim Series Fund, Inc.
8515 E. Orchard Road 8515 E. Orchard Road
Greenwood Village, Colorado 80111 Greenwood Village, Colorado 80111
(303) 737-3000 (303) 737-3000
Orchard Series Fund ("Orchard") and Maxim Series Fund, Inc. ("Maxim")
are both open-end management investment companies offering shares in several
funds/portfolios.
This Prospectus/Proxy Statement relates to the proposed acquisitions (the
"Reorganization") of:
o the assets of the Orchard DJIASM Index Fund ("Orchard DJIASM Index") by
and in exchange for shares of the Maxim S&P 500 Index(R) Portfolio
("Maxim S&P 500 Index(R)") of Maxim,
o the assets of the Orchard S&P 500 Index(R)Fund ("Orchard S&P 500
Index(R)") by and in exchange for shares of the Maxim S&P 500
Index(R),
o the assets of the Orchard Nasdaq-100 Index(R)Fund ("Orchard Nasdaq-
100 Index(R)") by and in exchange for shares of the Maxim S&P 500
Index(R), and
o the assets of the Orchard Index 600 Fund ("Orchard Index 600") by and
in exchange for shares of the Maxim Index 600 Portfolio ("Maxim Index
600").
The four funds of Orchard whose assets will be acquired in the
Reorganization will be referred to individually as an "Acquired Fund," and
collectively as "the Acquired Funds," and the two portfolios of Maxim that will
acquire those assets will be referred to individually as an "Acquiring
Portfolio," and collectively as "the Acquiring Portfolios." From time to time,
an Acquiring Portfolio or Acquired Fund may be referred to herein as a
"Portfolio."
At a meeting of the shareholders of the Acquired Funds to be held on
March 29, 2004 at the offices of Orchard, 8515 E. Orchard Road, Greenwood
Village, Colorado (together with any adjournments thereof, the "Meeting"),
shareholders of each Acquired Fund will be asked to consider and approve or
disapprove an Agreement and Plan of Reorganization ("Plan") that relates to the
Reorganization. If the Plan is approved by a vote of the shareholders of an
Acquired Fund, then the assets of that Acquired Fund will be acquired by, and in
exchange for, the shares of the corresponding Acquiring Portfolio and the
liabilities of that Acquired Fund will be assumed by the corresponding Acquiring
Portfolio. The Acquired Fund will then be liquidated and terminated by Orchard
and the shares of the Acquiring Portfolio distributed to shareholders of the
Acquired Fund in the redemption of the Acquired Fund shares. Immediately after
completion of the Reorganization, the number of shares of the Acquiring
Portfolios then held by former shareholders of the Acquired Funds may be
different than the number of shares of the Acquired Funds that had been held
immediately before completion of the Reorganization, but the total investment
will remain the same (i.e., the total value of the Acquiring Portfolio shares
held immediately after the completion of the Reorganization will be the same as
the total value of the Acquired Fund shares formerly held immediately before
completion of the Reorganization.)
Because shareholders of each Acquired Fund are being asked to approve
transactions that will result in their receiving shares of the corresponding
Acquiring Portfolio, this Prospectus/Proxy Statement also serves as a prospectus
for the shares of the Acquiring Portfolios issued in connection with the
Reorganization.
This Prospectus/Proxy Statement sets forth concisely the information
about Maxim that you should know before considering the Reorganization and
should be retained for future reference. A Statement of Additional Information
dated January [xx], 2004, related to this Prospectus/Proxy Statement and
containing additional information about Maxim and Orchard has been filed with
the Securities and Exchange Commission (the "SEC") and is incorporated by
reference into and considered part of this Prospectus/Proxy Statement. You may
obtain a free copy of that Statement of Additional Information and other
information by calling 1-800-537-2033 or writing to Secretary, Maxim Series
Fund, Inc. at 8515 East Orchard Road, Greenwood Village, Colorado 80111.
The most recent Prospectus, Statement of Additional Information and
Annual Report for the Acquired Funds are incorporated herein by reference and
are considered a part of this Prospectus/Proxy Statement. For a free Prospectus
or Statement of Additional Information for the Acquired Funds, please call (303)
737-3000 or write Secretary, Orchard Series Fund, at 8515 East Orchard Road,
Greenwood Village, Colorado 80111. The most recent Annual and Semi-Annual
Reports for the Maxim Index 600 Portfolio and the most recent Annual Report for
the Acquired Funds are enclosed with and considered a part of this
Prospectus/Proxy Statement.
The SEC has not approved or disapproved these securities or passed upon
the adequacy of this Prospectus/Proxy Statement. Any representation to the
contrary is a criminal offense. No person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus/Proxy Statement and in the materials expressly incorporated herein by
reference and, if given or made, such other information or representations must
not be relied upon as having been authorized by Maxim or Orchard.
The Acquiring Portfolio shares offered are not deposits or obligations
of, or guaranteed or endorsed by, any bank, and are not federally insured, or
otherwise supported, by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other U.S. government agency.
These shares involve investment risks, including the possible loss of principal.
TABLE OF CONTENTS
SYNOPSIS
The Reorganization.......................................................................................
Operating Expenses.......................................................................................
Investment Objectives and Strategies.....................................................................
INFORMATION ABOUT THE REORGANIZATION..............................................................................
The Plan ...............................................................................................
Reasons for the Proposed Reorganization..................................................................
Federal Income Tax Consequences
Capitalization...........................................................................................
PRINCIPAL RISKS OF INVESTING IN THE ACQUIRING PORTFOLIOS AND ACQUIRED FUNDS.......................................
Maxim S&P 500 Index(R)and Orchard DJIASM Index............................................................
Maxim S&P 500 Index(R)and Orchard S&P 500 Index(R)..........................................................
Maxim S&P 500 Index(R)and Orchard Nasdaq-100 Index(R).......................................................
Maxim Index 600 and Orchard Index 600....................................................................
Risk/Return Bar Charts and Tables........................................................................
Past Performance and Financial Highlights of the Acquiring Portfolios....................................
ADDITIONAL INFORMATION ABOUT THE INVESTMENT OBJECTIVES,
INVESTMENTS, INVESTMENT STRATEGIES AND RISKS............................................................
Acquiring Portfolios.......................................................................................................
.........Maxim S&P 500 Index(R)and Maxim Index 600.............................................................
.........Temporary Investment Strategies..............................................................................
.........Other Investment Practices......................................................................................
Acquired Funds.............................................................................................................
.........Orchard Index Funds.............................................................................................
.........Principal Risks of the Orchard Index Funds..................................................................
INFORMATION ABOUT THE ACQUIRING PORTFOLIOS........................................................................
General ................................................................................................
Valuation of the Acquiring Portfolio Shares..............................................................
The Acquiring Portfolios' Investment Adviser.............................................................
The Acquiring Portfolios' Sub-Advisers...................................................................
BNY Investment Advisors..................................................................................
Federal Tax Considerations of Owning the Acquiring Portfolios.....................................................
.........Qualification of Maxim as a Regulated Investment Company.............................................
.........Diversification Requirements Applicable to Insurance Company Separate Accounts..................
.........Tax Implications for Contract Owners.........................................................................
INFORMATION ABOUT THE ACQUIRED FUNDS..............................................................................
OTHER INFORMATION
Pricing, Purchases, Redemptions, Distributions and Exchanges
VOTING INFORMATION................................................................................................
The Meeting..............................................................................................
Proxy and Voting Instruction Solicitations...............................................................
Required Vote............................................................................................
Outstanding Shares and Principal Shareholders............................................................
Shareholder Rights and Securities to be Issued......................................................................
EXHIBITS TO PROSPECTUS/PROXY STATEMENT
EXHIBIT A Form of Agreement and Plan of Reorganization,
Acquisition of All of the Portfolio Series of Orchard
Series Fund by Portfolio Series of Maxim Series Fund,
Inc.
EXHIBIT B Annual Report to Shareholders of Orchard Series Fund,
dated October 31, 2003
EXHIBIT C Annual Report to Shareholders of Maxim Index 600
Portfolio, dated December 31, 2002
EXHIBIT D Semi-Annual Report to Shareholders of Maxim Index 600
Portfolio, dated June 30, 2003
SYNOPSIS
The Reorganization
The Orchard Board of Trustees (the "Orchard Board"), including a
majority of Orchard Trustees who are not "interested persons" of Orchard within
the meaning of Section 2(a)(19) of the Investment Company Act of 1940 ("1940
Act"), approved the Plan at a meeting held on December 4, 2003, which provides
for the Acquired Funds to be merged into the Acquiring Portfolios, as summarized
in the table below:
- ------------------ ---------------------------------- -------------------------------- -------------------------------
Acquired Fund Acquiring Portfolio Shareholders Entitled to Vote
- ------------------ ---------------------------------- -------------------------------- -------------------------------
- ------------------ ---------------------------------- -------------------------------- -------------------------------
Proposal 1 Orchard DJIASM Index Maxim S&P 500 Index(R) Shareholders of Orchard
DJIASM Index
- ------------------ ---------------------------------- -------------------------------- -------------------------------
- ------------------ ---------------------------------- -------------------------------- -------------------------------
Proposal 2 Orchard S&P 500 Index(R) Maxim S&P 500 Index(R) Shareholders of Orchard S&P
500 Index(R)
- ------------------ ---------------------------------- -------------------------------- -------------------------------
- ------------------ ---------------------------------- -------------------------------- -------------------------------
Proposal 3 Orchard Nasdaq-100 Index(R) Maxim S&P 500 Index(R) Shareholders of Orchard
Nasdaq-100 Index(R)
- ------------------ ---------------------------------- -------------------------------- -------------------------------
- ------------------ ---------------------------------- -------------------------------- -------------------------------
Proposal 4 Orchard Index 600 Maxim Index 600 Shareholders of Orchard Index
600
- ------------------ ---------------------------------- -------------------------------- -------------------------------
The Orchard Board has determined that the Reorganization is in the best
interests of the Acquired Funds and their shareholders and that the interests of
shareholders and Contract owners with values allocated to sub-accounts that
invest in the Acquired Funds will not be diluted as a result of the proposed
Reorganization.
Shares of the Acquired Funds are available only as investment options
for certain variable annuity contracts ("Contracts") issued by Great-West Life &
Annuity Insurance Company ("GWL&A"), First Great-West Life & Annuity Insurance
Company ("First Great-West") and New England Financial (together, the "Life
Companies") and certain qualified retirement plans for which the Life Companies
provide administrative services. Shares of the Acquiring Portfolios are sold
only to separate accounts of the Life Companies to fund benefits under certain
variable annuity contracts, variable life insurance policies and to qualified
retirement plans.
Under the Plan, the assets of an Acquired Fund will be acquired by, and
in exchange for, the shares of the corresponding Acquiring Portfolio and the
liabilities of that Acquired Fund will be assumed by the corresponding Acquiring
Portfolio. The Acquired Fund will then be terminated by Orchard and the shares
of the Acquiring Portfolio distributed to shareholders of the Acquired Fund in
the redemption of the Acquired Fund shares. Immediately after completion of the
Reorganization, the number of shares of the Acquiring Portfolios then held by
former shareholders of the Acquired Funds may be different than the number of
shares of the Acquired Funds that had been held immediately before completion of
the Reorganization, but the total investment will remain the same (i.e., the
total value of the Acquiring Portfolio shares held immediately after the
completion of the Reorganization will be the same as the total value of the
Acquired Fund shares held immediately before completion of the Reorganization.)
The Reorganization is part of a restructuring designed to eliminate the
offering of overlapping investments with similar investment objectives and
investment strategies that serve as funding vehicles for qualified plans and
variable insurance contracts issued by the Life Companies. The objective is to
ensure that a consolidated family of investments offers a streamlined, complete,
and competitive set of underlying investment portfolios to serve the interests
of Contract owners and plan participants. The Orchard Board believes that the
Reorganization is in the best interests of the Acquired Funds and their
shareholders and that the interests of shareholders and Contract owners with
values allocated to sub-accounts that invest in the Acquired Funds will not be
diluted as a result of the proposed Reorganization.
Costs of the Reorganization will not be borne by the Acquiring or
Acquired Funds, but rather will be borne solely by GW Capital Management, LLC,
d/b/a Maxim Capital Management, investment adviser to Maxim and Orchard ("MCM"
or the "Adviser"). The costs to be borne include attorneys' fees, accountants'
fees, the costs of printing, assembling and mailing the Prospectus/Proxy
Statement and other proxy solicitation materials to Contract Owners and
tabulation costs. The costs will include portfolio transaction expenses relating
to disposition of non-conforming securities.
Further, Maxim and Orchard will have received opinions from Jorden Burt
LLP, tax counsel to Maxim and Orchard, which conclude, on the basis of the
assumptions stated in the opinions, that neither the Acquired Funds, the
Acquiring Portfolios, their shareholders nor the Contract Owners with contract
values allocated to the Acquiring Portfolios or the Acquired Funds will incur
any additional tax obligations as a result of the Reorganization.
The Orchard Board called the Meeting to allow shareholders to consider
and vote on the Reorganization. The Orchard Board unanimously recommends that
the shareholders of the Acquired Funds vote FOR the Plan and the resulting
Reorganization.
Operating Expenses
Shareholders of the Acquiring Portfolios and Acquired Funds pay various
fees and expenses. The table below describes the fees and expenses paid by
shareholders of each Acquiring Portfolio and the corresponding Acquired Fund.
These expenses are based on: (1) for the Acquired Funds, the expenses for its
fiscal year ended October 31, 2003 and (2) for the Acquiring Portfolios, the
expenses for its fiscal year ended December 31, 2002. Neither the Acquired Funds
nor the Acquiring Portfolios impose sales charges (loads), redemption fees, or
other shareholder transaction fees. In addition, neither the Acquired Funds nor
the Acquiring Portfolios impose distribution fees. The operating expenses do not
reflect charges or expenses related to the variable insurance contracts or
qualified plans invested in the Portfolios.
The table below shows the fee and expense information for each Acquired
Fund and Acquiring Portfolio as well as pro forma fee and expense information on
a combined basis, giving effect to the Reorganization. As shown below in the
following table, the Total Annual Portfolio Operating Expenses of the Acquiring
Portfolios are expected to remain unchanged as a result of the acquisition of
the Acquired Funds.
Fees and Expenses
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Annual Portfolio Operating Expenses Orchard DJIASM Index Maxim S&P 500 Index(R) Pro Forma Combined
(expenses that are deducted from Portfolio
assets as a % of average net assets)
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Management Fees 0.60% 0.60% 0.60%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Other Expenses 0.00% 0.00% 0.00%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Total Annual Portfolio Operating Expenses 0.60% 0.60% 0.60%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Annual Portfolio Operating Expenses Orchard S&P 500 Index(R) Maxim S&P 500 Index(R) Pro Forma Combined
(expenses that are deducted from Portfolio
assets as a % of average net assets)
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Management Fees 0.60% 0.60% 0.60%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Other Expenses 0.00% 0.00% 0.00%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Total Annual Portfolio Operating Expenses 0.60% 0.60% 0.60%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Annual Portfolio Operating Expenses Orchard Nasdaq-100 Maxim S&P 500 Index(R) Pro Forma Combined
(expenses that are deducted from Portfolio Index(R)
assets as a % of average net assets)
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Management Fees 0.60% 0.60% 0.60%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Other Expenses 0.00% 0.00% 0.00%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Total Annual Portfolio Operating Expenses 0.60% 0.60% 0.60%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Annual Portfolio Operating Expenses Orchard Index 600 Maxim Index 600 Pro Forma Combined
(expenses that are deducted from Portfolio
assets as a % of average net assets)
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Management Fees 0.60% 0.60% 0.60%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Other Expenses 0.00% 0.00% 0.00%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Total Annual Portfolio Operating Expenses 0.60% 0.60% 0.60%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Examples
The examples are intended to help you compare the cost of investing in
each Portfolio. The examples assume an investment of $10,000 in each Portfolio
for the time periods indicated and a redemption of all shares at the end of
those periods. The examples also assume that the investment has a 5% return each
year, that all dividends and distributions are reinvested, and that the
Portfolios' operating expenses are not waived and remain the same. The examples
do not reflect charges or expenses related to the variable insurance contracts
or qualified plans invested in the Portfolios. Although actual costs may be
higher or lower, based on these assumptions the costs would be:
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Portfolio 1 Year 3 Years 5 Years 10 Years
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Orchard DJIASM Index $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Maxim S&P 500 Index(R) $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Pro Forma Combined $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Orchard S&P 500 Index(R) $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Maxim S&P 500 Index(R) $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Pro Forma Combined $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Orchard Nasdaq-100 Index(R) $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Maxim S&P 500 Index(R) $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Pro Forma Combined $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Orchard Index 600 $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Maxim Index 600 $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Pro Forma Combined $62 $194 $340 $774
- ------------------------------- ------------------- ------------------- ------------------- -----------------
The examples are for comparison purposes only and are not a representation of
the Portfolios' actual expenses or returns, either past or future.
Investment Objectives and Strategies
The investment objectives and strategies of the Acquiring Portfolios
and their corresponding Acquired Funds are set forth in the following tables.
There is no guarantee that a Portfolio will meet its objectives. Each table
compares the other objectives and strategies of an Acquiring Portfolio to the
Acquired Fund whose assets it will acquire:
- ------------------ ------------------------------------------------ -------------------------------------------------
Orchard DJIASM Index Maxim S&P 500 Index(R)
- ------------------ ------------------------------------------------ -------------------------------------------------
- ------------------ ------------------------------------------------ -------------------------------------------------
Investment Seeks investment results that track as closely Seeks investment results that track as closely
Objective as possible the total return of the common as possible the total return of the common
stocks that comprise its benchmark index, the stocks that comprise its benchmark index, the
Dow Jones Industrial AverageSM ("DJIASM").1 S&P 500(R) Composite Stock Price Index (the "S&P
500 Index(R)").2
- ------------------ ------------------------------------------------ -------------------------------------------------
- ------------------ ------------------------------------------------ -------------------------------------------------
Principal Under normal circumstances, invests at least Under normal circumstances, invests at least
Investment 80% of the value of its assets in common 80% of its assets in common stocks of its
Strategies stocks of its benchmark index, the DJIASM. applicable benchmark index, the S&P 500
Attempts to replicate the performance of the Index(R). Attempts to replicate the performance
DJIASM by purchasing the underlying common of the S&P 500 Index(R)by purchasing the
stocks comprising the DJIASM. Depending on underlying common stocks comprising the S&P 500
the level of assets in the Fund, may not hold Index(R). Depending on the level of assets in the
all of the securities of the DJIASM. Instead, Portfolio, may not hold all of the securities
may hold a representative sample of securities of the S&P 500 Index(R). Instead, may hold a
included in the DJIASM. May also invest in representative sample of securities included in
products derived from the DJIASM in order to the S&P 500 Index(R). May also invest in
achieve its goal of replicating the products derived from the S&P 500 Index(R)in
performance of the DJIASM. This Fund is order to achieve its goal of replicating the
classified as "non-diversified" under the 1940 performance of the S&P 500 Index(R). This
Act. This allows the Fund to invest more than Portfolio is classified as non-diversified
5% of the value of its assets in the stock of under the 1940 Act. This allows the Portfolio
a single company. to invest more than 5% of the value of its
assets in the stock of a single company.
- ------------------ ------------------------------------------------ -------------------------------------------------
- ------------------ ------------------------------------------------ -------------------------------------------------
Other Investment May use futures contracts on market indexes May use futures contracts on market indexes and
Strategies and options on the futures contracts as a options on the futures contracts as a means of
means of tracking the DJIASM. tracking the S&P 500 Index(R).
- ------------------ ------------------------------------------------ -------------------------------------------------
- ------------------ --------------------------------------------------------------------------------------------------
Key These two Portfolios have substantially similar
Differences investment strategies except that they track different
benchmark indexes. Although both Portfolios track indexes
that are composed of large-capitalization companies, Maxim
S&P 500 Index(R) may be more stable day-to-day by virtue of
the significantly greater number of companies comprising the
S&P 500(R) than the DJIASM Index(R).
- ------------------ --------------------------------------------------------------------------------------------------
- --------
1 The Dow Jones Industrial AverageSM is a price-weighted
index of thirty stocks chosen by Dow Jones & Company, Inc. as
being representative of the U.S. economy as a whole. A
price-weighted index is computed by adding the price of all
the component stocks together and dividing by a factor that
takes into account changes to the index composition (among
other factors) over time. The DJIASM is generally
acknowledged to be the most recognized stock market
indicator, quoted by most major domestic news services as the
measure of the performance of the stock market as a whole.
Total returns for the DJIASM assume reinvestment of
dividends, but do not include the effect of taxes, brokerage
commissions or other costs you would pay if you actually
invested in these stocks.
2 The S&P 500 Index(R) is a widely recognized, unmanaged,
market-value weighted index of 500 stock prices. The stocks
that make up the S&P 500 Index(R) are issued by large
companies (companies with an average market capitalization
of $73.6 billion) and trade on the New York Stock Exchange,
the American Stock Exchange, or the Nasdaq Stock Markt. It
is generally acknowledged that the S&P 500 Index($) broady
represents the performance of publicly traded common stocks
in the United States. The S&P 500 Index(R) is sponsored by
Standard & Poor's(R), which is responsible for determining
which stocks are represented on the index. Total returns for
the S&P 500 Index(R) assume reinvestment of dividends, but do
not include the effect of taxes, brokerage commissions or
other costs you would pay if you actually invested in those
stocks.
- ------------------ ----------------------------------------------- ---------------------------------------------------
Orchard S&P 500 Index(R) Maxim S&P 500 Index(R)
- ------------------ ----------------------------------------------- ---------------------------------------------------
- ------------------ ----------------------------------------------- ---------------------------------------------------
Investment Seeks investment results that track as Seeks investment results that track as closely as
Objective closely as possible the total return of the possible the total return of the common stocks
common stocks that comprise its benchmark that comprise its benchmark index, the S&P 500
index, the S&P 500 Index(R). Index(R).
- ------------------ ----------------------------------------------- ---------------------------------------------------
- ------------------ ----------------------------------------------- ---------------------------------------------------
Principal Under normal circumstances, invests at least Under normal circumstances, invests at least 80%
Investment 80% of the value of its assets in common of the value of its assets in common stocks of
Strategies stocks of the S&P 500 Index(R). Attempts to its applicable benchmark index, the S&P 500
replicate the performance of the S&P 500 Index(R). Attempts to replicate the performance of
Index(R)by purchasing the underlying common the S&P 500 Index(R)by purchasing the underlying
stocks comprising the S&P 500 Index(R). common stocks comprising the S&P 500 Index(R).
Depending on the level of assets in the Fund, Depending on the level of assets in the
may not hold all of the securities of the S&P Portfolio, may not hold all of the securities of
500 Index(R). Instead, may hold a the S&P 500 Index(R). Instead, may hold a
representative sample of securities included representative sample of securities included in
in the S&P 500 Index(R). May also invest in the S&P 500 Index(R). May also invest in products
products derived from the S&P 500 Index(R)in derived from the S&P 500 Index(R)in order to
order to achieve its goal of replicating the achieve its goal of replicating the performance
performance of the S&P 500 Index(R). This Fund of the S&P 500 Index(R). This Portfolio is
is classified as non-diversified under the classified as non-diversified under the 1940
1940 Act. This allows the Fund to invest Act. This allows the Portfolio to invest more
more than 5% of the value of its assets in than 5% of the value of its assets in the stock
the stock of a single company. of a single company.
- ------------------ ----------------------------------------------- ---------------------------------------------------
- ------------------ ----------------------------------------------- ---------------------------------------------------
Other Investment May use futures contracts on market indexes May use futures contracts on market indexes and
Strategies and options on the futures contracts as a options on the futures contracts as a means of
means of tracking the S&P 500 Index(R). tracking the S&P 500 Index(R).
- ------------------ ----------------------------------------------- ---------------------------------------------------
- ------------------ ---------------------------------------------------------------------------------------------------
Key These two Portfolios have identical investment
Differences objectives and principal investment strategies and track the
same benchmark index.
- ------------------ ---------------------------------------------------------------------------------------------------
- ------------------ --------------------------------------------- -----------------------------------------------------
Orchard Nasdaq-100 Index(R) Maxim S&P 500 Index(R)
- ------------------ --------------------------------------------- -----------------------------------------------------
- ------------------ --------------------------------------------- -----------------------------------------------------
Investment Seeks investment results that track as Seeks investment results that track as closely as
Objective closely as possible the total return of the possible the total return of the common stocks that
common stocks that comprise its benchmark comprise its benchmark index, the S&P 500 Index(R).
index, the Nasdaq-100 Index(R).3
- ------------------ --------------------------------------------- -----------------------------------------------------
- ------------------ --------------------------------------------- -----------------------------------------------------
Principal Under normal circumstances, invests at Under normal circumstances, invests at least 80% of
Investment least 80% of the value of its assets in the value of its assets in common stocks of its
Strategies common stocks of the Nasdaq-100 Index(R). applicable benchmark index, the S&P 500 Index(R).
Attempts to replicate the performance of Attempts to replicate the performance of the S&P
the Nasdaq-100 Index(R)by purchasing the 500 Index(R)by purchasing the underlying common
underlying common stocks comprising the stocks comprising the S&P 500 Index(R). Depending on
Nasdaq-100 Index(R). Depending on the level the level of assets in the Portfolio, may not hold
of assets in the Fund, may not hold all of all of the securities of the S&P 500 Index(R).
the securities of the Nasdaq-100 Index(R). Instead, may hold a representative sample of
Instead, may hold a representative sample securities included in the S&P 500 Index(R). May
of securities included in the Nasdaq-100 also invest in products derived from the S&P 500
Index(R). May also invest in products Index(R)in order to achieve its goal of replicating
derived from the Nasdaq-100 Index(R)in order the performance of the S&P 500 Index(R). This
to achieve its goal of replicating the Portfolio is classified as non-diversified under
performance of the Nasdaq-100 Index(R). This the 1940 Act. This allows the Portfolio to invest
Fund is classified as non-diversified under more than 5% of the value of its assets in the
the 1940 Act. This allows the Fund to stock of a single company.
invest more than 5% of the value of its
assets in the stock of a single company.
- ------------------ --------------------------------------------- -----------------------------------------------------
- ------------------ --------------------------------------------- -----------------------------------------------------
Other Investment May use futures contracts on market indexes May use futures contracts on market indexes and
Strategies and options on the futures contracts options on the futures contracts as a means of
as a means of tracking the Nasdaq-100 Index(R). tracking the S&P 500 Index(R).
- ------------------ --------------------------------------------- -----------------------------------------------------
- ------------------ ---------------------------------------------------------------------------------------------------
Key These two Portfolios have similar principal
Differences investment strategies, but track different benchmark indexes.
Although both Portfolios generally track indexes that are
composed of stocks of large-capitalization companies, Orchard
Nasdaq-Index 100(R) may be more volatile due to its
concentration of holdings in technology stocks in that in a
technology downturn or upturn, Orchard Nasdaq-100 Index(R)
would have steeper losses and higher returns, respectively,
than Maxim S&P 500 Index(R).
- ------------------ ---------------------------------------------------------------------------------------------------
- --------
3 The Nasdaq-100 Index(R) is a widely-recognized, unmanaged,
modified-market, value-weighted index representing the
largest and most actively traded stock issues listed on the
Nasdaq Stock Market. It is generally acknowledged that the
Nasdaq -100 Index(R) represents the performance of the
large-cap technology sector of the entire stock market. Total
returns for the Nasdaq-100 Index(R) assume reinvestment of
dividends, but do not include the effect of taxes, brokerage
commissions or other costs you would pay if you actually
invested in these stocks.
- ------------------ --------------------------------------------- -----------------------------------------------------
Orchard Index 600 Maxim Index 600
- ------------------ --------------------------------------------- -----------------------------------------------------
- ------------------ --------------------------------------------- -----------------------------------------------------
Investment Seeks investment results that track as Seeks investment results that track as closely as
Objective closely as possible the total return of the possible the total return of the common stocks that
common stocks that comprise its benchmark comprise its benchmark index, the S&P SmallCap 600 index,
the S&P 600 Index(R). Stock Index(R) (the "S&P 600 Index(R)").4
- ------------------ --------------------------------------------- -----------------------------------------------------
- ------------------ --------------------------------------------- -----------------------------------------------------
Principal Under normal circumstances, invests at Under normal circumstances, invests at least 80% of
Investment least 80% of the value of its assets in the value of its assets in common stocks of the S&P
Strategies common stocks of the S&P 600 Index(R). 600 Index(R). Attempts to replicate the performance
Attempts to replicate the performance of of the S&P 600 Index(R)by purchasing the underlying
the S&P 600 Index(R)by purchasing the common stocks comprising the S&P 600 Index(R).
underlying common stocks comprising the S&P Depending on the level of assets in the Portfolio,
600 Index(R). Depending on the level of may not hold all of the securities of the S&P 600
assets in the Fund, may not hold all of the Index(R). Instead, may hold a representative sample
securities of the S&P 600 Index(R). Instead, of securities included in the S&P 600 Index(R). May
may hold a representative sample of also invest in products derived from the S&P 600
securities included in the S&P 600 Index(R). Index(R)in order to achieve its goal of replicating
May also invest in products derived from the performance of the S&P 600 Index(R). This
the S&P 600 Index(R)in order to achieve its Portfolio is classified as non-diversified under
goal of replicating the performance of the the 1940 Act. This allows the Portfolio to invest
S&P 600 Index(R). This Fund is classified as more than 5% of the value of its assets in the
non-diversified under the 1940 Act. This stock of a single company.
allows the Fund to invest more than 5% of
the value of its assets in the stock of a
single company.
- ------------------ --------------------------------------------- -----------------------------------------------------
- ------------------ --------------------------------------------- -----------------------------------------------------
Other Investment May use futures contracts on market indexes May also combine stock ownership and owning
Strategies and options on the futures contracts as a futures contracts on the S&P 600 Index(R)
means of tracking the S&P 600 Index(R). and options on futures contracts, and Exchange Traded
Funds ("ETFs") that seek to track the S&P 600 Index(R).
- ------------------ --------------------------------------------- -----------------------------------------------------
- ------------------ ---------------------------------------------------------------------------------------------------
Key These two Portfolios have identical investment
Differences objectives and principal investment strategies and track the
same benchmark index.
- ------------------ ---------------------------------------------------------------------------------------------------
- --------
4 The S&P 600 Index(R) is a widely recognized, unmanaged
index of 600 stock prices. The index is market-value
weighted, meaning that each stock's influence on the index's
performance is directly proportional to that stock's
"market value" (stock price multiplied by the number of
outstanding shares). The stocks that make up the S&P 600
Index(R) are issued by small companies (companies with a
market capitalization between approximately $31 million and
$2.6 billion, with an average market capitalization of $813
million) and trade on the New York Stock Exchange, American
Stock Exchange or the Nasdaq Stock Market. The S&P 600
Index(R) is designed to monitor the performance of publicly
traded common stocks of the small company sector of the
United States equities market. The S&P 600 Index(R) is
sponsored by Standard & Poor's(R), which is responsible for
determining which stocks are represented on the index.
Total returns for the S&P 600 Index(R) assume reinvestment of
dividends, but do not include the effect of taxes, brokerage
commissions or other costs you would pay if you actually
invested in those stocks.
INFORMATION ABOUT THE REORGANIZATION
The Plan
The terms of the Plan are summarized below. The summary is qualified in
its entirety by reference to the Plan, a copy of which is attached as Exhibit A.
If shareholders of an Acquired Fund approve the Plan, then the assets
of that Acquired Fund will be acquired by, and in exchange for, the shares of
the corresponding Acquiring Portfolio and the liabilities of that Acquired Fund
will be assumed by the corresponding Acquiring Portfolio. The Acquired Fund will
then be terminated by Orchard and the shares of the Acquiring Portfolio
distributed to shareholders of the Acquired Fund in the redemption of the
Acquired Fund shares. Immediately after completion of the Reorganization, the
number of shares of the Acquiring Portfolios then held by former shareholders of
the Acquired Funds may be different than the number of shares of the Acquired
Funds that had been held immediately before completion of the Reorganization,
but the total investment will remain the same (i.e., the total value of the
Acquiring Portfolio shares held immediately after the completion of the
Reorganization will be the same as the total value of the Acquired Fund shares
formerly held immediately before completion of the Reorganization).
If the Plan is approved by the shareholders of each of the Acquired
Funds, Orchard will cease to do business and be terminated upon the termination
of each of the Acquired Funds. Approval of the Plan as to any particular
Acquired Fund does not depend upon the approval of the Plan as to any other
Acquired Fund. If the Plan is approved by shareholders as to some, but not all,
of the Acquired Funds, then at the election of Maxim, the Plan may be
consummated as to those Acquired Funds as to which this Plan has been so
approved.
It is anticipated that the Reorganization will be consummated as of the
close of business on Friday, April 23, 2004, or such later date as may be
determined by mutual agreement of the officers of Maxim and Orchard (the
"Closing Date"), subject to the satisfaction of all conditions precedent to the
closing. In the event that an Acquired Fund holds any securities or other assets
that the corresponding Acquiring Portfolio would not be permitted to hold as an
investment ("non-permitted assets"), the Acquired Fund will dispose of such
non-permitted assets prior to the Closing Date to the extent practicable and to
the extent that its shareholders would not be materially affected in an adverse
manner by such a disposition. In general, only portfolio securities that are
included in the applicable Acquiring Portfolio's Benchmark Index will be
transferred by an Acquired Fund to the corresponding Acquiring Portfolio, and
all other investments of the Acquired Fund will be liquidated prior to the
Closing Date.
MCM will pay or reimburse the Acquired Funds for brokerage commissions
incurred by them in connection with the disposition of any non-permitted assets.
MCM anticipates that a substantial portion of the assets of the Orchard
Nasdaq-100 Index(R) Fund will be comprised of non-permitted assets prior to the
Closing Date. In addition, Maxim S&P 500 Index(R) is expected to rebalance its
portfolio as a result of the Reorganization to ensure that its portfolio
holdings are properly weighted to track its Benchmark Index. This is anticipated
to result in brokerage expenses and related costs of approximately $2,500, which
would be paid by Maxim S&P 500 Index(R). Maxim Index 600 is not expected to
rebalance its portfolio as a result of the Reorganization.
Reasons for Proposed Reorganization
The Reorganization is part of a restructuring designed to eliminate the
offering of overlapping funds with similar investment objectives and investment
strategies. In addition, the Reorganization intends to address the problem of
the Acquired Funds becoming more inefficient in matching their relevant
benchmark indices because of their decreasing size. The objective is to ensure
that a consolidated family of investments offers a streamlined, complete, and
competitive set of underlying investment portfolios to serve the interests of
Contract owners and qualified plans.
Because the Acquired Funds do not appear to be in a position to benefit
from the inflow of new assets and thus increase their size, merging them into
the Acquiring Portfolios appears to be the best way to offer Contract owners and
qualified plans comparable underlying investment alternatives with sufficient
assets to be operated more efficiently than the Acquired Funds. Moreover,
because the expense ratios of the Acquiring Portfolios are identical to those of
the corresponding Acquired Funds (neither are subject to any fee waiver or
expense reimbursement), the performance of the Acquiring Portfolios will remain
competitive with that of the Acquired Funds. The Orchard Board also considered
the capabilities of the Acquiring Portfolios' adviser and respective
sub-advisers, investment advisers that will remain the same following the
Reorganization.
Although the expected lack of prospects for future growth factored into
the decision to propose the Reorganization, the Orchard and Maxim Boards each
approved the Plan only after considering a variety of factors, including the
past performance of the Acquiring Portfolios and Acquired Funds, similarity of
investment objectives and policies and the absence of any dilution or adverse
tax consequences to Contract owners with values allocated to any of the
Acquiring Portfolios or Acquired Funds.
Federal Income Tax Consequences
As a condition to the consummation of the Reorganization, the Acquired
Funds and the Acquiring Portfolios will have received an opinion of Jorden Burt
LLP, tax counsel to Maxim and Orchard, which concludes, on the basis of the
assumptions stated in the opinions, that neither the Acquired Funds, the
Acquiring Portfolios, their shareholders nor the Contract Owners with contract
values allocated to the Acquiring Portfolios or the Acquired Funds will incur
any additional tax obligations as a result of the Reorganization.
The opinion of Jorden Burt will conclude that: (i) the Reorganization
will constitute a reorganization within the meaning of Section 368(a)(1) of the
Code with respect to each Acquired Fund and its corresponding Acquiring
Portfolio; (ii) no gain or loss will be recognized by any of the Acquired Funds
or the corresponding Acquiring Portfolios upon the transfer of all of the assets
and liabilities, if any, of each Acquired Fund to its corresponding Acquiring
Portfolio solely in exchange for shares of the Acquiring Portfolio or upon the
distribution of the shares of the Acquiring Portfolio to the holders of shares
of the Acquired Fund solely in exchange for all of their shares of the Acquired
Fund; and (iii) no gain or loss will be recognized by shareholders of any of the
Acquired Funds upon the exchange of such Acquired Fund's shares solely for
shares of the corresponding Acquiring Portfolio.
Capitalization
The following tables show the net assets, shares outstanding and net
asset value per share of each Acquired Fund and each Acquiring Portfolio. This
information is generally referred to as "capitalization." The term "pro forma
combined" means the expected capitalization of the Acquiring Portfolios after
they have combined with their corresponding Acquired Fund, i.e., as if the
Reorganizations had already occurred.
The capitalization tables are based on figures as of December 15, 2003.
The ongoing investment performance and daily share purchase and redemption
activity of the Acquired Funds and Acquiring Portfolios affect capitalization.
Therefore, the capitalization on the Closing Date may vary from the
capitalization shown in the following tables.
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Orchard DJIASM Index Maxim S&P 500 Index(R) Maxim S&P 500 Index(R)
(pro forma combined)
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net assets $ 1,702,745 $ 588,972,009 $ 587,674,754
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Shares outstanding 187,583 55,765,406 55,915,771
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net asset value per share $ 9.08 $ 10.51 $ 10.51
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Orchard S&P 500 Index(R) Maxim S&P 500 Index(R) Maxim S&P 500 Index(R)
(pro forma combined)
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net assets $ 16,364,062 $ 585,972,009 $ 602,336,071
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Shares outstanding 1,365,829 55,765,406 57,310,758
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net asset value per share $ 11.98 $ 10.51 $ 10.51
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Orchard Nasdaq-Index 100(R) Maxim S&P 500 Index(R) Maxim S&P 500 Index(R)
(pro forma combined)
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net assets $ 2,352,415 $ 585,972,009 $588,324,424
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Shares outstanding 658,464 55,765,406 55,977,586
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net asset value per share $ 3.57 $ 10.51 $ 10.51
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Orchard DJIASM Index Maxim S&P 500 Index(R) Maxim S&P 500 Index(R)
Orchard S&P 500 Index(R) (pro forma combined)
Orchard Nasdaq-Index 100(R)
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net assets $ 20,419,222 $ 585,972,009 $606,391,231
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Shares outstanding 2,211,876 55,765,406 57,696,597
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net asset value per share $ 9.23 $ 10.51 $ 10.51
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Orchard Index 600 Maxim Index 600 Maxim Index 600
(pro forma combined)
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net assets $ 8,228,607 $ 124,402,506 $ 132,631,113
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Shares outstanding 630,847 14,902,524 15,883.966
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net asset value per share $13.04 $ 8.35 $ 8.35
- -------------------------------- --------------------------- ---------------------------- ----------------------------
PRINCIPAL RISKS OF INVESTING IN
THE ACQUIRING PORTFOLIOS AND ACQUIRED FUNDS
The following tables describe the principal risks associated with
investments in the Acquiring Portfolios. In addition, the risks of investing in
the corresponding Acquired Fund are identified and any additional or different
risks of investing in that Acquired Fund described. A brief summary of the key
differences in the risks of investing in the Acquiring Portfolio and Acquiring
Portfolio is presented at the end of each table.
Maxim S&P 500 Index(R) and Orchard DJIASM Index
See the above "Investment Objectives and Strategies" section for
explanation of the different Benchmark Indexes used by the Acquiring Portfolios
and Acquired Funds.
- ------------------- -------------------------------------------------- -----------------------------------------------
Maxim S&P 500 Index(R) Orchard DJIASM Index
- ------------------- -------------------------------------------------- -----------------------------------------------
- ------------------- -------------------------------------------------- -----------------------------------------------
Principal Risks Index Risk: Index Risk:
It is possible the Benchmark Index may perform Substantially the same as for Maxim S&P 500
unfavorably and/or underperform the market as a Index(R).
whole. As a result, it is possible that the
Portfolio could have poor investment results
even if it is closely tracking the return of the
Benchmark Index because the adverse performance
of a particular stock normally will not result
in eliminating the stock from the Portfolio.
The Portfolio will remain invested in common stocks even
when stock prices are generally falling. Ordinarily, the
Portfolio's securities will not be sold except to reflect
additions or deletions of the stocks that comprise the
Benchmark Index, or as may be necessary to raise cash to pay
Portfolio shareholders who sell Portfolio shares.
Investment Style Risk:
There is a possibility that returns from Investment Style Risk:
large-capitalization stocks will trail returns Substantially the same as for Maxim S&P 500
from the overall stock market. Specific types Index(R).
of stocks tend to go through cycles of doing
better - or worse - than the stock market in
general. These periods have, in the past,
lasted for as long as several years.
Tracking Error Risk:
Several factors will affect the Portfolio's Tracking Error Risk:
ability to track precisely the performance of Substantially the same as for Maxim S&P 500
its Benchmark Index. For example, unlike the Index(R).
Benchmark Index, which is merely an unmanaged
group of securities, the Portfolio has a
management fee (which includes investment
advisory, accounting, administrative services
and operating expenses, but does not include
brokerage fees), and the management fee and
brokerage fees will reduce the Portfolio's total
return. In addition, the Portfolio may own less
than all of the securities of the Benchmark
Index, which may also cause a variance between
the performance of the Portfolio and its
Benchmark Index.
Stock Market Risk:
Stock markets are volatile and can decline
significantly in response to adverse issuer, Stock Market Risk
political, regulatory, market or economic Substantially the same as for Maxim S&P 500
developments in the U.S. and in other Index(R).
countries. Market risk may affect a single
company, industry sector of the economy or the
market as a whole.
Issuer Risk:
The value of an individual security or
particular type of security can be more volatile Issuer Risk:
than the market as a whole and can perform Substantially the same as for Maxim S&P 500
differently than the value of the market as a Index(R).
whole.
Derivative and ETF Risk:
When using futures contracts on market indexes,
options on the futures contracts and ETFs Derivative and ETF Risk:
(exchange traded funds), there is a risk that Substantially the same as for Maxim S&P 500
the change in value of the securities included Index(R).
on the Benchmark Index and the price of a
futures contract will not match. There is also
a risk that the Portfolio would be unable to
sell a futures contract when it wishes to due to
possible illiquidity of those instruments.
Also, there is the risk that use of these types
of derivative techniques would cause the
Portfolio to lose more money than if it had
actually purchased the underlying securities.
This is because derivatives magnify gains and
losses. Derivatives can be highly sensitive to
changes in their underlying security, interest
rate or index, and as a result can be highly
volatile. A small investment in certain
derivatives could have a potentially large
impact on the Portfolio's performance.
Non-Diversification Risk:
When the Benchmark Index becomes less
diversified, the Portfolio similarly becomes
less diversified. This means that a greater Non-Diversification Risk:
percentage of the Portfolio's assets may be Substantially the same as for Maxim S&P 500
invested in securities of a smaller number of Index(R).
issuers. As a result, the Portfolio's
performance becomes more susceptible to any
single economic, political or regulatory event
affecting those issuers.
Concentration Risk:
When the Benchmark Index concentrates in an
industry or group of industries, the Portfolio
that tracks that index will concentrate its Concentration Risk:
investments to approximately the same extent as Substantially the same as for Maxim S&P 500
the Benchmark Index. This means that a greater Index(R).
percentage of the Portfolio's assets may be
invested in securities of issuers within the
same industry or group of industries. As a
result, the Portfolio's performance becomes
particularly sensitive to changes in the value
of securities in the industries or group of
industries in which it concentrates.
Possible Loss of Money: Possible Loss of Money:
When you sell your shares of the Portfolio, they Substantially the same as for
could be worth less than what you paid for them. Maxim S&P 500 Index(R).
Additional Risks:
Orchard DJIASM Index invests in a
relatively small group of securities
listed on the major stock exchanges.
The risk that the value of an individual
security or particular type of security
can be more volatile than the market as
a whole, or can perform differently than
than the market as a whole, is magnified
if that particular security falls within
the small group in which the Fund invests.
Additionally, the portfolio turnover rate
for this Fundin 2002 was in excess of 100%
High portfolio turnover rates generally result
in higher transaction costs (which are borne
directly by the Fund and indirectly by
shareholders).
- ------------------- -------------------------------------------------- -----------------------------------------------
- ------------------- --------------------------------------------------------------------------------------------------
Key Differences The risks of investing in Maxim S&P 500 Index(R)and Orchard DJIASM Index are substantially
similar. The key difference is that they track different benchmark indexes. Where Maxim S&P
500 Index(R)tracks an index composed of 500 large companies with an average market capitalization
of $73.6 billion and that is generally acknowledged to represent the performance of publicly
traded common stocks in the United States, the Dow Jones Industrial AverageSM is composed of
thirty companies chosen by Dow Jones to represent the U.S. economy as a whole. Although both
Portfolios track indexes that are composed of large-capitalization companies, Maxim S&P 500
Index(R)may be subject to less volatility by virtue of the significantly greater number of
companies comprising the S&P 500(R)than the DJIASM Index(R).
- ------------------- --------------------------------------------------------------------------------------------------
Maxim S&P 500 Index(R) and Orchard S&P 500 Index(R)
- ---------------------- ------------------------------------------------ ----------------------------------------------
Maxim S&P 500 Index(R) Orchard S&P 500 Index(R)
- ---------------------- ------------------------------------------------ ----------------------------------------------
- ---------------------- ------------------------------------------------ ----------------------------------------------
Principal Risks Index Risk: Index Risk:
It is possible the Benchmark Index may perform Substantially the same as for Maxim S&P 500
unfavorably and/or underperform the market as Index(R).
a whole. As a result, it is possible that the
Portfolio could have poor investment results
even if it is closely tracking the return of
the Benchmark Index because the adverse
performance of a particular stock normally
will not result in eliminating the stock from
the Portfolio. The Portfolio will remain
invested in common stocks even when stock
prices are generally falling. Ordinarily, the
Portfolio's securities will not be sold except
to reflect additions or deletions of the
stocks that comprise the Benchmark Index, or
as may be necessary to raise cash to pay
Portfolio shareholders who sell Portfolio
shares.
Investment Style Risk:
There is a possibility that returns from Investment Style Risk:
large-capitalization stocks will trail returns Substantially the same as for Maxim S&P 500
from the overall stock market. Specific types Index(R).
of stocks tend to go through cycles of doing
better - or worse - than the stock market in
general. These periods have, in the past,
lasted for as long as several years.
Tracking Error Risk:
Several factors will affect the Portfolio's
ability to track precisely the performance of Tracking Error Risk:
its Benchmark Index. For example, unlike the Substantially the same as for Maxim S&P 500
Benchmark Index, which is merely an unmanaged Index(R).
group of securities, the Portfolio has a
management fee (which includes investment
advisory, accounting, administrative services
and operating expenses, but does not include
brokerage fees), and the management fee and
brokerage fees will reduce the Portfolio's
total return. In addition, the Portfolio may
own less than all of the securities of the
Benchmark Index, which may also cause a
variance between the performance of the
Portfolio and its Benchmark Index.
Stock Market Risk:
Stock markets are volatile and can decline significantly
in response to adverse issuer, political, regulatory,
market or economic
developments in the U.S. and in other Stock Market Risk:
countries. Market risk may affect a single Substantially the same as for Maxim S&P 500
company, industry sector of Index(R).
the economy or the market as a whole.
Issuer Risk:
The value of an individual security or particular type of
security can be more volatile than the market as a whole
and can
perform differently than the value of the Issuer Risk:
market as a whole. Substantially the same as for Maxim S&P 500
Derivative and ETF Risk: Index(R).
When using futures contracts on market
indexes, options on the futures contracts and
ETFs (exchange traded funds), there is a risk
that the change in value of the securities Derivative and ETF Risk:
included on the Benchmark Index and the price Substantially the same as for Maxim S&P 500
of a futures contract will not match. There Index(R).
is also a risk that the Portfolio would be unable to sell
a futures contract when it wishes to due to possible
illiquidity of those instruments. Also, there is the risk
that use of these types of derivative techniques would
cause the Portfolio to lose more money than if it had
actually purchased the underlying securities. This is
because derivatives magnify gains and losses. Derivatives
can be highly sensitive to changes in their underlying
security, interest rate or index, and as a result can be
highly volatile. A small investment in certain
derivatives could have a potentially large impact on the
Portfolio's performance. Non-Diversification Risk: When
the Benchmark Index becomes less diversified, the
Portfolio similarly becomes less diversified. This means
that a greater percentage of the Portfolio's assets may
be invested in securities of a smaller number of
issuers. As a result, the Portfolio's Non-Diversification
Risk: performance becomes more susceptible to any
Substantially the same as for Maxim S&P 500 single
economic, political or regulatory event Index(R).
affecting those issuers.
Concentration Risk:
When the Benchmark Index concentrates in an industry or
group of industries, the Portfolio that tracks that index
will concentrate its investments to approximately the
same extent as the Benchmark Index. This means that a
greater percentage of the Portfolio's assets
may be invested in securities of issuers Concentration Risk:
within the same industry or group of Substantially the same as for Maxim S&P 500
industries. As a result, the Portfolio's
performance becomes particularly sensitive to
changes in the value of securities in the
industries or group of industries in which it
concentrates.
Possible Loss of Money: When you sell your shares of the Possible Loss of Money:
Portfolio, they could be worth less than what you paid Substantially the same as for Maxim S&P 500
for them. Index(R).
- ---------------------- ------------------------------------------------ ----------------------------------------------
- ---------------------- -----------------------------------------------------------------------------------------------
Key Differences No key differences.
- ---------------------- -----------------------------------------------------------------------------------------------
Maxim S&P 500 Index(R) and Orchard Nasdaq-100 Index(R)
- ----------------------- ----------------------------------------------- ----------------------------------------------
Maxim S&P 500 Index(R) Orchard Nasdaq-100 Index(R)
- ----------------------- ----------------------------------------------- ----------------------------------------------
- ----------------------- ----------------------------------------------- ----------------------------------------------
Principal Risks Index Risk: Index Risk:
It is possible the Benchmark Index may Substantially the same as for Maxim S&P 500
perform unfavorably and/or underperform the Index(R).
market as a whole. As a result, it is
possible that the Portfolio could have poor
investment results even if it is closely
tracking the return of the Benchmark Index
because the adverse performance of a
particular stock normally will not result in
eliminating the stock from the Portfolio.
The Portfolio will remain invested in common stocks even
when stock prices are generally falling. Ordinarily, the
Portfolio's securities will not be sold except to
reflect additions or deletions of the stocks that
comprise the Benchmark Index, or as may be necessary to
raise cash to pay Portfolio shareholders who sell
Portfolio shares.
Investment Style Risk:
There is a possibility that returns from Investment Style Risk:
large-capitalization stocks will trail Substantially the same as for Maxim S&P 500
returns from the overall stock market. Index(R).
Specific types of stocks tend to go through
cycles of doing better - or worse - than the
stock market in general. These periods have,
in the past, lasted for as long as several
years.
Tracking Error Risk:
Several factors will affect the Portfolio's Tracking Error Risk:
ability to track precisely the performance of Substantially the same as for Maxim S&P 500
its Benchmark Index. For example, unlike the Index(R).
Benchmark Index, which is merely an unmanaged
group of securities, the Portfolio has a
management fee (which includes investment
advisory, accounting, administrative services
and operating expenses, but does not include
brokerage fees), and the management fee and
brokerage fees will reduce the Portfolio's
total return. In addition, the Portfolio may
own less than all of the securities of the
Benchmark Index, which may also cause a
variance between the performance of the
Portfolio and its Benchmark Index.
Stock Market Risk:
Stock markets are volatile and can decline
significantly in response to adverse issuer,
political, regulatory, market or economic Stock Market Risk:
developments in the U.S. and in other Substantially the same as for Maxim S&P 500
countries. Market risk may affect a single Index(R).
company, industry sector of the economy or
the market as a whole.
Issuer Risk:
The value of an individual security or
particular type of security can be more
volatile than the market as a whole and can Issuer Risk:
perform differently than the value of the Substantially the same as for Maxim S&P 500
market as a whole. Index(R).
Derivative and ETF Risk:
When using futures contracts on market
indexes, options on the futures contracts and
ETFs (exchange traded funds), there is a risk Derivative and ETF Risk:
that the change in value of the securities Substantially the same as for Maxim S&P 500
included on the Benchmark Index and the price Index(R).
of a futures contract will not match. There is also a
risk that the Portfolio would be unable to sell a
futures contract when it wishes to due to possible
illiquidity of those instruments. Also, there is the
risk that use of these types of derivative techniques
would cause the Portfolio to lose more money than if it
had actually purchased the underlying securities. This
is because derivatives magnify gains and losses.
Derivatives can be highly sensitive to changes in their
underlying security, interest rate or index, and as a
result can be highly volatile. A small investment in
certain derivatives could have a potentially large
impact on the Portfolio's performance.
Non-Diversification Risk: When the Benchmark Index Non-Diversification Risk:
becomes less diversified, the Portfolio similarly Substantially the same as for Maxim S&P 500
becomes less diversified. This means that a greater Index(R).
percentage of the Portfolio's assets may be
invested in securities of a smaller number of
issuers. As a result, the Portfolio's
performance becomes more susceptible to any
single economic, political or regulatory
event affecting those issuers.
Concentration Risk:
When the Benchmark Index concentrates in an
industry or group of industries, the
Portfolio that tracks that index will
concentrate its investments to approximately
the same extent as the Benchmark Index. This
means that a greater percentage of the Concentration Risk:
Portfolio's assets may be invested in Substantially the same as for Maxim S&P 500
securities of issuers within the same Index(R).
industry or group of industries. As a
result, the Portfolio's performance becomes
particularly sensitive to changes in the
value of securities in the industries or
group of industries in which it concentrates.
Possible Loss of Money: When you sell your shares of the Possible Loss of Money:
Portfolio, they could be worth less than what you paid Substantially the same as for Maxim S&P 500
for them. Index(R).
Additional Risks:
Orchard Nasdaq-100 Index(R) invests in a
relatively small grouping of securities listed
listed on the Nasdaq Stock Market. Currently.
the Fund invests heavily in technology stocks
or in the technology "sector." The risk that the
value of an individual security, particular type of
security or business sector can be more volatile than
the market as a whole, or can perofrm differently than
the market as a whole, is magnified if that particular
security falls within the small grouping in which the
Fund invests.
- ----------------------- ----------------------------------------------- ----------------------------------------------
- ----------------------- ----------------------------------------------------------------------------------------------
Key Differences The risks of investing in Maxim S&P 500 Index(R)and Orchard Nasdaq-100 Index(R)are
substantially similar. The key difference is that they track different benchmark indexes.
Where Maxim S&P 500 Index(R)tracks an index composed of 500 large companies with an average
market capitalization of $73.6 billion and that is generally acknowledged to represent the
performance of publicly traded common stocks in the United States, Orchard Nasdaq-100 Index(R)
tracks the Nasdaq-100 Index(R), an index generally acknowledged as representing the
performance of the large-cap technology sector of the entire stock market. Although both
Portfolios generally track indexes that are composed of stocks of large-capitalization
companies, Orchard Nasdaq-100 Index(R)may be more volatile due to its concentration of
holdings in technology stocks in that in a technology downturn or upturn, Orchard Nasdaq-100
Index(R)would have steeper losses and higher returns, respectively, than Maxim S&P 500
Index(R).
- ----------------------- ----------------------------------------------------------------------------------------------
Maxim Index 600 and Orchard Index 600
- ----------------------- ----------------------------------------------- ----------------------------------------------
Maxim Index 600 Orchard Index 600
- ----------------------- ----------------------------------------------- ----------------------------------------------
- ----------------------- ----------------------------------------------- ----------------------------------------------
Principal Risks Index Risk: Index Risk:
It is possible the Benchmark Index may Substantially the same as for Maxim Index
perform unfavorably and/or underperform the 600.
market as a whole. As a result, it is
possible that the Portfolio could have poor
investment results even if it is closely
tracking the return of the Benchmark Index
because the adverse performance of a
particular stock normally will not result in
eliminating the stock from the Portfolio.
The Portfolio will remain invested in common stocks even
when stock prices are generally falling. Ordinarily, the
Portfolio's securities will not be sold except to
reflect additions or deletions of the stocks that
comprise the Benchmark Index, or as may be necessary to
raise cash to pay Portfolio shareholders who sell
Portfolio shares.
Tracking Error Risk:
Several factors will affect the Portfolio's Tracking Error Risk:
ability to track precisely the performance of Substantially the same as for Maxim Index
its Benchmark Index. For example, unlike the 600.
Benchmark Index, which is merely an unmanaged
group of securities, the Portfolio has
operating expenses, custody and other
expenses (for example, management fee and
accounting costs), and those expenses will
reduce the Portfolio's total return. In
addition, the Portfolio may own less than all
of the securities of the Benchmark Index,
which may also cause a variance between the
performance of the Portfolio and its
Benchmark Index.
Stock Market Risk:
Stock markets are volatile and can decline
significantly in response to adverse issuer, Stock Market Risk:
political, regulatory, market or economic Substantially the same as for Maxim Index
developments in the U.S. and in other 600.
countries. Market risk may affect a single
company, industry sector of the economy or
the market as a whole.
Issuer Risk:
The value of an individual security or
particular type of security can be more Issuer Risk:
volatile than the market as a whole and can Substantially the same as for Maxim Index
perform differently than the value of the 600.
market as a whole.
Derivative and ETF Risk:
When using futures contracts on market
indexes, options on the futures contracts and Derivative and ETF Risk:
ETFs (exchange traded funds), there is a Substantially the same as for Maxim Index 600.
risk that the change in value of the securities
included on the Benchmark Index and the price of a
futures contract will not match. There is also a risk
that the Portfolio would be unable to sell a futures
contract when it wishes to due to possible illiquidity
of those instruments. Also, there is the risk that use
of these types of derivative techniques would cause the
Portfolio to lose more money than if it had actually
purchased the underlying securities. This is because
derivatives magnify gains and losses. Derivatives can be
highly sensitive to changes in their underlying
security, interest rate or index, and as a result can be
highly volatile. A small investment in certain
derivatives could have a potentially large impact on the
Portfolio's performance.
Non-Diversification Risk: When the Benchmark Non-Diversification Risk:
Index becomes less diversified, the Substantially the same as for Maxim Index 600.
Portfolio similarly becomes less diversified.
This meansthat a greater percentage of the Portfolio's
assets may be invested in securities of a smaller number
of issuers. As a result, the Portfolio's performance
becomes more susceptible to any single economic,
political or regulatory event affecting those issuers.
Concentration Risk:
When the Benchmark Index concentrates in an industry or
group of industries, the Portfolio that tracks that
index will concentrate its investments to approximately
the same extent as the Benchmark Index. This Concentration Risk:
means that a greater percentage of the Substantially the same as for Maxim Index
Portfolio's assets may be invested in 600.
securities of issuers within the same
industry or group of industries. As a
result, the Portfolio's performance becomes
particularly sensitive to changes in the
value of securities in the industries or
group of industries in which it concentrates.
Possible Loss of Money: When you sell your shares of the
Portfolio, they could be worth less than what you paid
for them.
Small Company Risk:
Maxim Index 600 invests in the stocks of
small companies. These stocks often involve Possible Loss of Money:
more risk and volatility than those of larger Substantially the same as for Maxim Index
companies. Because small companies are often 600.
dependent on a small number of products and
have limited financial resources, they may be Small Company Risk:
severely affected by economic changes, Substantially the same as for Maxim Index
business cycles and adverse market 600.
conditions. In addition, there is generally
less publicly available information
concerning small companies upon which to base
an investment decision. These risks may be
more acute for companies that have
experienced significant business problems.
Developing companies generally face intense competition
and have a higher rate of failure than larger companies.
- ----------------------- ----------------------------------------------- ----------------------------------------------
- ----------------------- ----------------------------------------------------------------------------------------------
Key Differences No key differences.
- ----------------------- ----------------------------------------------------------------------------------------------
Risk/Return Bar Charts and Tables
The following Risk/Return Bar Charts and Tables illustrate the risks of
investing in the Acquiring Portfolios by showing changes in the Acquiring
Portfolios' performance from calendar year to calendar year, and comparing the
Acquiring Portfolios' average annual returns to those of an appropriate market
index. Fees and expenses incurred at the contract level are not reflected in the
bar charts and tables. If these amounts were reflected, returns would be less
than those shown. Past performance is not necessarily an indication of how an
Acquiring Portfolio will perform in the future.
- --------------------------------------------------------------------------------
MAXIM S&P 500 INDEX(R)
- --------------------------------------------------------------------------------
Commencement of operations for this Acquiring Portfolio was September
8, 2003. As a result, no annual total returns are yet available for this
Acquiring Portfolio.
- --------------------------------------------------------------------------------
MAXIM INDEX 600
- --------------------------------------------------------------------------------
(BAR CHART)*
MAXIM INDEX 600
--------------------------------
1994 - 4.69%
1995 26.26
1996 15.35
1997 20.99%
1998 - 1.58%
1999 11.85%
2000 10.25%
2001 5.82%
2002 -15.23%
During the period shown in the bar chart for Maxim Index 600, the
highest return for a quarter was 20.46% (quarter ended December 2001) and the
lowest return for a quarter was -20.47% (quarter ended September 1998).
- ---------------------------------------------- ----------- ----------- ----------------------
Average Annual Total Returns (as of the Past One Past Five
calendar year ended December 31, 2002) Year Years Since Inception(1)
- ---------------------------------------------- ----------- ----------- ----------------------
Maxim Index 600 -15.23% 1.71% 7.01%
S&P 600 Index(2) -14.62% 2.44% 8.95%
- ---------------------------------------------- ----------- ----------- ----------------------
* Fees and expenses incurred at the contract level are not reflected in the
bar chart or table. If these amounts were reflected, returns would be less
than those shown.
(1) The inception date for Maxim Index 600 is December 1, 1993.
(2) The stocks that make up the S&P 600 Index trade on the NYSE, AMEX, or NASDAQ
over-the-counter market. The S&P 600 Index is designed to monitor the
performance of publicly traded common stocks of the small company sector of
the U.S. equities market.
Past Performance and Financial Highlights of the Acquiring Portfolios
The past performance and Financial Highlights of the Maxim Index 600
are incorporated by reference herein to its Annual and Semi-Annual Reports to
shareholders of for the fiscal year ended December 31, 2002, and the six-month
period ending June 30, 2003, respectively. Past performance and Financial
Highlights for Maxim S&P 500 Index(R) are not included because this Portfolio
did not commence operations until September 8, 2003.
ADDITIONAL INFORMATION ABOUT THE INVESTMENT OBJECTIVES,
INVESTMENTS, INVESTMENT STRATEGIES AND RISKS
Acquiring Portfolios
The Acquiring Portfolios may be managed by a sub-adviser which manages
other mutual funds having similar names and investment objectives. While the
Acquiring Portfolios may be similar to, and may in fact be modeled after, other
mutual funds, you should understand that the Portfolio is not otherwise directly
related to any other mutual funds. Consequently, the investment performance of
other mutual funds and any similarly-named Portfolio may differ substantially.
Maxim S&P 500 Index(R) and Maxim Index 600.
The Acquiring Portfolios will normally invest at least 80% of their
assets in equity securities. Therefore, as an investor in the Acquiring
Portfolios, the return on your investment will be based primarily on the risks
and rewards of equity securities.
Common stocks represent partial ownership in a company and entitle
stockholders to share in the company's profits (or losses). Common stocks also
entitle the holder to share in any of the company's dividends. The value of a
company's stock may fall as a result of factors which directly relate to that
company, such as lower demand for the company's products or services or poor
management decisions. A stock's value may also fall because of economic
conditions which affect many companies, such as increases in production costs.
The value of a company's stock may also be affected by changes in financial
market conditions that are not directly related to the company or its industry,
such as changes in interest rates or currency exchange rates. In addition, a
company's stock generally pays dividends only after the company makes required
payments to holders of its bonds and other debt. For this reason, the value of
the stock will usually react more strongly than bonds and other debt to actual
or perceived changes in company's financial condition or progress.
As a general matter, other types of equity securities, including
preferred stock and convertible securities, are subject to many of the same
risks as common stocks. The Acquiring Portfolios may invest in common stocks and
other equity securities of companies comprising their benchmark index.
Index Portfolios. The Acquiring Portfolios are Index Portfolios. This
means they are not actively managed, but are designed to track the performance
of specified benchmarks. The benchmark indexes are described below:
The S&P 500(R) Composite Stock Price Index (the "S&P 500(R)") is a
widely recognized, unmanaged, market-value weighted index of 500 stock prices.
The stocks which make up the S&P 500(R) trade on the New York Stock Exchange,
the American Stock Exchange, or the NASDAQ National Market System. It is
generally acknowledged that the S&P 500(R) broadly represents the performance of
publicly traded common stocks in the United States.
The S&P Small Cap 600 Stock Index(R) (the "S&P 600(R)") is a widely
recognized, unmanaged index of 600 stock prices. The index is market-value
weighted, meaning that each stock's influence on the index's performance is
directly proportional to that stock's "market value" (stock price multiplied by
the number of outstanding shares). The stocks which make up the S&P 600 trade on
the New York Stock Exchange, American Stock Exchange, or NASDAQ quotation
system. The S&P 600(R) is designed to monitor the performance of publicly traded
common stocks of the small company sector of the United States equities market.
The S&P 500(R) and S&P 600(R) are sponsored by Standard & Poor's which
is responsible for determining which stocks are represented on the indices.
Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "S&P 600(R)," "Standard & Poor's
500", "Standard & Poor's SmallCap 600 Index," "S&P SmallCap 600 Index," "S&P
500/BARRA Growth Index," "S&P 500/BARRA Value Index," and "S&P 400 MidCap Index"
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by GWL&A. Maxim Series Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in Maxim Series Fund.
Neither of the Portfolios is endorsed, sold or promoted by any of the
sponsors of the Benchmark Indices (the "Sponsors"), and no Sponsor is an
affiliate or a sponsor of Maxim, the Acquiring Portfolios or MCM. The Sponsors
are not responsible for and do not participate in the operation or management of
any Acquiring Portfolio, nor do they guarantee the accuracy or completeness of
their respective Benchmark Indices or the data therein. Inclusion of a stock in
a Benchmark Index does not imply that it is a good investment.
Total returns for the S&P 500(R) and S&P 600(R) assume reinvestment of
dividends, but do not include the effect of taxes, brokerage commissions or
other costs you would pay if you actually invested in those stocks.
Advantages of Index Portfolios. Index portfolios typically have the following
characteristics:
o Variety of investments. Index portfolios generally invest in a wide variety of
companies and industries.
o Relative performance consistency. Because they seek to track
market benchmarks, index portfolios usually do not perform
dramatically better or worse than their benchmarks.
o Low cost. Index portfolios are inexpensive to run compared
with actively managed portfolios. They have no research costs
and keep trading activity - and thus brokerage commissions and
other transaction costs - to a minimum.
Compared with actively managed portfolios, most index portfolios have
lower turnover rates and lower capital gains distributions. However, from time
to time, some index portfolios may pay out higher-than-expected taxable
distributions. This is because index portfolios must adjust their holdings to
reflect changes in their target indexes. In some cases, such changes may force
an index portfolio to sell securities that have appreciated in value, and thus,
realize a capital gain that must be distributed to shareholders. A security may
move out of an index for a number of reasons, including a merger or acquisition,
or a substantial change in the market capitalization of the issuer. Generally,
these changes tend to occur more frequently with small and medium-size companies
than they do with large, well-established companies.
Temporary Investment Strategies.
The Acquiring Portfolios each may hold cash or cash equivalents and may
invest in money market instruments as deemed appropriate by MCM or the Acquiring
Portfolio's sub-adviser. Each Acquiring Portfolio may invest up to 100% of its
assets in money market instruments as deemed necessary by MCM, or the Acquiring
Portfolio's sub-adviser, for temporary defensive purposes to respond to adverse
market, economic or political conditions, or as a cash reserve. Should an
Acquiring Portfolio take this action, it may not achieve its investment
objective.
Money market instruments include a variety of short-term debt
securities, usually with a maturity of less than 13 months. Some common types of
money market instruments include Treasury bills and notes, which are securities
issued by the U.S. Government, commercial paper, which is a promissory note
issued by a company, bankers' acceptances, which are credit instruments
guaranteed by a bank, and negotiable certificates of deposit, which are issued
by banks in large denominations.
The U.S. Government guarantee of any such securities owned by any of
the Acquiring Portfolios does not guarantee the net asset value of their shares.
Also, with respect to securities supported only by the credit of the issuing
agency or instrumentality, there is no guarantee that the U.S. Government will
provide support to such agencies or instrumentalities and such securities may
involve risk of loss of principal and interest.
Other Investment Practices.
Derivatives. Each Acquiring Portfolio may use various techniques to
increase or decrease its exposure to changing security prices, currency exchange
rates, or other factors that affect security values. These techniques are also
referred to as "derivative" transactions. Derivatives are financial instruments
designed to achieve a certain economic result when an underlying security,
index, interest rate, commodity, or other financial instrument moves in price.
Other Risk Factors Associated with the Acquiring Portfolios. As mutual
funds, the Acquiring Portfolios are subject to market risk. The value of an
Acquiring Portfolio's shares will fluctuate in response to changes in economic
conditions, interest rates, and the market's perception of the securities held
by the Acquiring Portfolio.
No Acquiring Portfolio should be considered to be a complete investment
program by itself. You should consider your own investment objectives and
tolerance for risk, as well as your other investments when considering the
investment policies and risks of the Acquiring Portfolios.
A complete listing of the Acquiring Portfolios' investment limitations
and more detailed information about their investment practices are contained in
the Statement of Additional Information.
Acquired Funds
The following is more detailed information about the types of
securities in which each of the Acquired Funds may invest, strategies the
Adviser may use to achieve each Acquired Fund's principal investment objectives,
and a summary of the principal risks. A complete listing of each Acquired Fund's
investment limitations and more detailed information about their investment
practices are contained in Orchard's Statement of Additional Information. All
percentage limitations relating to the Acquired Funds' investment strategies are
applied at the time an Acquired Fund purchases a security.
Orchard Index Funds.
The Orchard Index Funds' Principal Investment Objectives. The Acquired
Funds (the "Orchard Index Funds") are managed to achieve returns similar to
their benchmark indexes. The Orchard Index Funds attempt to reproduce the
returns of their respective benchmark indexes by owning the securities contained
in each index in as close as possible a proportion of the portfolio as each
stock's weight in the benchmark index.
The Orchard Index Funds' Principal Investments and Investment
Strategies. In order to achieve its principal investment objective, each Orchard
Index Fund's principal investment strategy is to invest directly or indirectly
in equity securities, such as common and preferred stocks, convertible stocks,
and warrants, in as close a possible proportion as each equity security's weight
in the benchmark index. Depending on the level of assets in the fund, each
Orchard Index Fund may not hold all of the securities in its benchmark index.
Instead, each Orchard Index Fund may hold a representative sample of securities
included in its benchmark index. Additionally, in order to achieve its
investment objective, each of the Orchard Index Funds may acquire the ownership
proportional to the applicable Index Fund's benchmark index directly by
purchasing all the stocks in the benchmark index and indirectly by owning
futures contracts and options on such futures contracts on those securities and
by purchasing exchange-traded index funds ("ETIFs") that also seek to track the
performance of the same benchmark index.
Derivative transactions are used to increase or decrease exposure to
changing security prices and other factors that affect security values.
Derivatives are financial instruments designed to achieve a certain economic
result when an underlying index, interest rate, commodity, or other financial
instrument moves in price. There are four basic types of derivative products:
forward contracts, futures contracts, options, and swaps.
Forward contracts commit the parties to a transaction at a time in the
future at a price determined when the contract is initiated. Forward contracts
are the predominant means of hedging against exposure to changing prices in
commodities or currency. Futures contracts are similar to forwards but differ in
that they 1) are traded through regulated exchanges, and 2) are marked to market
daily.
Options differ from forwards and futures in that the buyer has no
obligation to perform under the contract. The buyer pays a fee, called a
premium, to the seller, who is called a writer. The writer gets to keep the
premium in any event but must deliver (in the context of the type of option) at
the buyer's demand. Caps and floors are specialized options which enable
floating-rate borrowers and lenders to reduce their exposure to interest rate
swings for a fee.
A swap is an agreement between two parties to exchange certain
financial instruments or components of financial instruments. Parties may
exchange streams of interest rate payments, principal denominated in two
different currencies, or virtually any payment stream as defined by the parties.
The purchase of ETIFs allows each Orchard Index Fund to effectively
manage cash flows and reduce brokerage fees. ETIFs may be organized as unmanaged
unit investment trusts or as managed funds. Shares of ETIFs are traded on
national securities exchanges, and may be purchased at market prices similar to
other exchange-traded stock. Normal brokerage commissions apply to such
purchases. Shares of ETIFs may also be purchased and redeemed on a daily basis,
in large blocks of shares, at net asset value per share. If an Orchard Index
Fund invests in an ETIF, it would, in addition to its own expenses, indirectly
bear its ratable share of the ETIF's expenses. Using ETIFs reduces brokerage
costs by reducing the number of trades needed to accurately track a benchmark
index. Additionally, where ETIFs track the same benchmark indexes as the Orchard
Index Funds, fund managers can use them to manage cash while still achieving
that Fund's investment objective.
Derivative transactions and ETIFs carry certain risks, which are
explained below in detail.
Temporary Defensive Policies of the Orchard Index Funds. Each of the
Orchard Index Funds may hold cash or cash equivalents and may invest in
short-term, high-quality debt (money market) instruments as deemed appropriate
by the Adviser in order to defend against any risk that may adversely affect
that Orchard Index Fund's principal investment strategy or interfere with its
ability to achieve its principal investment objective.
Principal Risks of the Orchard Index Funds.
Market Risk. Stocks are volatile and can decline in value significantly
in response to adverse issuer, political, regulatory, market or economic
developments. Market risk may affect a single company, industry sector of the
economy, or the market as a whole. Shares of the Orchard Index Funds are
dependent upon the value of the underlying securities. Since the underlying
securities are subject to market risk, at any given time, your shares of any of
the Index Funds could be worth less than what you paid for them.
Index Risk. It is possible the benchmark index may perform unfavorably
and/or underperform the market as a whole. Therefore, it is possible that any
one of the Orchard Index Funds could have poor investment results even if it is
successful in tracking the return of the benchmark index.
Additionally, several factors will affect an Orchard Index Fund's
ability to track precisely the performance of its benchmark index. For example,
unlike benchmark indexes, which are merely unmanaged groups of securities, each
Orchard Index Fund has operating expenses and those expenses will reduce that
Orchard Index Fund's total return. In addition, an Orchard Index Fund may own
less than all the securities of a benchmark index, which also may cause a
variance between the performance of the Orchard Index Fund and its benchmark
index.
Sector Risk. Companies with similar characteristics may be grouped
together in broad categories called sectors of the economy. Sector risk is the
possibility that a certain sector may underperform other sectors or the market
as a whole. Securities or companies within specific sectors of the economy can
perform differently than the overall market. This may be due to changes in such
things as the regulatory or competitive environment or to changes in investor
perceptions regarding a sector. Because the Orchard Index Funds may allocate
relatively more assets to certain industry sectors than others, the Orchard
Index Funds' performance may be more susceptible to any economic, business or
other developments which affect those sectors emphasized by the Orchard Index
Funds.
Equity Securities Risk. Equity prices fluctuate based on changes in a
company's financial condition and overall market and economic conditions. Equity
securities of smaller companies are especially sensitive to these factors. The
value of a company's stock may fall as a result of factors that directly relate
to that company, such as lower demand for the company's products or services or
poor management decisions. A stock's value may also fall because of economic
conditions that affect many companies, such as increases in production costs.
The value of a company's stock may also be affected by changes in financial
market conditions that are not directly related to the company or its industry,
such as changes in interest rates or other economic fundamentals.
Equity securities issued by small and unseasoned companies carry an
additional risk. Companies that are small or unseasoned (less than 3 years of
operating history) are more likely not to survive or accomplish their goals with
the result that the value of their stock could decline significantly. These
companies are less likely to survive since they are often dependent upon a small
number of products and may have limited financial resources.
Small or unseasoned companies often have a greater degree of change in
earnings and business prospects than larger companies resulting in more
volatility in the price of their securities. As well, the securities of small or
unseasoned companies may not have wide marketability. This fact could cause an
Orchard Index Fund to lose money if it needs to sell the securities when there
are few interested buyers. Small or unseasoned companies also normally have
fewer outstanding shares than larger companies. As a result, it may be more
difficult to buy or sell large amounts of these shares without unfavorably
impacting the price of the security. Finally, there may be less publicly
available information about small or unseasoned companies.
As an investor in any of the Orchard Index Funds, the return on your
investment will be based primarily on the risks and rewards of equity
securities.
Derivative and ETIF Risk. When using futures contracts on market
indexes and options on the futures contracts, there is a risk that the change in
value of the securities included in the index and the price of a futures
contract will not match. There is also a risk that the Orchard Index Funds could
be unable to sell the futures contract when it wishes to due to possible
illiquidity of those instruments. Also, there is the risk that the use of these
types of derivative techniques could cause the Orchard Index Funds to lose more
money than if the Orchard Index Funds had actually purchased the underlying
securities. This is because derivatives magnify gains and losses.
Derivatives involve special risks. If the Adviser judges market
conditions incorrectly or employs a strategy that does not correlate well with
an Orchard Index Fund's investments, these techniques could result in a loss.
These techniques may increase the volatility of an Orchard Index Fund and may
involve a small investment of cash relative to the magnitude of the risk
assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised. Furthermore,
derivative transactions may not always be available and/or may be infeasible to
use due to the associated costs.
ETIFs carry with them the risk that they may never be able to replicate
exactly the performance of the index it tracks because of the operation fees and
expenses incurred by the ETIFs or because of temporary unavailability of certain
index securities. ETIFs also have many of the same risks as investment in the
stocks and other securities of the indexes that the ETIFs are designed to track.
Additionally, the market price for an ETIF share on an exchange may differ from
its net asset value due to the fact that the supply and demand in the market for
such shares at any point in time may not be identical to the supply and demand
in the market for the underlying index securities. There is also the risk that
the ETIFs may fail to continue to meet the listing requirements of the
applicable exchanges. The result of a delisting is the possible termination of
the ETIF and the loss of a viable secondary market for its shares, both of which
could significantly impact the value of a derivative held by an Orchard Index
Fund.
INFORMATION ABOUT THE ACQUIRING PORTFOLIOS
General
Maxim has filed this Prospectus/Proxy Statement with the SEC.
Additional information about the Acquiring Portfolios is included in the
Statement of Additional Information related to this Prospectus/Proxy Statement
that has been filed with the SEC and which is incorporated herein by reference.
Copies of the Statement of Additional Information related to this
Prospectus/Proxy Statement may be obtained without charge by calling
1-800-537-2033 or by writing Secretary, Maxim Series Fund, Inc. at 8515 East
Orchard Road, Greenwood Village, Colorado 80111. Maxim files reports, proxy
materials and other information with the SEC. You can inspect those reports,
proxy materials and other information at the public reference facilities
maintained by the SEC at 450 Fifth Street N.W., Washington D. C. 20549 and at
the SEC's Regional Office at 1801 California Street, Suite 1500, Denver CO
80202-2656. Copies of such materials may also be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, Washington D.C. 20549, at
prescribed rates, or at no charge from the EDGAR database on the SEC's Web site
at WWW.SEC.GOV.
Valuation of the Acquiring Portfolio Shares
The transaction price for buying, selling, or exchanging Acquiring
Portfolio shares is the net asset value of that Acquiring Portfolio. Each
Portfolio's net asset value is generally calculated as of the close of trading
on the NYSE every day the NYSE is open (generally 4:00 p.m. Eastern Time). If
the NYSE closes at any other time, or if an emergency exists, the time at which
the net asset value is calculated may differ. To the extent that an Acquiring
Portfolio's assets are traded in other markets on days when the NYSE is closed,
the value of the Acquiring Portfolio's assets may be affected on days when Maxim
is not open for business. In addition, trading in some of an Acquiring
Portfolio's assets may not occur on days when Maxim is open for business. Your
share price will be the next net asset value calculated after Maxim receives
your order in good form.
Net asset value for the Acquiring Portfolios is based on the market
value of the securities in that Acquiring Portfolio. Short-term securities with
a maturity of 60 days or less are valued on the basis of amortized cost. If
market prices are not available or if a security's value has been materially
affected by events occurring after the close of the exchange or market on which
the security is principally traded (for example, a foreign exchange or market),
that security may be valued by another method that the Maxim Board believes
accurately reflects fair value. If an Acquiring Portfolio holds securities
listed primarily on exchanges (for example, a foreign exchange) that trade on
days when an Acquiring Portfolio does not price its shares, the value of your
shares may change on days that you cannot buy or sell shares.
We determine net asset value by dividing net assets of the Acquiring
Portfolio (the value of its investments, cash, and other assets minus its
liabilities) by the number of the Acquiring Portfolio's outstanding shares.
The Acquiring Portfolios' Investment Adviser
MCM serves as investment adviser for the Acquiring Portfolios (and for
other Portfolios of Maxim not involved in the Reorganization) and selects the
Acquiring Portfolios' sub-advisers. MCM provides investment advisory, accounting
and administrative services to Maxim. MCM provides investment management
services for mutual funds and other investment portfolios representing assets of
over $9.7 billion as of December 22, 2003. MCM and its affiliates have been
providing investment management services since 1969. MCM was organized as a
Colorado limited liability company and is located at 8515 East Orchard Road,
Greenwood Village, Colorado 80111.
MCM has received an exemptive order from the SEC that permits MCM, as
discussed more fully below in "the Acquiring Portfolios' Sub-Advisers" section,
subject to certain conditions, to enter into agreements relating to Maxim with
sub-advisers approved by the Maxim Board without obtaining shareholder approval.
The exemptive order also permits MCM, subject to the approval of the Maxim
Board, but without shareholder approval, to employ new sub-advisers for new or
existing Maxim Portfolios, and change the terms of particular agreements with
sub-advisers or continue the employment of existing sub-advisers after events
that would otherwise cause an automatic termination of a sub-advisory agreement.
Shareholders will be notified of any sub-adviser changes.
For the fiscal year ended December 31, 2002, each Acquiring Portfolio paid MCM a
fee equal to the following percentage of average daily net assets:
Acquiring Portfolio Fee
Maxim S&P 500 Index(R).......................... 0.60%*
Maxim Index 600............................... 0.60%
* The advisory fee for Maxim S&P 500 Index(R) is for the fiscal year ended
December 31, 2003. The advisory fee for the most recently completed fiscal year
is not available because the commencement of operations for this Portfolio was
September 8, 2003.
The Acquiring Portfolios' Sub-Advisers
Maxim operates under a manager-of-managers structure under an order
issued by the SEC. The current order permits MCM to hire or amend sub-advisory
agreements without shareholder approval. This means MCM is responsible for
monitoring each sub-adviser's performance through quantitative and qualitative
analysis and will periodically report to the Maxim Board as to whether each
sub-adviser's agreement should be renewed, terminated or modified.
Maxim will furnish to shareholders of the applicable Maxim Portfolios
all information about a new sub-adviser or sub-advisory agreement that would be
included in a proxy statement. Such information will include any change in such
disclosure caused by a change in any sub-adviser or any proposed material change
in a sub-advisory agreement. Maxim will meet this requirement by providing
shareholders of the applicable Maxim Portfolios with an information statement.
With respect to a newly retained sub-adviser, or a change in a sub-advisory
agreement, this information statement will be provided to shareholders of the
applicable Maxim Portfolios a maximum of ninety (90) days after the addition of
the new sub-adviser or the implementation of any material change in a
sub-advisory agreement. The information statement will also meet the
requirements of Regulation 14C and Schedules 14A and 14C under the Securities
Exchange Act of 1934.
MCM will not enter into a sub-advisory agreement with any sub-adviser
that is an affiliated person, as defined in Section 2(a)(3) of the 1940 Act, of
Maxim or MCM other than by reason of serving as a sub-adviser to one or more
Maxim Portfolios without such agreement, including the compensation to be paid
thereunder, being approved by the shareholders of the applicable Maxim
Portfolio. Currently, there are no sub-advisers who are affiliated persons with
MCM.
For those Maxim Portfolios for which MCM has entered into an agreement
with a sub-adviser, including Maxim S&P 500 Index(R) and Maxim Index 600, the
sub-adviser is responsible for the daily management of the Portfolio and for
making decisions to buy, sell or hold any particular security.
Each sub-adviser bears all expenses in connection with the performance
of its services, such as compensating and furnishing office space for its
officers and employees connected with investment and economic research, trading
and investment management of a Portfolio. MCM, in turn, pays sub-advisory fees
to each sub-adviser for its services.
Below are the sub-advisers with which MCM currently has agreements to
provide sub-advisory services to the Acquired Portfolios.
BNY Investment Advisors
BNY Investment Advisors ("BNY") is the sub-adviser for Maxim S&P 500
Index(R) and for Maxim Index 600. BNY is a separately identifiable division of
the Bank of New York, a New York State chartered bank, and is registered as an
investment adviser under the Investment Advisers Act of 1940 (the "Advisers
Act"). BNY's principal business address is One Wall Street, New York, New York
10286. BNY replaced Barclays Global Fund Advisors as sub-adviser to Maxim Index
600 effective April 1, 2003.
Federal Tax Considerations of Owning the Acquiring Portfolios
Qualification of Maxim as a Regulated Investment Company.
Maxim believes that each Acquiring Portfolio is a regulated investment
company under Subchapter M of the Code. As a result of qualifying as a regulated
investment company, each Acquiring Portfolio will not be subject to U.S. federal
income tax on its "net investment income" and "net capital gain" (as those terms
are defined in the Code) that it distributes to its shareholders in each taxable
year provided that it distributes to all its shareholders at least 90% of its
net investment income for such taxable year. Each Acquiring Portfolio is subject
to a non-deductible 4 percent excise tax calculated as a percentage of certain
undistributed amounts of ordinary income and capital gain net income. To the
extent possible, each Acquiring Portfolio intends to make sufficient
distributions to avoid the application of both corporate income and excise
taxes.
If an Acquiring Portfolio failed to qualify as a regulated investment
company, the Acquiring Portfolio would incur regular corporate federal income
tax on its taxable income for that year and be subject to certain distribution
requirements upon requalification. In addition, a separate account investing in
such Acquiring Portfolio would be treated as owning the shares of such Acquiring
Portfolio (rather than a proportionate share of the assets of such Acquiring
Portfolio) for purposes of the diversification requirements under Subchapter L
of the Code. As a result, owners of contracts based on such Acquiring Portfolio
might be taxed currently on the investment earnings under their contracts.
Diversification Requirements Applicable to Insurance Company Separate
Accounts.
Because Maxim complies with the ownership restrictions of the Internal
Revenue Service diversification regulations (no direct ownership by the public),
each insurance company separate account will be treated as owning its
proportionate share of the assets of any Acquiring Portfolio in which it
invests, provided the Acquiring Portfolio qualified as a regulated investment
company. Each Acquiring Portfolio intends to meet the additional diversification
requirements that are applicable to insurance company separate accounts under
Subchapter L of the Code.
If an Acquiring Portfolio failed to comply with the diversification
requirements of the regulations under Subchapter L of the Code, owners of
contracts based on that Acquiring Portfolio might also be taxed on the
investment earnings under their contracts. Maxim and its Adviser and sub-adviser
intend that the Acquiring Portfolios will comply with the rules regarding
registered investment companies and asset diversification under Subchapter L of
the Code as they currently exist or as they may be modified from time to time.
Tax Implications for Contract Owners.
For information regarding the tax implications for the purchaser of a
variable contract who allocates investments to an Acquiring Portfolio of Maxim,
please refer to the prospectus for the contract.
The foregoing is a general summary of the applicable provisions of the
Code and Treasury Regulations, which are subject to change, possibly with
retroactive effect. Contract holders should consult with their legal or tax
advisers for further information.
INFORMATION ABOUT THE ACQUIRED FUNDS
The current Prospectus, Statement of Additional Information, and Annual
Report for the Acquired Funds are incorporated herein by reference and the
current Annual Report for the Acquired Funds are enclosed with this
Prospectus/Proxy Statement. A copy of the current Prospectus and Statement of
Additional Information for the Acquired Funds may be obtained without charge by
writing to Orchard at its address noted above or by calling (303) 737-3000.
Additional information about the Acquired Funds is included in the
Statement of Additional Information related to this Prospectus/Proxy Statement
that has been filed with the SEC and which is incorporated herein by reference.
Copies of the Statement of Additional Information related to this
Prospectus/Proxy Statement may be obtained without charge by calling
1-800-537-2033. The Acquired Funds are subject to the requirements of the 1940
Act and, in accordance with such requirements, Orchard files reports, proxy
materials and other information with the SEC. These materials can be inspected
and copied at the Public Reference Facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's Regional Office
at 1801 California Street, Suite 1500, Denver CO 80202-2656. Copies of such
materials can also be obtained at prescribed rates from the Public Reference
Branch, Office of Consumer Affairs and Information Services, Securities and
Exchange Commission, Washington, D.C. 20549 and are also available on the
Commission's web site at HTTP://WWW.SEC.GOV.
OTHER INFORMATION
Pricing, Purchases, Redemptions, Distributions and Exchanges
Pricing. For the Acquiring Portfolios and Acquired Funds, the
transaction price for buying, selling, or exchanging a Portfolio's shares is the
net asset value (market value) of that Portfolio. Each Portfolio's net asset
value is generally calculated as of the close of trading on the New York Stock
Exchange ("NYSE") every day the NYSE is open (generally 4:00 p.m. Eastern Time).
If the NYSE closes at any other time, or if an emergency exists, the time at
which the net asset value is calculated may differ. To the extent that a
Portfolio's assets are traded in other markets on days when the NYSE is closed,
the value of the Portfolio's assets may be affected on days when Maxim is not
open for business. In addition, trading in some of a Portfolio's assets may not
occur on days when Maxim is open for business. Your share price will be the next
net asset value calculated after we receive your order in good form.
Short-term securities with a maturity of 60 days or less are valued on
the basis of amortized cost. If market prices are not available or if a
security's value has been materially affected by events occurring after the
close of the exchange or market on which the security is principally traded (for
example, a foreign exchange or market), that security may be valued by another
method that the Maxim Board and/or Orchard Board believe accurately reflects
fair value. If a Portfolio holds securities listed primarily on exchanges (for
example, a foreign exchange) that trade on days when a Portfolio does not price
its shares, the value of your shares may change on days that you cannot buy or
sell shares.
Maxim and Orchard determine net asset value by dividing net assets of a
Portfolio (the value of its investments, cash, and other assets minus its
liabilities) by the number of that Portfolio's outstanding shares.
Purchases and Redemptions. Shares of both the Acquiring Portfolios and
Acquired Funds are offered and sold only to qualified retirement plans and
insurance company separate accounts to act as underlying funds to Contracts, and
in the case of the Acquiring Portfolios, also to variable life insurance
policies. Thus, you must participate in a qualified retirement plan or own a
Contract that makes the Portfolios available for investment.
Shares are sold at net asset value and are redeemed at net asset value.
Variable contract owners or qualified plan participants will not deal directly
with Maxim or Orchard regarding the purchase or redemption of a Portfolio's
shares. Insurance company separate accounts place orders to purchase and redeem
shares of the Portfolio based on allocation instructions received from variable
contract owners. Similarly, qualified plan sponsors and administrators purchase
and redeem Portfolio shares based on orders received from participants.
Qualified plan participants cannot contact Maxim or Orchard directly to purchase
or redeem shares of the Portfolio but may invest in or redeem shares of the
Portfolio only through their qualified plan. Participants should contact their
qualified plan sponsor or administrator for information concerning the
appropriate procedure for investing in or redeeming shares of the Acquired Funds
and Acquiring Portfolios. Individuals may not purchase or redeem these shares
directly from those Portfolios.
Distributions. Both the Acquiring Portfolios and Acquired Funds earn
dividends, interest and other income from their investments and distribute this
income (less expenses) to shareholders as dividends. Both the Acquiring
Portfolios and Acquired Funds also realize capital gains from their investments
and distribute these gains (less any losses) to shareholders as capital gains
distributions.
Maxim S&P 500 Index(R), Orchard S&P 500 Index(R) and Orchard DJIASM
Index ordinarily distribute dividends semi-annually and generally distribute
capital gains, if any, at least once annually. Maxim Index 600, Orchard Index
600 and Orchard Nasdaq-100 Index(R) ordinarily distribute dividends
semi-annually and generally distribute capital gains, if any, at least annually.
These distributions can be received either in cash or reinvested in additional
shares of the Acquired Fund at the net asset value in effect on the reinvestment
date. Unless a holder of Orchard shares elects by writing to Orchard to receive
distributions in cash, such distributions will be automatically reinvested. The
manner in which distributions are received may be changed at any time by writing
to Orchard.
Exchanges. An exchange involves selling all or a portion of the shares
of one Portfolio and purchasing shares of another Portfolio. For the Acquired
Funds and Acquiring Portfolios for shares held outside of Contracts, there are
no sales charges or distribution fees for an exchange. The exchange will occur
at the net asset value next calculated for the two Portfolios after the exchange
request is received in proper form.
Contract owners may exchange units of sub-accounts that invest in one
Portfolio for units of sub-accounts that invest in other Portfolios offered
under the Contracts through a transfer between investment options available
under the Contracts, subject to the terms and any specific limitations on the
exchange (or transfer) privilege described in the Contract prospectus.
VOTING INFORMATION
The Meeting
The Meeting will be held at 10:00 a.m., Mountain Time, on March 29,
2004, at the offices of Orchard, 8515 E. Orchard Road, Greenwood Village, CO,
together with any adjournment thereof. The Meeting is being held to consider and
vote on the Plan, pursuant to which four funds of Orchard will be merged into
two portfolios of Maxim, as well as any other business that may properly come
before the Meeting. Only shareholders of the Acquired Funds are entitled to vote
on this matter, and approval or disapproval of each acquisition contemplated by
the Plan will be done separately for those four Acquired Funds, as follows:
o Proposal 1: Shareholders of Orchard DJIASM Index will vote to approve
or disapprove its merger into Maxim S&P 500 Index(R);
o Proposal 2: Shareholders of Orchard S&P 500 Index(R)will vote to approve
or disapprove its merger into Maxim S&P 500 Index(R);
o Proposal 3: Shareholders of Orchard Nasdaq-100 Index(R)will vote to
approve or disapprove its merger into Maxim S&P 500 Index(R); and
o Proposal 4: Shareholders of Orchard Index 600 will vote to approve or
disapprove its merger into Maxim Index 600.
A copy of the Plan is attached hereto as Exhibit A of this Prospectus/Proxy
Statement.
The Orchard Board fixed the close of business on December 31, 2003, as
the Record Date for the determination of shareholders entitled to notice of, and
to vote at, the Meeting or any adjournment thereof. All shares of the Acquired
Funds held by an insurance company, whether as reserves for its obligations to
variable annuity contract owners or otherwise, will be voted in proportion to
the voting instructions received by that insurance company from its contract
owners. The number of shares for which a contract owner is entitled to provide
voting instructions will be determined by dividing his or her contract value
allocated to the Acquired Fund on the Record Date by the share value of that
Acquired Fund on the Record Date.
You may revoke your voting instructions at any time before they are
exercised by the subsequent execution and submission of a revised proxy, by
giving written notice of revocation to Secretary, Orchard Series Fund, 8515 E.
Orchard Road, Greenwood Village, Colorado 80111, at any time before the proxy is
exercised, or by voting in person at the Meeting. If you do not expect to attend
the Meeting in person, please date, fill in, sign and return promptly the
enclosed voting instruction card in the enclosed envelope, which needs no
postage if mailed in the United States.
If a Voting Instruction Card is not marked to indicate voting instructions
but is signed, dated and returned, it will be treated as an instruction to
vote the shares in favor of each of the proposals for which the Shareholder
is entitled to provide voting instructions.
If the necessary quorum to transact business or the vote required to
approve or disapprove a proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments at the Meeting, in
accordance with applicable law, to permit further solicitation of voting
instructions. The persons named as proxies will vote in favor of such an
adjournment with respect to those voting instructions which have been voted in
favor of the proposals and will vote against such an adjournment those voting
instructions which have been voted against the proposal.
Proxy and Voting Instruction Solicitations
The Orchard Board is soliciting proxies from shareholders of the
Acquired Funds. GWL&A and its affiliates are the shareholders of record and are
soliciting voting instructions from their Contract owners as to how to vote at
the Meeting. Proxy and voting instruction solicitations will be done by mail. If
additional solicitation should be necessary, the Life Companies may retain an
outside firm for that purpose or may use certain of their employees for that
purpose.
Required Vote
Approval of each Acquisition requires the affirmative vote of "a
majority of the outstanding voting securities" of each Acquired Fund, as defined
under the 1940 Act. For that purpose, a vote of the holders of a "majority of
the outstanding voting securities" of the Acquired Fund means the lesser of (1)
the vote of 67% or more of the shares of the Acquired Fund represented at the
Meeting at which the holders of more than 50% or more of the outstanding shares
of the Acquired Fund are present or represented by proxy, or (2) the vote of the
holders of more than 50% of the outstanding shares of the Acquired Fund.
Outstanding Shares and Principal Shareholders
The Life Companies will vote on the Reorganization as instructed by
their Contract owners. As of December 31, 2003, the Trustees and officers of
Orchard, as a group, owned less than 1% of the outstanding shares of any of the
Acquired Funds.
The name, address and percentage of ownership of shareholders that
owned of record 5% or more of each Acquired Fund on Decemer 31, 2003, their
percentage ownership of each Acquired Fund and the total number of shares of
each Acquired Fund outstanding on December 31, 2003 are as follows:
- --------------------------- ------------------------- ------------------------------------------- --------------------
Acquired Fund Total Number of Shares Name & Address of Acquired Fund Percentage of
of Acquired Fund Shareholders with at least 5% Ownership Acquired Fund
Outstanding at December at December 31, 2003 Shares Held as of
31, 2003 December 31, 2003
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
Orchard DJIASM Index * *
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
Orchard S&P 500 Index(R) * * *
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
Orchard Nasdaq-100 Index(R) * * *
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
Orchard Index 600 * * *
- --------------------------- ------------------------- ------------------------------------------- --------------------
The name, address and percentage of ownership of shareholders that
owned of record 5% or more of each Acquiring Portfolio on Decemer 31, 2003,
their percentage ownership of each Acquiring Portfolio and the total number of
shares of each Acquiring Portfolio outstanding on December 31, 2003 are as
follows:
- --------------------------- ------------------------- ------------------------------------------- --------------------
Acquiring Portfolio Total Number of Shares Name & Address of Acquiring Portfolio Percentage of
of Acquiring Portfolio Shareholders with at least 5% Ownership Acquiring
Outstanding at December at December 31, 2003 Portfolio Shares
31, 2003 Held as of
December 31, 2003
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
Maxim S&P 500 Index(R) * * *
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
Maxim Index 600 *
- --------------------------- ------------------------- ------------------------------------------- --------------------
Shareholder Rights and Securities to be Issued
Because Maxim is organized as a Maryland corporation and Orchard is
organized as a Delaware business trust, some differences between the rights of
shareholders of Maxim and Orchard do exist. The material differences are as
follows:
o Quorum. For Maxim shareholder meetings, or shareholder meetings for an
individual Maxim portfolio, the holders of a majority* of the shares
of outstanding stock of Maxim or the particular Maximportfolio
entitled to vote at the meeting constitutes a quorum. If no quorum is
present, the majority of shares present in person or by proxy at the
Maxim shareholder meeting may adjourn the meeting. For Orchard
shareholder meetings, or shareholder meetings for a particular
Orchard fund, one-third of shares entitled to vote, or one-third of
the aggregate number ofshares of that particular Orchard fund,
constitutes a quorum. Any lesser number is sufficient for adjournments.
o Electing Board Members. A majority of Maxim shares entitled to
vote that are cast at a shareholder meeting is required to
elect a Maxim Board director. A plurality of the Orchard
shares entitled to vote at a meeting of shareholders is
required to elect an Orchard Board trustee.
o Removing Board Members. A majority of Maxim shares entitled to
vote that are cast at a shareholder meeting is required to
remove a Board member. An Orchard Board trustee may be removed
at a shareholder meeting by a vote of Orchard shareholders
owning at least two-thirds of the outstanding shares.
The shares of the Acquiring Portfolios to be issued in the
Reorganization will be shares of Maxim S&P 500 Index(R) and Maxim Index 600.
* For both Maxim and Orchard, "majority" has the same meaning as the
term "vote of a majority of the outstanding voting securities" under the 1940
Act, so that if any action is required to be taken by the vote of a majority of
the outstanding shares of all the stock or of any class/individual series of
stock, then such action shall be taken if approved by the lesser of (i) 67% or
more of the shares present at a meeting in person or represented by proxy, at
which more than 50% of the outstanding shares are represented or (ii) more than
50% of the outstanding shares.
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
Acquisition of All of the Portfolio Series of
ORCHARD SERIES FUND
By
Portfolio Series of
MAXIM SERIES FUND, INC.
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Plan") is made this
_____ day of December, 2003, by and between:
(i) Maxim Series Fund, Inc., a corporation organized under the laws of
the State of Maryland ("Maxim"), with its principal place of business at 8515 E.
Orchard Road, Greenwood Village, Colorado 80111, on behalf of its Maxim S&P 500
Index(R) Portfolio, and Maxim Index 600 Portfolio (each an "Acquiring Portfolio"
and, together, the "Acquiring Portfolios"); and
(ii) Orchard Series Fund, a statutory trust organized under the laws of
the State of Delaware ("Orchard" or the "Trust"), with its principal place of
business at 8515 E. Orchard Road, Greenwood Village, Colorado 80111, on behalf
of its Orchard S&P 500 Index(R) Fund, Orchard DJIASM Index Fund, Orchard Index
600 Fund, and Orchard Nasdaq-100 Index(R) Fund (each an "Acquired Fund" and,
together, the "Acquired Funds").
PLAN OF REORGANIZATION
The reorganization described in this Plan will take place at a closing
(the "Closing") on a date determined under Section 4 of the Plan (the "Closing
Date") and will consist of:
(i) the acquisition by:
(A) Maxim S&P 500 Index(R) Portfolio of substantially all of
the property, assets and goodwill of Orchard S&P 500 Index(R) Fund;
(B) Maxim S&P 500 Index(R) Portfolio of substantially all of
the property, assets and goodwill of Orchard DJIASM Index Fund;
(C) Maxim S&P 500 Index(R) Portfolio of substantially all of
the property, assets and goodwill of Orchard Nasdaq-100 Index(R) Fund;
and
(D) Maxim Index 600 Portfolio of substantially all of the
property, assets and goodwill of Orchard Index 600 Fund; and, in each
case in exchange for shares of capital stock, par value $0.10 per
share, of the Acquiring Portfolio;
(ii) the distribution to the shareholders of each Acquired Fund of such
shares of the Acquiring Portfolioin exchange for and in redemption of such
shareholders' shares in the Acquired Fund; and
(iii) the termination of each Acquired Fund (and thereafter the Trust)
as soon as practicable after the Closing, all upon and subject to the terms and
conditions of this Plan hereinafter set forth (the "Reorganization").
1. Declaration and Payment of Dividends by Acquired Funds.
Immediately prior to the close of business on the Closing Date, each
Acquired Fund shall calculate, declare and pay ordinary and capital gain
dividends on its shares in amounts sufficient to distribute all of its
investment company taxable income and all capital gains. Such dividends shall
automatically be reinvested in additional shares of such Acquired Fund.
2. Transfer of Assets, Assumption of Liabilities, and Termination of Acquired
Funds.
(a) Subject to the terms and conditions of this Plan, each Acquired Fund shall
convey, transfer and deliver to the corresponding Acquiring Portfolio at the
Closing all of such Acquired Fund's then existing assets (including, without
limitation, all portfolio securities and instruments, dividends and interest
receivable, cash, goodwill, contractual rights of the Acquired Fund or Orchard
in respect of the Acquired Fund, all other intangible property owned by the
Acquired Fund, originals or copies of all books and records of the Acquired
Fund, and all other assets of the Acquired Fund on the Closing Date), free and
clear of all liens, encumbrances, and claims whatsoever (other than
shareholders' rights of redemption, and encumbrances and restrictions on
transfer arising under the Securities Act of 1933, as amended), except for cash,
bank deposits, or cash equivalent securities in an estimated amount necessary
to:
(i) discharge its unpaid liabilities on its books at the Closing Date; and
(ii) pay such contingent liabilities as the Treasurer of Orchard shall
reasonably deem to exist against the Acquired Fund, if any, at the Closing Date,
for which contingent and other appropriate liability reserves shall be
established on the Acquired Fund's books in accordance with generally accepted
accounting principles;
such existing assets, net of the reserves described in (i) and (ii), hereinafter
referred to as the Acquired Fund's "Net Assets." Notwithstanding the foregoing,
the Acquiring Portfolios shall also assume any other liabilities incurred by or
on behalf of the Acquired Funds.
(b) Subject to the terms and conditions of this Plan, each Acquiring Portfolio
shall at the Closing deliver to the corresponding Acquired Fund the number of
its shares (including any fractional share rounded to the nearest one-thousandth
of a share) determined by dividing the net asset value per share of the shares
of such Acquired Fund by the net asset value per share of the Acquiring
Portfolio's shares, and multiplying the result thereof by the number of
outstanding shares of the Acquired Fund, as of the close of trading on the New
York Stock Exchange on the Closing Date. All such values shall be determined in
the manner and as of the time set forth in Section 3 hereof.
(c) Immediately following the Closing, or as soon thereafter as is conveniently
practicable, each Acquired Fund shall distribute to each of its shareholders of
record as of the close of business on the Closing Date that number of shares of
the corresponding Acquiring Portfolio (including any fractional share rounded to
the nearest one-thousandth of a share) as shall have an aggregate value equal to
the aggregate value of the shares of the Acquired Fund which were owned by such
shareholder immediately prior to the Closing, in exchange for and in
cancellation of such shareholder's shares of the Acquired Fund, such values to
be determined in the manner and as of the time set forth in Section 3 hereof.
Such distribution shall be accomplished by the establishment of accounts on the
share records of the Acquiring Portfolio in the amounts due such shareholders
based on their respective holdings as of the close of business on the Closing
Date, and all issued and outstanding shares of the Acquired Fund simultaneously
shall be cancelled on the books of the Acquired Fund.
(d) Following the completion of the distributions described in the preceding
sub-paragraph, each Acquired Fund shall be terminated. The business and affairs
of the Trust shall be wound up and the Trust shall thereafter be terminated,
subject to and upon the termination of each of the Acquired Funds.
3. Valuation.
(a) The value of each Acquired Fund's Net Assets to be acquired by the
corresponding Acquiring Portfolio hereunder shall be computed as of the close of
trading on the New York Stock Exchange on the Closing Date using the valuation
procedures set forth in such Acquired Fund's currently effective prospectus and
statement of additional information.
(b) The net asset value of a share of beneficial interest in each Acquired Fund
shall be determined to the nearest full cent as of the close of trading on the
New York Stock Exchange on the Closing Date using the valuation procedures set
forth in such Acquired Fund's currently effective prospectus.
(c) The net asset value of a share of each Acquiring Portfolio's shares shall be
determined to the nearest full cent as of the close of trading on the New York
Stock Exchange on the Closing Date using the valuation procedures set forth in
such Acquiring Portfolio's currently effective prospectus.
4. Closing and Closing Date.
The Closing Date shall be April 23, 2004, or such later date as may be
determined by mutual agreement of the officers of Maxim and Orchard. The Closing
shall take place at the principal office of Maxim, or at such other place as the
officers of Maxim shall designate, at the close of trading on the New York Stock
Exchange on the Closing Date.
5. Representations and Warranties by Maxim on behalf of the Acquiring
Portfolios.
Maxim makes the following representations and warranties with respect
to each Acquiring Portfolio: (a) The Acquiring Portfolio is a series of Maxim, a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland, with the power to own all of its properties and assets
and to carry on the Acquiring Portfolio's business as it is now being conducted.
Maxim is duly registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end, management investment company and all of the
Acquiring Portfolio's shares sold were sold pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended (the
"1933 Act"), except for those shares sold pursuant to an exemption under the
1933 Act for private offerings, for the purpose of raising the required initial
capital.
(b) The authorized shares of the Acquiring Portfolio consist of 200,000,000
shares of capital stock, par value $0.10 per share, in the case of the Maxim S&P
500 Index(R) Portfolio, or 100,000,000 shares of capital stock, par value $0.10
per share, in the case of the Maxim Index 600 Portfolio. All of the outstanding
shares of the Acquiring Portfolio have been duly authorized and are validly
issued, fully paid and non-assessable. The shares of the Acquiring Portfolio to
be issued in connection with the Reorganization will be duly authorized and upon
consummation of the Reorganization validly issued, fully paid and
non-assessable.
(c) With respect to the Maxim Index 600 Portfolio, and not the Maxim S&P 500
Index(R) Portfolio, which began operations on September 8, 2003, the financial
statements appearing in Maxim's Annual Report to Shareholders for the fiscal
year ended December 31, 2002, audited by Deloitte & Touche LLP, and the
Semiannual Report to Shareholders for the six month period ended June 30, 2003,
fairly present the financial position of the Acquiring Portfolio as of such
dates, and the results of its operations for the periods indicated, in
conformity with generally accepted accounting principles applied on a consistent
basis, and since December 31, 2002, there has not been any material adverse
change in the Acquiring Portfolio's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Portfolio of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise disclosed
to and accepted in writing by Orchard. For purposes of this subsection (c), a
decline in net asset value per share of the Acquiring Portfolio due to declines
in market values of securities in the Acquiring Portfolio's portfolio, the
discharge of the Acquiring Portfolio's liabilities, or the redemption of
Acquiring Portfolio's shares by the Acquiring Portfolio's shareholders shall not
constitute a material adverse change.
(d) The books and records of the Acquiring Portfolio accurately summarize the
accounting data represented and contain no material omissions with respect to
the business and operations of the Acquiring Portfolio.
(e) Maxim has the necessary power and authority to conduct the Acquiring
Portfolio's business as such business is now being conducted.
(f) The Acquiring Portfolio's portfolio is and has been invested in material
compliance with the investment objectives, policies and limitations disclosed in
its prospectus, and the Acquiring Portfolio has conducted its business in
material compliance with the policies and practices disclosed in its prospectus
and the requirements of the 1940 Act.
(g) Maxim, on behalf of the Acquiring Portfolio, is not a party to or obligated
under any provision of its Articles of Incorporation or Bylaws, or any contract
or any other commitment or obligation, and is not subject to any order or decree
that would be violated by its execution of or performance under this Plan.
(h) In the case of the Maxim S&P 500 Index(R) Portfolio, Maxim has elected to
treat the Acquiring Portfolio as a regulated investment company ("RIC") for
federal income tax purposes under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and the Acquiring Portfolio has qualified as a
RIC for each taxable year since its inception and will qualify as a RIC as of
the Closing Date; or in the case of the Maxim Index 600 Portfolio, Maxim will
elect to treat the Acquiring Portfolio as a RIC for federal income tax purposes
under Subchapter M of the Code, and the Acquiring Portfolio has qualified as a
RIC since its inception and will qualify as a RIC as of the Closing Date.
(i) As of the end of the most recent calendar quarter prior to the date of the
Plan, and each prior calendar quarter since its inception, the Acquiring
Portfolio was in compliance with Section 817(h) of the Code and Treasury
Regulation 1.817-5, relating to the diversification requirements for variable
annuity, endowment or life insurance contracts and any amendments or other
modifications to such Section or Regulation.
(j) At the Closing, the Acquiring Portfolio will have good and marketable title
to all of the securities and its other assets, free and clear of all liens or
encumbrances of any nature whatsoever, except such imperfections of title or
encumbrances as do not materially detract from the value or use of the assets
subject thereto, or materially affect title thereto.
(k) There is no material suit, judicial action, or legal or administrative
proceeding pending or threatened against the Acquiring Portfolio.
(l) The Acquiring Portfolio's federal and other tax returns and reports required
by law to be filed on or before the Closing Date shall have been filed, and all
federal and other taxes shown as due on said returns shall have either been paid
or adequate liability reserves shall have been provided for the payment of such
taxes.
(m) There are no known actual or proposed deficiency assessments with respect to
any taxes payable by the Acquiring Portfolio.
(n) The execution, delivery and performance of this Plan have been duly
authorized by all necessary action of Maxim's Board of Directors, which Board,
including a majority of the Directors who are not "interested persons," as such
term is defined in the 1940 Act ("Independent Directors"), of the Acquiring
Portfolios, has made the findings described in Rule 17a-8 under the 1940 Act,
and this Plan constitutes a valid and binding obligation of Maxim enforceable in
accordance with its terms.
(o) A majority of the Directors of Maxim are Independent Directors who select
and nominate other Independent Directors. Any person who acts as legal counsel
for the Independent Directors is an independent legal counsel. 6.
Representations and Warranties by Orchard on behalf of the Acquired Funds.
Orchard makes the following representations and warranties with respect
to each Acquired Fund:
(a) The Acquired Fund is a series of Orchard, a statutory trust duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with the power to own all of its properties and assets and to carry on the
Acquired Fund's business as it is now being conducted. Orchard is duly
registered under the 1940 Act as an open-end, management investment company and
all of Acquired Fund's shares sold were sold pursuant to an effective
registration statement filed under the 1933 Act, except for those shares sold
pursuant to an exemption under the 1933 Act for private offerings, for the
purpose of raising the required initial capital.
(b) Orchard is authorized to issue an unlimited number of shares of beneficial
interest of the Acquired Fund, having no par value. All outstanding shares of
the Acquired Fund have been duly authorized and are validly issued, fully paid
and non-assessable.
(c) The financial statements appearing in Orchard's Annual Report to
Shareholders for the fiscal year ended October 31, 2003, audited by Deloitte &
Touche LLP, fairly present the financial position of the Acquired Fund as of
such date, and the results of its operations for the periods indicated, in
conformity with generally accepted accounting principles applied on a consistent
basis, and since October 31, 2003, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted in writing by Maxim. For purposes of this subsection (c), a decline in
net asset value per share of the Acquired Fund due to declines in market values
of securities in the Acquired Fund's portfolio, the discharge of the Acquired
Fund's liabilities, or the redemption of Acquired Fund shares by the Acquired
Fund's shareholders shall not constitute a material adverse change.
(d) The books and records of the Acquired Fund accurately summarize the
accounting data represented and contain no material omissions with respect to
the business and operations of the Acquired Fund.
(e) Orchard has the necessary power and authority to conduct the Acquired Fund's
business as such business is now being conducted.
(f) The Acquired Fund's portfolio is and has been invested in material
compliance with the investment objectives, policies and limitations disclosed in
its prospectus, and the Acquired Fund has conducted its business in material
compliance with the policies and practices disclosed in its prospectus and the
requirements of the 1940 Act.
(g) Orchard, on behalf of the Acquired Fund, is not a party to or obligated
under any provision of its Declaration of Trust or Bylaws, or any contract or
any other commitment or obligation, and is not subject to any order or decree
that would be violated by Orchard's execution of or performance under this Plan.
(h) Orchard has elected to treat the Acquired Fund as a RIC for federal income
tax purposes under Subchapter M of the Code, and the Acquired Fund has qualified
as a RIC for each taxable year since its inception and will qualify as a RIC as
of the Closing Date.
(i) As of the end of the most recent calendar quarter prior to the date of the
Plan, and each prior calendar quarter since its inception, the Acquired Fund was
in compliance with Section 817(h) of the Code and Treasury Regulation 1.817-5,
relating to the diversification requirements for variable annuity, endowment or
life insurance contracts and any amendments or other modifications to such
Section or Regulation.
(j) At the Closing, the Acquired Fund will have good and marketable title to all
of the securities and other assets constituting its Net Assets, free and clear
of all liens or encumbrances of any nature whatsoever, except such imperfections
of title or encumbrances as do not materially detract from the value or use of
the assets subject thereto, or materially affect title thereto.
(k) There is no material suit, judicial action, or legal or administrative
proceeding pending or threatened against the Acquired Fund.
(l) The Acquired Fund will not acquire Acquiring Portfolio shares for the
purpose of making distributions thereof to anyone other than the Acquired Fund's
shareholders as contemplated herein.
(m) The Acquired Fund's federal and other tax returns and reports required by
law to be filed on or before the Closing Date shall have been filed, and all
federal and other taxes shown as due on said returns shall have either been paid
or adequate liability reserves shall have been provided for the payment of such
taxes. The Acquired Fund shall file its federal and other tax returns due for
the fiscal period ending on the Closing Date as soon as reasonably practicable
following the Closing, and adequate liability reserves shall have been provided
for the payment of all federal or other taxes expected to be shown as due on
said returns.
(n) There are no known actual or proposed deficiency assessments with respect to
any taxes payable by the Acquired Fund.
(o) The execution, delivery and performance of this Plan have been duly
authorized by all necessary action of Orchard's Board of Trustees, which Board,
including a majority of the Trustees who are not "interested persons," as such
term is defined in the 1940 Act ("Independent Trustees"), of the Acquired Funds,
has made the findings described in Rule 17a-8 under the 1940 Act, and this Plan
constitutes a valid and binding obligation of Orchard enforceable in accordance
with its terms.
(p) A majority of the Trustees of Orchard are Independent Trustees who select
and nominate other Independent Trustees. Any person who acts as legal counsel
for the Independent Trustees is an independent legal counsel.
7. Additional Covenants of the Parties.
(a) Concurrently with approval and adoption of this Plan by the Board of
Trustees of Orchard, that Board of Trustees shall establish, in accordance with
the requirements of Orchard's Declaration of Trust and Bylaws, a date for a
meeting of the shareholders of each Acquired Fund to consider and vote upon this
Plan (the "Meeting"), and a record date for determination of the shareholders of
record of each Acquired Fund who shall be entitled to attend and vote at the
Meeting (the "Record Date"), and shall cause to be furnished to Maxim a notice
of the Meeting, in form and substance reasonably acceptable to Maxim. The Board
of Trustees of Orchard further shall indicate its approval and adoption of this
Plan, and in such notice of the Meeting, its recommendation that shareholders of
the Acquired Funds vote to approve the Plan at the Meeting.
(b) (i) As soon as reasonably practicable following adoption and approval of
this Plan by both the Board of Directors of Maxim and the Board of Trustees of
Orchard, Maxim shall cause to be filed with the U.S. Securities and Exchange
Commission (the "SEC") a registration statement on Form N-14 under the 1933 Act
relating to the shares of the Acquiring Portfolios issuable hereunder upon
consummation of the Plan (the "Registration Statement"), and will use its best
efforts to provide that the Registration Statement becomes effective as promptly
as practicable.
(ii) Maxim, on behalf of the Acquiring Portfolios, represents and warrants (1)
that at the time it becomes effective, the Registration Statement will comply in
all material respects with the applicable provisions of the 1933 Act, and the
rules and regulations promulgated thereunder, and will not contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which made, not misleading, unless such statement or omission
shall be based upon information provided by or at the direction of Orchard for
inclusion therein; (2) that, at the date of the mailing to Orchard shareholders,
the date of the Meeting, and at the Closing Date, the prospectus and statement
of additional information of the Acquiring Portfolios included in the
Registration Statement will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made therein,
in the light of the circumstances in which made, not misleading; and (3) the pro
forma financial statements of the Maxim S&P 500 Index(R) Portfolio included in
the Registration Statement will fairly present the financial position of the
Maxim S&P 500 Index(R) Portfolio as of the dates shown, and the results of its
operations for the periods indicated, in conformity with generally accepted
accounting principles applied on a consistent basis, and since the date of those
financial statements, there has not been any material adverse change in the
Acquiring Portfolio's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, or any incurrence by
the Acquiring Portfolio of indebtedness maturing more than one year from the
date such indebtedness was incurred, except as otherwise disclosed to and
accepted in writing by Orchard. For purposes of clause (3) of this subsection
7(b)(ii), a decline in net asset value per share of the Acquiring Portfolio due
to declines in market values of securities in the Acquiring Portfolio's
portfolio, the discharge of the Acquiring Portfolio's liabilities, or the
redemption of Acquiring Portfolio's shares by the Acquiring Portfolio's
shareholders shall not constitute a material adverse change.
(c) Orchard shall cause to be furnished to Maxim a list of the shareholders of
record of each Acquired Fund as of the Record Date as soon as reasonably
practicable following the Record Date. Maxim shall cause to be furnished to each
shareholder of record of the Acquired Fund entitled to vote at the Meeting, and
shall request that shareholders of record mail or otherwise distribute to each
owner of a contract of variable insurance ("Contract Owner") entitled to
instruct such shareholder of record with respect to the voting of shares of the
Acquired Fund at such Meeting, in sufficient time to comply with requirements as
to notice thereof, a combined Prospectus/Proxy Statement that complies in all
material respects with the applicable provisions of Section 14(a) of the
Securities Exchange Act of 1934, as amended, and Section 20(a) of the 1940 Act,
and the rules and regulations promulgated thereunder.
(d) At least five (5) business days prior to the Closing Date, each Acquired
Fund will provide Maxim, for the benefit of each corresponding Acquiring
Portfolio, with a list of its assets and a list of its stated liabilities. Each
Acquired Fund shall have the right to sell any of the securities or other assets
shown on the list of assets prior to the Closing Date but will not, without the
prior approval of the Maxim, on behalf of the corresponding Acquiring Portfolio,
respectively, acquire any additional securities other than securities which the
corresponding Acquiring Portfolio is permitted to purchase, pursuant to its
investment objective and policies or otherwise (taking into consideration its
own portfolio composition as of such date). In the event that any Acquired Fund
holds any investments that its corresponding Acquiring Portfolio would not be
permitted to hold, the Acquired Fund will dispose of such securities prior to
the Closing Date to the extent practicable and to the extent that its
shareholders would not be materially affected in an adverse manner by such a
disposition.
8. Conditions Precedent to Closing.
The consummation of this Plan hereunder shall be subject to the
following conditions, to be satisfied prior to or at the Closing: (a) That:
(i) all the representations and warranties contained herein shall be true and
correct as of the Closing with the same effect as though made as of and at such
date;
(ii) the performance of all obligations required by this Plan to be performed by
Orchard, on behalf of the Acquired Funds, and by Maxim on behalf of the
Acquiring Portfolios, respectively, shall occur prior to the Closing; and
(iii) each of Orchard and Maxim shall execute and deliver at the Closing a
certificate signed by a duly authorized officer thereof to the foregoing effect.
(b) The SEC shall not have issued an unfavorable management report under Section
25(b) of the 1940 Act or instituted or threatened to institute any proceeding
seeking to enjoin consummation of the Plan under Section 25(c) of the 1940 Act.
(c) No other legal, administrative or other proceeding shall have been
instituted or threatened that would materially affect the financial condition of
any Acquired Fund or Acquiring Portfolio or would prohibit the transactions
contemplated hereby.
(d) This Plan shall have been approved by a vote of a "majority of the
outstanding voting securities," as such term is defined in Section 2(a)(42) of
the 1940 Act, of each Acquired Fund at the Meeting or any adjournment thereof;
provided, however, that if this Plan shall be so approved as to some, but not
all, Acquired Funds, then at the election of Maxim, this Plan may be consummated
as to those Acquired Funds as to which this Plan has been so approved.
(e) Orchard shall create and deliver at Closing a statement of assets and
liabilities of each Acquired Fund as of the close of trading on the New York
Stock Exchange on the Closing Date for the purpose of determining the number of
Acquiring Portfolio shares to be issued pursuant to Section 2 of this Plan,
which statement will accurately reflect the Acquired Fund's Net Assets as of
such date, in conformity with generally accepted accounting principles applied
on a consistent basis.
(f) Maxim shall create and deliver at Closing a statement of assets and
liabilities of each Acquiring Portfolio as of the close of trading on the New
York Stock Exchange on the Closing Date for the purpose of determining the
number of Acquiring Portfolio shares to be issued pursuant to Section 2 of this
Plan, which statement shall accurately reflect the Acquiring Portfolio's net
assets and outstanding shares of capital stock as of such date, in conformity
with generally accepted accounting principles applied on a consistent basis.
(g) Orchard, on behalf of each Acquired Fund, shall have provided for delivery
as of the Closing those Net Assets of each Acquired Fund to be transferred to
the account of the corresponding Acquiring Portfolio at Maxim's custodian, The
Bank of New York (the "Acquiring Portfolio Custodian"), One Wall Street, New
York, New York 10286, as follows:
(i) Portfolio securities that are not held in book entry form in the name of the
Acquired Fund's custodian, as record holder for the Acquired Fund, shall be
presented by the Acquired Fund to the Acquiring Portfolio Custodian for
examination no later than three business days preceding the Closing Date and, at
the Closing, shall be delivered by the Acquired Fund to the Acquiring Portfolio
Custodian for the account of the Acquiring Portfolio, duly endorsed in proper
form for transfer and in such condition as to constitute good delivery thereof
in accordance with the customary practice of brokers, and shall be accompanied
by all necessary securities transfer stamps; and
(ii) Portfolio securities held of record by the Acquired Fund's custodian in
book entry form shall be delivered to the Acquiring Portfolio by the Acquired
Fund's custodian by recording the transfer of beneficial ownership thereof on
its records.
The Acquiring Portfolio Custodian shall present at the Closing its
written receipt for the portfolio securities of each Acquired Fund.
(h) Orchard, on behalf of each Acquired Fund, shall have prepared and deliver at
the Closing a list of names and addresses of the shareholders of record of its
shares and the number of shares of beneficial interest of each Acquired Fund
owned by each such shareholder, all as of the close of trading on the New York
Stock Exchange on the Closing Date, certified by its transfer agent or by its
President to the best of its or his knowledge and belief.
(i) Maxim, on behalf of each Acquiring Portfolio, shall have prepared
satisfactory evidence that each Acquiring Portfolio's shares to be issued at the
Closing have been registered in an account on the books of the Acquiring
Portfolio in such manner as the officers of Orchard on behalf of each Acquired
Fund reasonably shall deem appropriate.
(j) Maxim and Orchard shall have received the opinion of Jorden Burt LLP, dated
on or before the Closing Date, addressed to and in form and substance
satisfactory to them, as to certain of the federal income tax consequences under
the Code of the Reorganization, insofar as it relates to each Acquired Fund and
its corresponding Acquiring Portfolio (the "Tax Opinion"). For purposes of
rendering the Tax Opinion, Jorden Burt LLP may rely exclusively and without
independent verification, as to factual matters, upon the statements made in
this Plan, the prospectuses and statements of additional information of Maxim
and Orchard, and upon such other written representations as the President or
Treasurer of Maxim or Orchard will have verified as of the Closing Date. The Tax
Opinion will be to the effect that, based on the facts and assumptions therein,
for federal income tax purposes: (i) the Reorganization will constitute a
reorganization within the meaning of Section 368(a)(1) of the Code with respect
to each Acquired Fund and its corresponding Acquiring Portfolio; (ii) no gain or
loss will be recognized by any of the Acquired Funds or the corresponding
Acquiring Portfolios upon the transfer of all of the assets and liabilities, if
any, of each Acquired Fund to its corresponding Acquiring Portfolio solely in
exchange for shares of the Acquiring Portfolio or upon the distribution of the
shares of the Acquiring Portfolio to the holders of shares of the Acquired Fund
solely in exchange for all of their shares of the Acquired Fund; and (iii) no
gain or loss will be recognized by shareholders of any of the Acquired Funds
upon the exchange of such Acquired Fund's shares solely for shares of the
corresponding Acquiring Portfolio.
(k) Maxim's Registration Statement with respect to the Acquiring Portfolios'
shares to be delivered to the Acquired Funds' shareholders in accordance with
this Plan shall have become effective, and no stop order suspending the
effectiveness of such Registration Statement or any amendment or supplement
thereto, shall have been issued prior to the Closing Date or shall be in effect
at Closing, and no proceedings for the issuance of such an order shall be
pending or threatened on that date.
(l) That each Acquiring Portfolio's shares to be delivered hereunder shall be
eligible for sale by Maxim with each state commission or agency with which such
eligibility is required in order to permit the Acquiring Portfolio's shares
lawfully to be delivered to each holder of the Acquired Funds' shares.
9. Brokerage Fees and Expenses.
(a) Maxim, on behalf of each Acquiring Portfolio, and Orchard, on behalf of each
Acquired Fund, each represents and warrants to the other that there are no
broker's or finders' fees payable in connection with the transactions
contemplated herein.
(b) GW Capital Management, LLC (the "Adviser"), which serves as investment
adviser to the Acquiring Portfolios and Acquired Funds, will bear the costs of
the Reorganization. The costs of the Reorganization include attorneys' fees,
accountants' fees, the costs of printing, assembling and mailing the
Prospectus/Proxy Statement and other proxy solicitation materials to
shareholders and variable contract owners and tabulation costs. The Adviser will
pay or reimburse each of the Acquired Funds for brokerage commissions and other
portfolio transaction costs incurred by the Acquired Fund in connection with the
Reorganization with respect to the disposition by the Acquired Fund of any
portfolio securities or other assets that the corresponding Acquiring Portfolio
would not be permitted to hold as an investment.
10. Termination; Postponement; Waiver; Order.
(a) Anything contained in this Plan to the contrary notwithstanding, this Plan
may be terminated and abandoned at any time with respect to any Acquired Fund
(whether before or after approval thereof by the shareholders of the Acquired
Fund) prior to the Closing, or the Closing may be postponed by resolution of
each of the Board of Directors of Maxim and the Board of Trustees of Orchard, if
circumstances develop that, in the opinion of the Board of Trustees, make
proceeding with the Plan inadvisable with respect to the Acquired Fund.
(b) If the transactions contemplated by this Plan have not been consummated by
October 31, 2004, the Plan shall automatically terminate on that date, unless a
later date is established by mutual agreement.
(c) In the event of termination of this Plan pursuant to the provisions hereof,
the same shall become void and have no further effect, and neither Maxim,
Orchard, the Acquired Funds, the Acquiring Portfolios nor the trustees,
directors, officers, agents or shareholders of the Acquired Funds or the
Acquiring Portfolios shall have any liability in respect of this Plan.
(d) At any time prior to the Closing, any of the terms or conditions of this
Plan may be waived by the Board of Directors of Maxim or the Board of Trustees
of Orchard if, in the judgment of such Board, such action or waiver will not
have a material adverse effect on the benefits intended under this Plan to the
shareholders of the Acquired Funds or the Acquiring Portfolios, as the case may
be.
(e) The respective representations, warranties and covenants of the parties
contained in Sections 5, 6, and 7 hereof shall expire with and be terminated by
the consummation of this Plan. Notwithstanding the preceding sentence, Section
7(b)(ii) hereof shall survive the consummation of this Plan. Neither Maxim nor
Orchard, nor any of their respective trustees, directors, officers, agents or
shareholders nor the Acquiring Portfolios or Acquired Funds, nor any of their
shareholders, shall have any liability with respect to such representations or
warranties after the Closing. This provision shall not protect any trustee,
director, officer, agent or shareholder of any of the Acquiring Portfolios or
Acquired Funds, or of Maxim or Orchard, against any liability to the entity for
which that trustee, director, officer, agent or shareholder so acts or to any of
the Acquiring Portfolios' or Acquired Funds' shareholders to which that officer,
trustee, agent or shareholder would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties in
the conduct of such office.
11. Entire Agreement and Amendments.
This Plan embodies the entire agreement between the parties and there
are no agreements, understandings, restrictions or warranties relating to the
transactions contemplated by this Plan other than those set forth herein or
herein provided for. This Plan may be amended only by action of both Maxim on
behalf of the Acquiring Portfolios and Orchard on behalf of the Acquired Funds.
12. Counterparts.
This Plan may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts together shall
constitute one and the same instrument.
13. Notices.
Any notice, report or demand required or permitted by any provision of
this Plan shall be in writing and shall be deemed to have been given if
delivered or mailed, first class postage prepaid, addressed as follows:
If to Maxim:
Maxim Series Fund, Inc.
8515 E. Orchard Road
Greenwood Village, Colorado 80111
Attn: Beverly A. Byrne, Esq.
If to Orchard:
Orchard Series Fund
8515 E. Orchard Road
Greenwood Village, Colorado 80111
Attn: Beverly A. Byrne, Esq.
And in either case, with a copy to:
Jorden Burt LLP
1025 Thomas Jefferson Street, NW, Suite 400-East
Washington, DC 20007
Attn: Jo Cicchetti, Esq.
14. Capacity.
A copy of Orchard's Certificate of Trust is on file with the Office of
the Secretary of State of the State of Delaware, and notice is hereby given that
this Plan is executed by Orchard, on behalf of the Acquired Funds, by its duly
authorized officers, and not by such persons individually, and that the
obligations under this instrument are not binding upon any of the trustees,
officers or shareholders of Orchard individually, but are binding only upon
Orchard or the Acquired Funds and its or their assets. In addition, notice is
hereby given that Orchard is a series trust, and that the obligations under this
instrument existing with respect to a particular Acquired Fund shall be
enforceable against the assets of such series only and not against the assets of
the trust generally.
15. Governing Law.
This Plan shall be governed by and carried out in accordance with
applicable federal securities laws and the laws of the State of Delaware.
* * *
IN WITNESS WHEREOF, Maxim Series Fund, Inc., on behalf of the Acquiring
Portfolios, has caused this Plan to be executed on their behalf by its duly
authorized officers, all as of the date and year first above written.
MAXIM SERIES FUND, INC., on behalf of its Maxim S&P 500
Index(R) Portfolio and Maxim Index 600 Portfolio
By:
Name:
Title:
Attest:
By:
Name:
Title:
IN WITNESS WHEREOF, Orchard Series Fund, on behalf of the Acquired
Funds, has caused this Plan to be executed on their behalf by its duly
authorized officers, all as of the date and year first above written.
ORCHARD SERIES FUND, on behalf of its Orchard S&P 500
Index(R) Fund, Orchard DJIASM Index Fund, Orchard
Nasdaq-100 Index(R) Fund and Orchard Index 600 Fund
By:
Name:
Title:
Attest:
By:
Name:
Title:
PART B:
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF ADDITIONAL INFORMATION
OF
MAXIM SERIES FUND, INC.
Dated January [xx], 2004
Acquisition of the Assets of
ORCHARD DJIASM INDEX FUND
ORCHARD S&P 500 INDEX(R) FUND
ORCHARD NASDAQ-100 INDEX(R) FUND
ORCHARD INDEX 600 FUND
each a series of Orchard Series Fund ("Orchard")
(collectively, the "Acquired Funds")
By and in Exchange for the Shares of
MAXIM S&P 500 INDEX(R) PORTFOLIO
MAXIM INDEX 600 PORTFOLIO
each a series of Maxim Series Fund ("Maxim")
(collectively, the Acquiring Portfolios")
This Statement of Additional Information (SAI) is not a prospectus and
should be read in conjunction with the Prospectus/Proxy Statement dated January
[xx], 2004 for the special meeting of the shareholders as of the Record Date for
Orchard: Orchard DJIASM Index Fund ("Orchard DJIASM Index"), Orchard S&P 500
Index(R) Fund ("Orchard S&P 500 Index(R)"), Orchard Nasdaq-100 Index(R) Fund
("Orchard Nasdaq-100 Index(R)"), and Orchard Index 600 Fund ("Orchard Index
600"). (Capitalized terms not defined herein shall have the meaning given to
them in the Prospectus/Proxy Statement.) The Meeting is to be held on March 29,
2004. A copy of the Prospectus/Proxy Statement may be obtained free of charge by
calling 1-800-537-2033 or writing Secretary, Maxim Series Fund, Inc. at 8515
East Orchard Road, Greenwood Village, Colorado 80111.
The Prospectus/Proxy Statement describes certain transactions
contemplated by the Acquiring Portfolios' proposed acquisition of the Acquired
Funds pursuant to the terms of the Plan of Reorganization ("Plan"). Under the
Plan, the Maxim S&P 500 Index(R) Portfolio ("Maxim S&P 500 Index(R)") will
acquire substantially all of the property, assets and goodwill of Orchard DJIASM
Index; Maxim S&P 500 Index(R) will acquire substantially all of the property,
assets and goodwill of Orchard S&P 500 Index(R); Maxim S&P 500 Index(R) will
acquire substantially all of the property, assets and goodwill of Orchard
Nasdaq-100 Index(R); and the Maxim Index 600 Portfolio ("Maxim Index 600") will
acquire substantially all of the property, assets and goodwill of Orchard Index
600.
Under the Plan, the assets of an Acquired Fund will be acquired by, and
in exchange for, the shares of the corresponding Acquiring Portfolio and the
liabilities of that Acquired Fund will be assumed by the corresponding Acquiring
Portfolio. The Acquired Fund will then be terminated by Orchard and the shares
of the Acquiring Portfolio distributed to shareholders of the Acquired Fund in
the redemption of the Acquired Fund shares. Immediately after completion of the
Reorganization, the number of shares of the Acquiring Portfolios then held by
former shareholders of the Acquired Funds may be different than the number of
shares of the Acquired Funds that had been held immediately before completion of
the Reorganization, but the total investment will remain the same (i.e., the
total value of the Acquiring Portfolio shares held immediately after the
completion of the Reorganization will be the same as the total value of the
Acquired Fund shares held immediately before completion of the Reorganization.)
As previously stated, this Statement of Additional Information ("SAI")
is not a prospectus, but should be read in conjunction with the Prospectus/Proxy
Statement of Maxim Series Fund, Inc., dated January xx, 2004. This SAI consists
of this document and the following described documents, each of which will be
delivered with the Prospectus/Proxy Statement and is incorporated by reference
herein:
(1) The Annual Report to Shareholders of the Acquired Funds for the fiscal
year ended October 31, 2003 (from which information is incorporated by
reference into the Prospectus/Proxy Statement), filed on December 23, 2003,
accession no. 0001019977-03-000012;
(2) The Annual Report to Shareholders of the Maxim Index 600 Portfolio
for the fiscal year ended December 31, 2002 (from which information is
incorporated by reference into the Prospectus/Proxy Statement and Statement of
Additional Information), filed on February 27, 2003, accession no.
0000346474-03-000020; and
(3) The Semi-Annual Report to Shareholders of the Maxim Index 600 Portfolio for
the six month period ended June 30, 2003, filed on August 27, 2003, accession
no. 0000356576-03-000091.
You may request a copy of the Prospectus/Proxy Statement and/or Annual
Reports at no charge by calling 1-800-537-2033 or writing us at the address
below.
Maxim Series Fund, Inc.
8515 East Orchard Road
Greenwood Village, Colorado 80111
January [xx], 2004
TABLE OF CONTENTS
INTRODUCTION.....................................................................................................1
MAXIM ........................................................................................................1
SUB-ADVISORY AGREEMENTS..........................................................................................1
Sub-adviser Compensation................................................................................2
Sub-advisory Fees.......................................................................................2
INVESTMENT OBJECTIVES AND POLICIES...............................................................................2
Futures and Options....................................................................................18
INVESTMENT RESTRICTIONS.........................................................................................21
Fundamental Investment Restrictions....................................................................22
MAXIM DIRECTORS AND OFFICERS....................................................................................23
Standing Committees....................................................................................26
DIRECTOR OWNERSHIP OF PORTFOLIO SHARES..........................................................................27
Independent Directors..................................................................................27
Independent Directors and their Immediate Family Members...............................................27
Compensation...........................................................................................29
INVESTMENT ADVISORY AND OTHER SERVICES..........................................................................29
Investment Adviser.....................................................................................29
Investment Advisory Agreement..........................................................................29
Adviser Compensation...................................................................................31
Advisory Fees..........................................................................................31
Payment of Expenses....................................................................................31
CODE OF ETHICS - PERSONAL SECURITIES TRADING....................................................................31
DISTRIBUTION AGREEMENT..........................................................................................32
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES......................................................................32
Qualification as a Regulated Investment Company........................................................32
Excise Tax on Regulated Investment Companies...........................................................34
Effect of Future Legislation; Local Tax Considerations.................................................34
Performance Data................................................................................................34
Maxim S&P 500 Index(R)and Maxim Index 600...............................................................34
Performance Comparisons................................................................................37
VOTING POLICIES.................................................................................................37
PRICING, PURCHASE AND REDEMPTION OF SHARES......................................................................38
EXECUTION OF PORTFOLIO TRANSACTIONS AND BROKERAGE...............................................................39
Brokerage Commissions..................................................................................40
Portfolio Turnover.....................................................................................40
FINANCIAL STATEMENTS............................................................................................41
Maxim ..............................................................................................41
Orchard ..............................................................................................41
PRO forma financial statements..................................................................................42
GENERAL INFORMATION.............................................................................................43
CORPORATE BOND AND COMMERCIAL PAPER RATINGS.....................................................................45
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a Prospectus/Proxy Statement dated January [xx], 2004
relating to the proposed reorganization of the Acquired Funds of Orchard into
the Acquiring Portfolios of Maxim in connection with the solicitation by the
Orchard Board of Trustees ("Orchard Board") of proxies to be voted at the
Meeting of Shareholders of Orchard to be held on March 29, 2004.
MAXIM
Maxim is registered with the Securities and Exchange Commission ("SEC")
as an open-end management investment company. Maxim offers thirty-three
investment portfolios, including the Acquiring Portfolios. Maxim is a Maryland
corporation that was organized on December 7, 1981 and commenced business as an
investment company in 1982. The Acquiring Portfolios are "no-load," meaning you
pay no sales charges or distribution fees. The Acquiring Portfolios are
presently only available in connection with variable annuity contracts and
variable life insurance policies issued by Great-West Life & Annuity Insurance
Company ("GWL&A") and certain other life insurance companies and certain
qualified retirement and pension plans. GW Capital Management, LLC doing
business as Maxim Capital Management, LLC ("MCM" or the "Investment Adviser"), a
wholly owned subsidiary of GWL&A, serves as Maxim's investment adviser.
Non-Diversified Portfolios. A non-diversified Portfolio is any
Portfolio other than a diversified Portfolio. Maxim S&P 500 Index(R) and Maxim
Index 600 are considered "non-diversified" because they may invest a greater
percentage of their assets in a particular issuer or group of issuers than a
diversified fund would. Because a relatively high percentage of a
non-diversified Portfolio's assets may be invested in the securities of a
limited number of issuers, some of which may be in the same industry, the
Portfolio may be more sensitive to changes in the market value of a single
issuer or industry.
SUB-ADVISORY AGREEMENTS
BNY Investment Advisors ("BNY") serves as the sub-adviser to Maxim S&P
500 Index(R) pursuant to a Sub-Advisory Agreement dated effective June 30, 2003,
approved by the Maxim Board on April 10, 2003. Maxim S&P 500 Index(R) commenced
operations effective September 8, 2003. BNY is a separately identifiable
division of The Bank of New York, a New York State chartered bank. Effective
April 1, 2003, BNY also began serving as the sub-adviser to Maxim Index 600
pursuant to a Sub-Advisory Agreement dated effective April 1, 2003, approved by
the Maxim Board of Directors ("Maxim Board") on February 13, 2003. Barclays
Global Fund Advisors ("Barclays") had served as sub-adviser to Maxim Index 600
prior to April 1, 2003.
The Sub-Advisers provide investment advisory assistance and
portfolio management advice to the Investment Adviser for the respective
Acquiring Portfolios. Subject to review and supervision by MCM and the Maxim
Board, the Sub-Advisers are responsible for the actual management of the
respective Acquiring Portfolios and for making decisions to buy, sell or hold
any particular securities. The Sub-Advisers bear all expenses in connection with
the performance of their services, such as compensating and furnishing office
space for their officers and employees connected with investment and economic
research, trading and investment management for the Acquiring Portfolios.
Sub-adviser Compensation
MCM is responsible for compensating BNY for its sub-advisory services
to certain Acquiring Portfolios as set out below.
SUBADVISER PORTFOLIO FEE
BNY Maxim S&P 500 Index(R) 0.02% of Net Assets
BNY Maxim Index 600 0.02% of Net Assets
The following table sets forth the fees paid to the Sub-advisers, for
the fiscal years ended December 31, 2000, 2001 and 2002.
Sub-advisory Fees
SUB-ADVISER PORTFOLIO 2002 2001 2000
Barclays* Maxim Index 600 $9,629 $6,276 $ --
* Barclays Global Fund Advisors served as sub-adviser to Maxim Index 600 prior
to April 1, 2003. Beginning April 1, 2003, BNY Investment Advisors is
sub-adviser to Maxim S&P 500 Index(R) and Maxim Index 600.
INVESTMENT OBJECTIVES AND POLICIES
Except as described below and except as otherwise specifically stated
in the Prospectus or this Statement of Additional Information, the Acquiring
Portfolios' investment policies set forth in the Prospectus and in this
Statement of Additional Information are not fundamental and may be changed
without shareholder approval.
The following pages contain more detailed information about types of
securities in which the Acquiring Portfolios may invest, investment practices
and techniques that MCM or any sub-adviser may employ in pursuit of the
Acquiring Portfolios' investment objectives, subject to their respective
investment objectives, strategies and restrictions, and a discussion of related
risks. MCM and/or its sub-advisers may not buy all of these securities or use
all of these techniques to the full extent permitted unless it believes that
they are consistent with the Portfolios' investment objectives and policies and
that doing so will help the Portfolios achieve their objectives. Unless
otherwise indicated, each Acquiring Portfolio may invest in all these securities
or use all of these techniques. In addition, due to unavailability, economic
unfeasibility or other factors, an Acquiring Portfolio may simply have no
opportunity to invest in a particular security or use a particular investment
technique.
Asset-Backed Securities. Asset-backed securities represent interests in
pools of mortgages, loans, receivables or other assets. Payment of interest and
repayment of principal may be largely dependent upon the cash flows generated by
the assets backing the securities and, in certain cases, supported by letters of
credit, surety bonds, or other credit enhancements. Asset-backed security values
may also be affected by other factors including changes in interest rates, the
availability of information concerning the pool and its structure, the
creditworthiness of the servicing agent for the pool, the originator of the
loans or receivables, or the entities providing the credit enhancement. In
addition, these securities may be subject to prepayment risk.
Bankers' Acceptances. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower, usually in connection with international
commercial transactions (to finance the import, export, transfer or storage of
goods). The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. The Acquiring Portfolios generally will not
invest in acceptances with maturities exceeding seven days where doing so would
tend to create liquidity problems.
Borrowing. The Acquiring Portfolios may borrow from banks or through
reverse repurchase agreements. If the fund borrows money, its share price may be
subject to greater fluctuation until the borrowing is paid off. If the fund
makes additional investments while borrowings are outstanding, this may be
considered a form of leverage. In the event a Portfolio borrows in excess of 5%
of its total assets, at the time of such borrowing it will have an asset
coverage of at least 300%.
Brady Bonds. Brady bonds are debt obligations created through the
exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructurings under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady.
Brady bonds have been issued only relatively recently, and,
accordingly, do not have a long payment history. They may be collateralized or
uncollateralized and issued in various currencies (although most are U.S.
dollar-denominated). They are actively traded in the over-the-counter secondary
market.
Collateralized Brady bonds may be fixed rate par bonds or floating rate
discount bonds, which are generally collateralized in full as to principal due
at maturity by U.S. Treasury zero coupon obligations which have the same
maturity as the Brady bonds. Interest payments on these Brady bonds generally
are collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is equal to at least one year of rolling interest payments or, in
the case of floating rate bonds, initially is equal to at least one year's
rolling interest payments based on the applicable interest rate at that time and
is adjusted at regular intervals thereafter. Certain Brady bonds are entitled to
"value recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady bonds
are often viewed as having three or four valuation components: (i) the
collateralized repayment of principal at final maturity; (ii) the collateralized
interest payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to Collateralized Brady bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments which would have then
been due on the Brady bonds in the normal course. In addition, in light of the
residual risk of Brady bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady bonds, investments in Brady bonds are to be viewed as
speculative.
Debt restructurings have been implemented under the Brady Plan in
Argentina, Brazil, Bolivia, Costa Rica, Mexico, Nigeria, the Philippines,
Uruguay and Venezuela, with the largest proportion of Brady bonds having been
issued to date by Argentina, Mexico and Venezuela. Most Argentine and Mexican
Brady bonds and a significant portion of the Venezuelan Brady bonds issued to
date are Collateralized Brady bonds with interest coupon payments collateralized
on a rolling-forward basis by funds or securities held in escrow by an agent for
the bondholders.
Each Acquiring Portfolio will invest in Brady Bonds only if it is
consistent with quality specifications established from time to time by MCM or
the sub-adviser to that Portfolio.
Certificates of Deposit. A certificate of deposit generally is a
short-term, interest bearing negotiable certificate issued by a commercial bank
or savings and loan association against funds deposited in the issuing
institution.
Collateralized Mortgage Obligations. A Collateralized Mortgage
Obligation ("CMO") is a bond which uses certificates issued by the Government
National Mortgage Association, or the Federal National Mortgage Association or
the Federal Home Loan Mortgage Corporation as collateral in trust. The trust
then issues several bonds which will be paid using the cash flow from the
collateral. The trust can redirect cash flow temporarily, first paying one bond
before other bonds are paid. The trust can also redirect prepayments from one
bond to another bond, creating some stable bonds and some volatile bonds. The
proportion of principal cash flow and interest cash flow from the collateral
flowing to each bond can also be changed, creating bonds with higher or lower
coupons to the extreme of passing through the interest only to one bond and
principal only to another bond. Variable rate or floating coupon bonds are also
often created through the use of CMOs.
Commercial Paper. Commercial paper is a short-term promissory note
issued by a corporation primarily to finance short-term credit needs.
Common Stock. Common stock represents an equity or ownership interest
in an issuer. In the event an issuer is liquidated or declares bankruptcy,
owners of bonds and preferred stock take precedence over the claims of those who
own common stock. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Convertible Securities. Convertible securities are bonds, debentures,
notes, preferred stocks or other securities that may be converted or exchanged
(by the holder or by the issuer) into shares of the underlying common stock (or
cash or securities of equivalent value) at a stated exchange ratio or stated
price, which enable an investor to benefit from increases in the market price of
the underlying common stock. A convertible security may also be called for
redemption or conversion by the issuer after a particular date and, under
certain circumstances (including a specified price), may be called for
redemption or conversion on a date established upon issue. If a convertible
security held by a fund is called for redemption or conversion, the fund could
be required to tender it for redemption, convert it into the underlying common
stock, or sell it to a third party. Convertible securities generally have less
potential for gain or loss than common stocks. Convertible securities generally
provide yields higher than the underlying common stocks, but generally lower
than comparable non-convertible securities. Because of this higher yield,
convertible securities generally sell at prices above their "conversion value,"
which is the current market value of the stock to be received upon conversion.
The difference between this conversion value and the price of convertible
securities will vary over time depending on changes in the value of the
underlying common stocks and interest rates. When the underlying common stocks
decline in value, convertible securities will tend not to decline to the same
extent because of the interest or dividend payments and the repayment of
principal at maturity for certain types of convertible securities. However,
securities that are convertible other than at the option of the holder generally
do not limit the potential for loss to the same extent as securities convertible
at the option of the holder. When the underlying common stocks rise in value,
the value of convertible securities may also be expected to increase. At the
same time, however, the difference between the market value of convertible
securities and their conversion value will narrow, which means that the value of
convertible securities will generally not increase to the same extent as the
value of the underlying common stocks. Because convertible securities may also
be interest-rate sensitive, their value may increase as interest rates fall and
decrease as interest rates rise. Convertible securities are also subject to
credit risk, and are often lower-quality securities.
Debt Securities. Debt securities are used by issuers to borrow money.
The issuer usually pays a fixed, variable or floating rate of interest, and must
repay the amount borrowed at the maturity of the security. Some debt securities,
such as zero coupon bonds, do not pay interest but are sold at a deep discount
from their face values. Debt securities include corporate bonds, government
securities, and mortgage and other asset-backed securities.
Discount Obligations. Investment in discount obligations (including
most Brady bonds) may be in securities which were (i) initially issued at a
discount from their face value, and (ii) purchased by an Acquiring Portfolio at
a price less than their stated face amount or at a price less than their issue
price plus the portion of "original issue discount" previously accrued thereon,
i.e., purchased at a "market discount." The amount of original issue discount
and/or market discount on obligations purchased by an Acquiring Portfolio may be
significant, and accretion of market discount together with original issue
discount, will cause the Portfolio to realize income prior to the receipt of
cash payments with respect to these securities.
Emerging Markets Issuers. Emerging markets include any countries (i)
having an "emerging stock market" as defined by the International Finance
Corporation; (ii) with low- to middle-income economies according to the World
Bank; or (iii) listed in World Bank publications as developing. Currently, the
countries not included in these categories are Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the
United Kingdom and the United States. Issuers whose principal activities are in
countries with emerging markets include issuers: (1) organized under the laws
of, (2) whose securities have their primary trading market in, (3) deriving at
least 50% of their revenues or profits from goods sold, investments made, or
services performed in, or (4) having at least 50% of their assets located in a
country with an emerging market.
Exchange Traded Funds ("ETFs"). An ETF is a type of investment company
bought and sold on a securities exchange. An ETF represents a fixed portfolio of
securities designed to track a particular market index. An Acquiring Portfolio
could purchase an ETF to temporarily gain exposure to a portion of the U.S. or a
foreign market while awaiting purchase of underlying securities. The risks of
owning an ETF generally reflect the risks of owning the underlying securities
they are designed to track, although lack of liquidity in an ETF could result in
it being more volatile and ETFs have management fees which increase their costs.
Please also see the discussion concerning the risks associated with derivative
transactions under "Futures and Options," below.
Eurodollar Certificates of Deposit. A Eurodollar certificate of deposit
is a short-term obligation of a foreign subsidiary of a U.S. bank payable in
U.S. dollars. Eurodollar certificates of deposit are subject to the same risks
that pertain to domestic issues, notably credit risk, market risk, and liquidity
risk. Additionally, Eurodollar obligations are subject to certain sovereign
risks. One such risk is the possibility that a sovereign country might prevent
capital, in the form of dollars, from flowing across its borders. Other risks
include adverse political and economic developments; the extent and quality of
government regulation of financial markets and institutions; the imposition of
foreign withholding taxes; and the expropriation or nationalization of foreign
issuers.
Floating Rate Note. A floating rate note is debt issued by a
corporation or commercial bank that is typically several years in term but has a
resetting of the interest rate on a one to six month rollover basis.
Foreign Currency Transactions. Any Acquiring Portfolio which may invest
in non-dollar denominated foreign securities may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward contracts
to purchase or sell foreign currencies at a future date and price. The Acquiring
Portfolios will convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers generally do not charge a fee for conversion, they do realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to an Acquiring Portfolio at one rate, while offering a lesser rate of exchange
should the Acquiring Portfolio desire to resell that currency to the dealer.
Forward contracts are generally traded in an interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
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 currency exchange.
An Acquiring Portfolio may use currency forward contracts for any
purpose consistent with its investment objective. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by an Acquiring Portfolio. An Acquiring Portfolio
may also use options and futures contracts relating to foreign currencies for
the same purposes.
When an Acquiring Portfolio agrees to buy or sell a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price for the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars, of the amount of foreign currency
involved in the underlying security transaction, the Acquiring Portfolio will be
able to protect itself against an adverse change in foreign currency values
between the date the security is purchased or sold and the date on which payment
is made or received. This technique is sometimes referred to as a "settlement
hedge" or "transaction hedge." The Acquiring Portfolios may also enter into
forward contracts to purchase or sell a foreign currency in anticipation of
future purchases or sales of securities denominated in or exposed to foreign
currency, even if the specific investments have not yet been selected by MCM or
one the sub-advisers.
The Acquiring Portfolios may also use forward contracts to hedge
against a decline in the value of existing investments denominated in or exposed
to foreign currency. For example, if an Acquiring Portfolio owned securities
denominated in or exposed to pounds sterling, it could enter into a forward
contract to sell pounds sterling in return for U.S. dollars to hedge against
possible declines in the pound's value. Such a hedge, sometimes referred to as a
"position hedge," would tend to offset both positive and negative currency
fluctuations, but would not offset changes in security values caused by other
factors. An Acquiring Portfolio could also hedge the position by selling another
currency expected to perform similarly to the pound sterling, for example, by
entering into a forward contract to sell Deutsche marks or European Currency
Units in return for U.S. dollars. This type of hedge, sometimes referred to as a
"proxy hedge," could offer advantages in terms of cost, yield, or efficiency,
but generally would not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated or exposed.
Each Acquiring Portfolio may enter into forward contracts to shift its
investment exposure from one currency into another. This may include shifting
exposure from U.S. dollars into a foreign currency, or from one foreign currency
into another foreign currency. For example, if an Acquiring Portfolio held
investments denominated in or exposed to Deutschemarks, the Acquiring Portfolio
could enter into forward contracts to sell Deutschemarks and purchase Swiss
Francs. This type of strategy, sometimes known as a "cross-hedge," will tend to
reduce or eliminate exposure to the currency that is sold, and increase exposure
to the currency that is purchased, much as if the Acquiring Portfolio had sold a
security denominated in or exposed to one currency and purchased an equivalent
security denominated in or exposed to another. Cross-hedges protect against
losses resulting from a decline in the hedged currency, but will cause the
Acquiring Portfolio to assume the risk of fluctuations in the value of the
currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set
aside appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. The Acquiring Portfolios will not segregate assets
to cover forward contracts entered into for hedging purposes, including
settlement hedges, position hedges, and proxy hedges.
Successful use of currency management strategies will depend on MCM's
or the applicable sub-adviser's skill in analyzing and predicting currency
values. Currency management strategies may substantially change an Acquiring
Portfolio's investment exposure to changes in currency exchange rates, and could
result in losses to the Acquiring Portfolio if currencies do not perform as MCM
or the sub-adviser anticipates. For example, if a currency's value rose at a
time when MCM or the sub-adviser had hedged an Acquiring Portfolio by selling
that currency in exchange for dollars, the Portfolio would be unable to
participate in the currency's appreciation. If MCM or a sub-adviser hedges
currency exposure through proxy hedges, an Acquiring Portfolio could realize
currency losses from the hedge and the security position at the same time if the
two currencies do not move in tandem. Similarly, if MCM or a sub-adviser
increases an Acquiring Portfolio's exposure to a foreign currency, and that
currency's value declines, the Acquiring Portfolio will realize a loss. There is
no assurance that MCM's or a sub-adviser's use of currency management strategies
will be advantageous to the Acquiring Portfolios or that it will hedge at an
appropriate time.
Foreign Securities. Certain Acquiring Portfolios may invest in foreign
securities and securities issued by U.S. entities with substantial foreign
operations in a manner consistent with its investment objective and policies.
Such foreign investments may involve significant risks in addition to those
risks normally associated with U.S. equity investments.
There may be less information publicly available about a foreign
corporate or government issuer than about a U.S. issuer, and foreign corporate
issuers are not generally subject to accounting, auditing and financial
reporting standards and practices comparable to those in the United States. The
securities of some foreign issuers are less liquid and at times more volatile
than securities of comparable U.S. issuers. Foreign brokerage commissions and
securities custody costs are often higher than those in the United States, and
judgments against foreign entities may be more difficult to obtain and enforce.
With respect to certain foreign countries, there is a possibility of
governmental expropriation of assets, confiscatory taxation, political or
financial instability and diplomatic developments that could affect the value of
investments in those countries. The receipt of interest on foreign government
securities may depend on the availability of tax or other revenues to satisfy
the issuer's obligations.
An Acquiring Portfolio's investments in foreign securities may include
investments in countries whose economies or securities markets are not yet
highly developed. Special considerations associated with these investments (in
addition to the considerations regarding foreign investments generally) may
include, among others, greater political uncertainties, an economy's dependence
on revenues from particular commodities or on international aid or developmental
assistance, currency transfer restrictions, illiquid markets, delays and
disruptions in securities settlement procedures.
Most foreign securities in an Acquiring Portfolio will be denominated
in foreign currencies or traded in securities markets in which settlements are
made in foreign currencies. Similarly, any income on such securities is
generally paid to an Acquiring Portfolio in foreign currencies. The value of
these foreign currencies relative to the U.S. dollar varies continually, causing
changes in the dollar value of an Acquiring Portfolio's investments (even if the
price of the investments is unchanged) and changes in the dollar value of an
Acquiring Portfolio's income available for distribution to its shareholders. The
effect of changes in the dollar value of a foreign currency on the dollar value
of an Acquiring Portfolio's assets and on the net investment income available
for distribution may be favorable or unfavorable.
An Acquiring Portfolio may incur costs in connection with conversions
between various currencies. In addition, an Acquiring Portfolio may be required
to liquidate portfolio assets, or may incur increased currency conversion costs,
to compensate for a decline in the dollar value of a foreign currency occurring
between the time when an Acquiring Portfolio declares and pays a dividend, or
between the time when an Acquiring Portfolio accrues and pays an operating
expense in U.S. dollars.
American Depository Receipts ("ADRs"), as well as other "hybrid" forms
of ADRs including European Depository Receipts and Global Depository Receipts,
are certificates evidencing ownership of shares of a foreign issuer. These
certificates are issued by depository banks and generally trade on an
established market in the United States or elsewhere. The underlying shares are
held in trust by a custodian bank or similar financial institution in the
issuer's home country. The depository bank may not have physical custody of the
underlying security at all times and may charge fees for various services,
including forwarding dividends and interest and corporate actions. ADRs are an
alternative to directly purchasing the underlying foreign securities in their
national markets and currencies. However, ADRs continue to be subject to the
risks associated with investing directly in foreign securities. These risks
include foreign exchange risks as well as the political and economic risks of
the underlying issuer's country.
Futures. See "Futures and Options" below.
High Yield-High Risk Debt Securities ("Junk Bonds"). High yield high
risk debt securities, often referred to as "junk bonds," are debt securities
that are rated lower than Baa by Moody's Investors Service or BBB by Standard &
Poor's Corporation, or of comparable quality if unrated. High yield securities
include certain corporate debt obligations, higher yielding preferred stock and
mortgage-related securities, and securities convertible into the foregoing.
Investments in high yield securities generally provide greater income
and increased opportunity for capital appreciation than investments in
higher-quality debt securities, but they also typically entail greater potential
price volatility and principal and income risk. Lower-quality debt securities
have poor protection with respect to the payment of interest and repayment of
principal, or may be in default. These securities are often considered to be
speculative and involve greater risk of loss or price changes due to changes in
the issuer's capacity to pay. The market prices of lower-quality debt securities
may fluctuate more than those of higher-quality debt securities and may decline
significantly in periods of general economic difficulty, which may follow
periods of rising interest rates.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can adversely affect
the prices at which the former are sold. Adverse publicity and changing investor
perceptions may affect the liquidity of lower-quality debt securities and the
ability of outside pricing services to value lower-quality debt securities. A
severe economic downturn or increase in interest rates might increase defaults
in high yield securities issued by highly leveraged companies. An increase in
the number of defaults could adversely affect the value of all outstanding high
yield securities, thus further disrupting the market for such securities.
High yield securities are more sensitive to adverse economic changes or
individual corporate developments but less sensitive to interest rate changes
than are Treasury or investment grade bonds. As a result, when interest rates
rise causing bond prices to fall, the value of high yield debt bonds tend not to
fall as much as Treasury or investment grade bonds. Conversely, when interest
rates fall, high yield bonds tend to underperform Treasury and investment grade
bonds because high yield bond prices tend not to rise as much as the prices of
these bonds.
The financial stress resulting from an economic downturn or adverse
corporate developments could have a greater negative effect on the ability of
issuers of high yield securities to service their principal and interest
payments, to meet projected business goals and to obtain additional financing
than on more creditworthy issuers. Holders of high yield securities could also
be at greater risk because high yield securities are generally unsecured and
subordinate to senior debt holders and secured creditors. If the issuer of a
high yield security owned by the Acquiring Portfolios defaults, the Acquiring
Portfolios may incur additional expenses to seek recovery. In addition, periods
of economic uncertainty and changes can be expected to result in increased
volatility of market prices of high yield securities and the Acquiring
Portfolios' net asset value. Furthermore, in the case of high yield securities
structured as zero coupon or pay-in-kind securities, their market prices are
affected to a greater extent by interest rate changes and thereby tend to be
more speculative and volatile than securities which pay in cash.
High yield securities present risks based on payment expectations. For
example, high yield securities may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, the
Acquiring Portfolios may have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Also, the value of high
yield securities may decrease in a rising interest rate market. In addition,
there is a higher risk of non-payment of interest and/or principal by issuers of
high yield securities than in the case of investment grade bonds.
Special tax considerations are associated with investing in high yield
securities structured as zero coupon or pay-in-kind securities. The Acquiring
Portfolios report the interest on these securities as income even though they
receive no cash interest until the security's maturity or payment date.
In addition, the credit ratings assigned to high yield securities may
not accurately reflect the true risks of an investment. Credit ratings typically
evaluate the safety of principal and interest payments, rather than the market
value risk of high yield securities. Credit agencies may also fail to adjust
credit ratings to reflect rapid changes in economic or company conditions that
affect a security's market value.
Because the risk of default is higher for lower-quality debt
securities, MCM and its sub-advisers will attempt to identify those issuers of
high-yielding securities whose financial conditions are adequate to meet future
obligations, have improved, or are expected to improve in the future. Although
the ratings of recognized rating services such as Moody's and Standard & Poor's
are considered, analysis will focus on relative values based on such factors as
interest or dividend coverage, asset coverage, existing debt, earnings
prospects, operating history, and the experience and managerial strength of the
issuer. Thus, the achievement of an Acquiring Portfolio's investment objective
may be more dependent on the investment adviser's own credit analysis than might
be the case for a portfolio which invests in higher quality bonds. MCM and its
sub-advisers continually monitor the investments in the Acquiring Portfolios and
carefully evaluate whether to dispose of or retain high yield securities whose
credit ratings have changed. The Acquiring Portfolios may retain a security
whose credit rating has changed.
New laws and proposed new laws may negatively affect the market for
high yield securities. As examples, recent legislation requires federally
insured savings and loan associations to divest themselves of their investments
in high yield securities, and pending proposals are designed to limit the use
of, or tax and eliminate other advantages of, high yield securities. Any such
proposals, if enacted, could negatively affect the Acquiring Portfolios' net
asset values.
An Acquiring Portfolio may choose, at its expense or in conjunction
with other involved parties, to pursue litigation or otherwise to exercise its
rights as a security holder to seek to protect the interests of security holders
if it determines this to be in the best interest of the Acquiring Portfolio's
shareholders.
Hybrid Instruments. Hybrid instruments have recently been developed and
combine the elements of futures contracts or options with those of debt,
preferred equity or depository instruments. Often these hybrid instruments are
indexed to the price of a commodity, particular currency, or a domestic or
foreign debt or equity securities index.
Hybrid instruments may bear interest or pay preferred dividends at
below market (or even relatively nominal) rates. Alternatively, hybrid
instruments may bear interest at above market rates but bear an increased risk
of principal loss (or gain). Hybrid instruments can also be an efficient means
of creating exposure to a particular market, or segment of a market, with the
objective of enhancing total return.
Hybrid instruments may take a variety of forms, including, but not
limited to, debt instruments with interest or principal payments or redemption
terms determined by reference to the value of a currency or commodity or
securities index at a future point in time, preferred stock with dividend rates
determined by reference to the value of a currency, or convertible securities
with the conversion terms related to a particular commodity. The risks
associated with hybrid instruments reflect a combination of the risks of
investing in securities, options, futures and currencies, including volatility
and lack of liquidity. Further, the prices of the hybrid instrument and the
related commodity or currency may not move in the same direction or at the same
time.
Illiquid Securities. The term "illiquid securities" or non-publicly
traded securities, means securities that cannot be sold in the ordinary course
of business within seven days at approximately the price used in determining an
Acquiring Portfolio's net asset value. Under the supervision of the Maxim Board,
MCM determines the liquidity of portfolio securities and, through reports from
MCM, the Maxim Board monitors investments in illiquid securities. Certain types
of securities are considered generally to be illiquid. Included among these are
"restricted securities" which are securities whose public resale is subject to
legal restrictions. However, certain types of restricted securities (commonly
known as "Rule 144A securities") that can be resold to qualified institutional
investors may be treated as liquid if they are determined to be readily
marketable pursuant to policies and guidelines of the Maxim Board.
An Acquiring Portfolio may be unable to sell illiquid securities when
desirable or may be forced to sell them at a price that is lower than the price
at which they are valued or that could be obtained if the securities were more
liquid. In addition, sales of illiquid securities may require more time and may
result in higher dealer discounts and other selling expenses than do sales of
securities that are not illiquid. Illiquid securities may also be more difficult
to value due to the unavailability of reliable market quotations for such
securities.
Interest Rate Transactions. Interest rate swaps and interest rate caps
and floors are types of hedging transactions which are utilized to attempt to
protect the Acquiring Portfolio against and potentially benefit from
fluctuations in interest rates and to preserve a return or spread on a
particular investment or portion of the Acquiring Portfolio's holdings. These
transactions may also be used to attempt to protect against possible declines in
the market value of the Acquiring Portfolio's assets resulting from downward
trends in the debt securities markets (generally due to a rise in interest
rates) or to protect unrealized gains in the value of the Acquiring Portfolio's
holdings, or to facilitate the sale of such securities.
Interest rate swaps involve the exchange with another party of
commitments to pay or receive interest; e.g., an exchange of fixed rate payments
for variable rate payments. 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 notional principal amount from the
party selling such 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 notional
principal amount from the party selling such interest rate floor.
The successful utilization of interest rate transactions depends on the
Acquiring Portfolio manager's ability to predict correctly the direction and
degree of movements in interest rates. If the Acquiring Portfolio manager's
judgment about the direction or extent of movement in interest rates is
incorrect, the Acquiring Portfolio's overall performance would be worse than if
it had not entered into such transactions. For example, if the Acquiring
Portfolio purchases an interest rate swap or an interest rate floor to hedge
against the expectation that interest rates will decline but instead interest
rates rise, the Acquiring Portfolio would lose part or all of the benefit of the
increased payments it would receive as a result of the rising interest rates
because it would have to pay amounts to its counterparts under the swap
agreement or would have paid the purchase price of the interest rate floor.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and
agents utilizing standardized swap documentation. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. Interest rate
swaps, caps and floors are considered by the Staff of the SEC to be illiquid
securities and, therefore, the Acquiring Portfolio may not invest more than 15%
of its assets in such instruments. Finally, there can be no assurance that the
Acquiring Portfolio will be able to enter into interest rate swaps or to
purchase interest rate caps or floors at prices or on terms the Acquiring
Portfolio manager believes are advantageous to the Acquiring Portfolio. In
addition, although the terms of interest rate swaps, caps and floors may provide
for termination, there can be no assurance that the Acquiring Portfolio will be
able to terminate an interest rate swap or to sell or offset interest rate caps
or floors that it has purchased.
Investment Companies. Each Acquiring Portfolio may invest in shares of
mutual funds within the limitations of the 1940 Act and any orders issued by the
SEC. The 1940 Act generally prohibits an Acquiring Portfolio from acquiring more
than 3% of the outstanding voting shares of an investment company and limits
such investments to no more than 5% of the Acquiring Portfolio's total assets in
any investment company and no more than 10% in any combination of unaffiliated
contracts (unless other limitations have been granted in an order issued by the
SEC). The 1940 Act further prohibits an Acquiring Portfolio from acquiring in
the aggregate more than 10% of the outstanding voting shares of any registered
closed-end investment company.
Investments of the Underlying Portfolios (investment companies in which
the Acquiring Portfolios may invest), the different types of securities the
Underlying Portfolios typically invest in, the investment techniques they may
use and the risks normally associated with these investments are discussed
below. Not all investments that may be made by Underlying Portfolios are
currently known. Not all Underlying Portfolios discussed below are eligible
investments for each Acquiring Portfolio. An Acquiring Portfolio will invest in
Underlying Portfolios that are intended to help achieve its investment
objective.
Mutual Funds are registered investment companies, which may issue and
redeem their shares on a continuous basis (open-end mutual funds) or may offer a
fixed number of shares usually listed on an exchange (closed-end mutual funds).
Exchange Traded Funds, which are also a type of mutual fund, are discussed
above. Mutual funds generally offer investors the advantages of diversification
and professional investment management by combining shareholders' money and
investing it in various types of securities, such as stocks, bonds and money
market securities. Mutual funds also make various investments and use certain
techniques in order to enhance their performance. These may include entering
into delayed-delivery and when-issued securities transactions or swap
agreements, buying and selling futures contracts, illiquid and restricted
securities and repurchase agreements, and borrowing or lending money and/or
portfolio securities. The risks of investing in mutual funds generally reflect
the risks of the securities in which the mutual funds invest and the investment
techniques they may employ. Also, mutual funds charge fees and incur operating
expenses.
Stock Funds typically seek growth of capital and invest primarily in
equity securities. Other investments generally include debt securities, such as
U.S. government securities, and some illiquid and restricted securities. Stock
funds typically may enter into delayed-delivery or when-issued issued securities
transactions, repurchase agreements, swap agreements and futures and options
contracts. Some stock funds invest exclusively in equity securities and may
focus in a specialized segment of the stock market, like stocks of small
companies or foreign issuers, or may focus in a specific industry or group of
industries. The greater a fund's investment in stock, the greater exposure it
will have to stock risk and stock market risk. Stock risk is the risk that a
stock may decline in price over the short or long term. When a stock's price
declines, its market value is lowered even though the intrinsic value of the
company may not have changed. Some stocks, like small company and international
stocks, are more sensitive to stock risk than others. Diversifying investments
across companies can help to lower the stock risk of a portfolio. Market risk is
typically the result of a negative economic condition that affects the value of
an entire class of securities, such as stocks or bonds. Diversification among
various asset classes, such as stocks, bonds and cash, can help to lower the
market risk of a portfolio. A stock fund's other investments and use of
investment techniques also will affect its performance and portfolio value.
Small-Cap Stock Funds seek capital growth and invest primarily in
equity securities of companies with smaller market capitalization. Small-cap
stock funds generally make similar types of investments and employ similar types
of techniques as other stock funds, except that they focus on stocks issued by
companies at the lower end of the total capitalization of the U.S. stock market.
These stocks tend to be more volatile than stocks of companies of larger
capitalized companies. Small-cap stock funds, therefore, tend to be more
volatile than stock funds that invest in mid- or large-cap stocks, and are
normally recommended for long-term investors.
International Stock Funds seek capital growth and invest primarily in
equity securities of foreign issuers. Global stock funds invest primarily in
equity securities of both domestic and foreign issuers. International and global
stock funds generally make similar types of investments and employ similar types
of investment techniques as other stock funds, except they focus on stocks of
foreign issuers. Some international stock and global stock funds invest
exclusively in foreign securities. Some of these funds invest in securities of
issuers located in emerging or developing securities markets. These funds have
greater exposure to the risks associated with international investing.
International and global stock funds also may invest in foreign currencies and
depositary receipts and enter into futures and options contracts on foreign
currencies and forward foreign currency exchange contracts.
Bond Funds seek high current income by investing primarily in debt
securities, including U.S. government securities, corporate bonds, stripped
securities and mortgage- and asset-backed securities. Other investments may
include some illiquid and restricted securities. Bond funds typically enter into
delayed-delivery or when-issued securities transactions, repurchase agreements,
swap agreements and futures contracts. Bond funds are subject to interest rate
and income risks as well as credit and prepayment risks. When interest rates
fall, the prices of debt securities generally rise, which may affect the values
of bond funds and their yields. For example, when interest rates fall, issuers
tend to pre-pay their outstanding debts and issue new ones paying lower interest
rates. A bond fund holding these securities would be forced to invest the
principal received from the issuer in lower yield debt securities. Conversely,
in a rising interest rate environment, prepayment on outstanding debt securities
generally will not occur. This risk is known as extension risk and may affect
the value of a bond fund if the value of its securities is depreciated as a
result of the higher market interest rates. Bond funds also are subject to the
risk that the issuers of the securities in their portfolios will not make timely
interest and/or principal payments or fail to make them at all.
Money Market Funds typically seek current income and a stable share
price of $1.00 by investing in money market securities. Money market securities
include commercial paper and short-term U.S. government securities, certificates
of deposit, banker's acceptances and repurchase agreements. Some money market
securities may be illiquid or restricted securities or purchased on a
delayed-delivery or when-issued basis.
Lending of Portfolio Securities. Subject to Investment Restrictions
described below for all Maxim Portfolios, including Acquiring Portfolios, each
Portfolio of Maxim from time-to-time may lend its portfolio securities to
brokers, dealers and financial institutions. No lending may be made with any
companies affiliated with MCM or the sub-advisers. Securities lending allows a
fund to retain ownership of the securities loaned and, at the same time, to earn
additional income.
Because there may be delays in the recovery of loaned securities, or
even a loss of rights in collateral supplied should the borrower fail
financially, loans will be made only to parties deemed by MCM to be of good
standing. Furthermore, they will only be made if, in MCM's judgment, the
consideration to be earned from such loans would justify the risk.
MCM understands that it is the current view of the SEC Staff that an
Acquiring Portfolio may engage in loan transactions only under the following
conditions: (1) the Acquiring Portfolio must receive 100% collateral in the form
of cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned (determined on a daily basis) rises above the
value of the collateral; (3) after giving notice, the Acquiring Portfolio must
be able to terminate the loan at any time; (4) the Acquiring Portfolio must
receive reasonable interest on the loan or a flat fee from the borrower, as well
as amounts equivalent to any dividends, interest, or other distributions on the
securities loaned and to any increase in market value; (5) the Acquiring
Portfolio may pay only reasonable custodian fees in connection with the loan;
and (6) the Maxim Board must be able to vote proxies on the securities loaned,
either by terminating the loan or by entering into an alternative arrangement
with the borrower.
Cash received through loan transactions may be invested in other
eligible securities. Investing this cash subjects that investment, as well as
the security loaned, to market forces (i.e., capital appreciation or
depreciation).
Lower Quality Debt Securities. Lower quality debt securities are
securities that are rated in the lower categories by nationally recognized
statistical rating organizations (i.e., Ba or lower by Moody's and BB or lower
by Standard & Poor's) or unrated securities of comparable quality. Lower-quality
debt securities have poor protection with respect to the payment of interest and
repayment of principal, or may be in default. Although these securities
generally provide greater income than investments in higher rated securities,
they are often considered to be speculative and involve greater risk of loss or
price changes due to changes in the issuer's capacity to pay. The market prices
of lower-quality debt securities may fluctuate more than those of higher-quality
debt securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can adversely affect
the prices at which the former are sold. Adverse publicity and changing investor
perceptions may affect the liquidity of lower-quality debt securities and the
ability of outside pricing services to value lower-quality debt securities.
Because the risk of default is higher for lower-quality debt
securities, research and credit analysis are an especially important part of
managing securities of this type. MCM and its sub-advisers will attempt to
identify those issuers of high-yielding securities whose financial conditions
are adequate to meet future obligations, have improved, or are expected to
improve in the future. Although the ratings of recognized rating services such
as Moody's and Standard & Poor's are considered, analysis will focus on relative
values based on such factors as interest or dividend coverage, existing debt,
asset coverage, earnings prospects, operating history, and the experience and
managerial strength of the issuer. Thus, the achievement of an Acquiring
Portfolio's investment objective may be more dependent on the investment
adviser's own credit analysis than might be the case for a portfolio which
invests in higher quality bonds. MCM and its sub-advisers continually monitor
the investments in the Acquiring Portfolios and carefully evaluate whether to
dispose of or retain lower quality securities whose credit ratings have changed.
The Acquiring Portfolios may retain a security whose credit rating has changed.
An Acquiring Portfolio may choose, at its expense or in conjunction
with others, to pursue litigation or otherwise to exercise its rights as a
security holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the Acquiring Portfolio's
shareholders.
Money Market Instruments and Temporary Defensive and Other Short-Term
Positions. The Acquiring Portfolios each may hold cash or cash equivalents and
may invest in short-term, high-quality debt instruments (that is in "money
market instruments") as deemed appropriate by MCM or the applicable sub-adviser,
or may invest any or all of their assets in money market instruments as deemed
necessary by MCM or the applicable sub-adviser for temporary defensive purposes.
The types of money market instruments in which such Acquiring
Portfolios may invest include, but are not limited to: (1) bankers' acceptances;
(2) obligations of U.S. and non-U.S. governments and their agencies and
instrumentalities; (3) short-term corporate obligations, including commercial
paper, notes, and bonds; (4) obligations of U.S. banks, non-U.S. branches of
such banks (Eurodollars), U.S. branches and agencies of non-U.S. banks (Yankee
dollars), and non-U.S. branches of non-U.S. banks; (5) asset-backed securities;
and (6) repurchase agreements.
Mortgage-Backed Securities. Mortgage-backed securities may be issued by
government and non-government entities such as banks, mortgage lenders, or other
financial institutions. A mortgage security is an obligation of the issuer
backed by a mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Some mortgage-backed securities, such as collateralized
mortgage obligations or CMOs, make payments of both principal and interest at a
variety of intervals; others make semi-annual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Mortgage-backed securities are based on different types of mortgages including
those on commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
investment in such securities may be made if deemed consistent with investment
objectives and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their total returns.
Options. See "Futures and Options" below.
Preferred Stock. Preferred stock is a class of equity or ownership in
an issuer that pays dividends at a specified rate and that has precedence over
common stock in the payment of dividends. In the event an issuer is liquidated
or declares bankruptcy, owners of bonds take precedence over the claims of those
who own preferred and common stock.
Repurchase Agreements. Repurchase agreements involve an agreement to
purchase a security and to sell that security back to the original seller at an
agreed-upon price. Such agreements may be considered to be loans by the
Acquiring Portfolios for purposes of the 1940 Act. Each repurchase agreement
must be collateralized fully, in accordance with the provisions of Rule 5b-3
under the 1940 Act. 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. As protection against the risk that the original
seller will not fulfill its obligation, the securities are held in a separate
account at a bank, marked-to-market daily, and maintained at a value at least
equal to the sale price plus the accrued incremental amount, and MCM or its
sub-advisers will monitor the value of the collateral. The value of the security
purchased may be more or less than the price at which the counterparty has
agreed to purchase the security. In addition, delays or losses could result if
the other party to the agreement defaults or becomes insolvent. An Acquiring
Portfolio will engage in repurchase agreement transactions with parties whose
creditworthiness has been reviewed and found satisfactory by MCM.
Reverse Repurchase Agreements. Reverse repurchase agreements involve
the sale of securities held by the seller, with an agreement to repurchase the
securities at an agreed upon price, date and interest payment. The seller will
use the proceeds of the reverse repurchase agreements to purchase other money
market securities either maturing, or under an agreement to resell, at a date
simultaneous with or prior to the expiration of the reverse repurchase
agreement. The seller will utilize reverse repurchase agreements when the
interest income to be earned from the investment of the proceeds from the
transaction is greater than the interest expense of the reverse repurchase
transaction. These agreements are considered to be borrowings under the 1940
Act. Under the 1940 Act, the Acquiring Portfolio is required to maintain
continuous asset coverage of 300% with respect to borrowings and to sell (within
three days) sufficient portfolio holdings to restore such coverage if it should
decline to less than 300% due to market fluctuations or otherwise, even if such
liquidations of the Acquiring Portfolio's holdings may be disadvantageous from
an investment standpoint. An Acquiring Portfolio will enter into reverse
repurchase agreements with parties whose creditworthiness has been reviewed and
found satisfactory by MCM. Such transactions may increase fluctuations in the
market value of fund assets and may be viewed as a form of leverage.
Short Sales "Against the Box." Short sales "against the box" are short
sales of securities that an Acquiring Portfolio owns or has the right to obtain
(equivalent in kind or amount to the securities sold short). If an Acquiring
Portfolio enters into a short sale against the box, it will be required to set
aside securities equivalent in kind and amount to the securities sold short (or
securities convertible or exchangeable into such securities) and will be
required to hold such securities while the short sale is outstanding. The
Acquiring Portfolio will incur transaction costs, including interest expenses,
in connection with opening, maintaining, and closing short sales against the
box.
An Acquiring Portfolio's decision to make a short sale against the box
may be a technique to hedge against market risks when MCM or its sub-advisers
believes that the price of a security may decline, causing a decline in the
value of a security owned by the Acquiring Portfolio or a security convertible
into or exchangeable for such security. In such case, any future losses in the
Acquiring Portfolio's long position would be reduced by a gain in the short
position. The extent to which such gains or losses in the long position are
reduced will depend upon the amount of securities sold short relative to the
amount of the securities the Acquiring Portfolio owns, either directly or
indirectly, and in the case where the Acquiring Portfolio owns convertible
securities, changes in the investment values or conversion premiums of such
securities.
Stripped Treasury Securities. Certain Acquiring Portfolios may invest
in zero-coupon bonds. These securities are U.S. Treasury bonds which have been
stripped of their unmatured interest coupons, the coupons themselves, and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Interest is not paid in cash during the term of these
securities, but is accrued and paid at maturity. Such obligations have greater
price volatility than coupon obligations and other normal interest-paying
securities, and the value of zero coupon securities reacts more quickly to
changes in interest rates than do coupon bonds. Because dividend income is
accrued throughout the term of the zero coupon obligation, but not actually
received until maturity, an Acquiring Portfolio may have to sell other
securities to pay said accrued dividends prior to maturity of the zero coupon
obligation. Zero coupon securities are purchased at a discount from face value,
the discount reflecting the current value of the deferred interest. The discount
is taxable even though there is no cash return until maturity.
Structured Securities. Structured securities are interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans or Brady bonds)
and the issuance by that entity of one or more classes of securities backed by,
or representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly-issued structured
securities to create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured securities is dependent
on the extent of the cash flow on the underlying instruments. The credit risk
generally will be equivalent to that of the underlying instruments.
Structured securities may be either subordinated or unsubordinated to
the right of payment of another class. Subordinated structured securities
typically have higher yields and present greater risks than unsubordinated
structured securities.
Certain issuers of structured securities may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, any investment
in these structured securities may be limited by the restrictions contained in
the 1940 Act.
Supranational Entities. Certain Acquiring Portfolios may invest in
obligations of supranational entities. A supranational entity is an entity
designated or supported by national governments to promote economic
reconstruction, development or trade amongst nations. Examples of supranational
entities include the International Bank for Reconstruction and Development (the
"World Bank") and the European Investment Bank. Obligations of supranational
entities are subject to the risk that the governments on whose support the
entity depends for its financial backing or repayment may be unable or unwilling
to provide that support. Obligations of a supranational entity that are
denominated in foreign currencies will also be subject to the risks associated
with investments in foreign currencies, as described above, under "Foreign
Securities."
Swap Deposits. Swap deposits are foreign currency short-term
investments consisting of a foreign exchange contract, a short-term note in
foreign currency and a foreign exchange forward contract that is totally hedged
in U.S. currency. This type of investment can produce competitive yield in U.S.
dollars without incurring risks of foreign exchange.
Time Deposits. A time deposit is a deposit in a commercial bank for a
specified period of time at a fixed interest rate for which a negotiable
certificate is not received.
U.S. Government Securities. These are securities issued or guaranteed
as to principal and interest by the U.S. government or its agencies or
instrumentalities. U.S. Treasury bills and notes and certain agency securities,
such as those issued by the Government National Mortgage Association, are backed
by the full faith and credit of the U.S. government. Securities of other
government agencies and instrumentalities are not backed by the full faith and
credit of U.S. government. These securities have different degrees of government
support and may involve the risk of non-payment of principal and interest. For
example, some are supported by the agency's right to borrow from the U.S.
Treasury under certain circumstances, such as those of the Federal Home Loan
Banks. Others are supported by the discretionary authority of the U.S.
government to purchase certain obligations of the agency or instrumentality,
such as those of the Federal National Mortgage Association. Still others are
supported only by the credit of the agency that issued them, such as those of
the Student Loan Marketing Association. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities, and
consequently, the value of such securities may fluctuate.
Some U.S. Government securities, called "Treasury inflation-protected
securities" or "TIPS," are fixed income securities whose principal value is
periodically adjusted according to the rate of inflation. The interest rate on
TIPS is fixed at issuance, but over the life of the bond this interest may be
paid on an increasing or decreasing principal value that has been adjusted for
inflation. Although repayment of the original bond principal upon maturity is
guaranteed, the market value of TIPS is not guaranteed, and will fluctuate.
The values of TIPS generally fluctuate in response to changes in real
interest rates, which are in turn tied to the relationship between nominal
interest rates and the rate of inflation. If inflation were to rise at a faster
rate than nominal interest rates, real interest rates might decline, leading to
an increase in value of TIPS. In contrast, if nominal interest rates increased
at a faster rate than inflation, real interest rates might rise, leading to a
decrease in value of TIPS. If inflation is lower than expected during the period
an Acquiring Portfolio holds TIPS, the Acquiring Portfolio may earn less on the
TIPS than on a conventional bond. If interest rates rise due to reasons other
than inflation (for example, due to changes in currency exchange rates),
investors in TIPS may not be protected to the extent that the increase is not
reflected in the bonds' inflation measure. There can be no assurance that the
inflation index for TIPS will accurately measure the real rate of inflation in
the prices of goods and services.
Variable Amount Master Demand Notes. A variable amount master demand
note is a note which fixes a minimum and maximum amount of credit and provides
for lending and repayment within those limits at the discretion of the lender.
Before investing in any variable amount master demand notes, the liquidity of
the issuer must be determined through periodic credit analysis based upon
publicly available information.
Variable or Floating Rate Securities. These securities have interest
rates that are adjusted periodically, or which "float" continuously according to
formulas intended to stabilize their market values. Many of them also carry
demand features that permit the Acquiring Portfolios to sell them on short
notice at par value plus accrued interest. When determining the maturity of a
variable or floating rate instrument, the Acquiring Portfolio may look to the
date the demand feature can be exercised, or to the date the interest rate is
readjusted, rather than to the final maturity of the instrument.
Warrants. Warrants basically are options to purchase equity securities
at a specific price valid for a specific period of time. They do not represent
ownership of the securities, but only the right to buy them. Warrants are
speculative in that they have no voting rights, pay no dividends and have no
rights with respect to the assets of the corporation issuing them. Warrants
differ from call options in that warrants are issued by the issuer of the
security which may be purchased on their exercise, whereas call options may be
written or issued by anyone. The prices of warrants do not necessarily move
parallel to the prices of the underlying securities.
When-Issued and Delayed-Delivery Transactions. When-issued or
delayed-delivery transactions arise when securities are purchased or sold with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield at the time of entering into
the transaction. While the Acquiring Portfolios generally purchase securities on
a when-issued basis with the intention of acquiring the securities, the
Acquiring Portfolios may sell the securities before the settlement date if MCM
or the applicable sub-adviser deems it advisable. At the time an Acquiring
Portfolio makes the commitment to purchase securities on a when-issued basis,
the Acquiring Portfolio will record the transaction and thereafter reflect the
value, each day, of such security in determining the net asset value of the
Acquiring Portfolio. At the time of delivery of the securities, the value may be
more or less than the purchase price. An Acquiring Portfolio will maintain, in a
segregated account, liquid assets having a value equal to or greater than the
Acquiring Portfolio's purchase commitments; likewise an Acquiring Portfolio will
segregate securities sold on a delayed-delivery basis.
Futures and Options
Futures Contracts. When an Acquiring Portfolio purchases a futures
contract, it agrees to purchase a specified underlying instrument at a specified
future date. When an Acquiring Portfolio sells a futures contract, it agrees to
sell the underlying instrument at a specified future date. The price at which
the purchase and sale will take place is fixed when the Acquiring Portfolio
enters into the contract. Futures can be held until their delivery dates, or can
be closed out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore, purchasing
futures contracts will tend to increase an Acquiring Portfolio's exposure to
positive and negative price fluctuations in the underlying instrument, much as
if it had purchased the underlying instrument directly. When an Acquiring
Portfolio sells a futures contract, by contrast, the value of its futures
position will tend to move in a direction contrary to the market.
Futures Margin Payments. The purchaser 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 purchaser and seller
are required to deposit "initial margin" with a futures broker, known as a
futures commission merchant ("FCM"), when they enter into the contract. Initial
margin deposits are typically equal to a percentage of the contract's value. If
the value of either party's position declines, that party will be required to
make additional "variation margin" payments 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. Initial and variation margin payments do not constitute
purchasing securities on margin for purposes of an Acquiring Portfolio's
investment limitations. In the event of a bankruptcy of an FCM that holds margin
on behalf of an Acquiring Portfolio, the Acquiring Portfolio may be entitled to
return of margin owed to it only in proportion to the amount received by the
FCM's other customers, potentially resulting in losses to the Acquiring
Portfolio.
Index Futures Contracts. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying security in the index
is made.
Purchasing Put and Call Options. By purchasing a put option, an
Acquiring Portfolio obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Acquiring Portfolio pays the current market price for the option
(known as the option premium). Options have various types of underlying
instruments, including specific securities, indices of securities prices, and
futures contracts. The Acquiring Portfolio may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option. If
the option is allowed to expire, the Acquiring Portfolio will lose the entire
premium it paid. If the Acquiring Portfolio exercises the option, it completes
the sale of the underlying instrument at the strike price. An Acquiring
Portfolio may also terminate a put option position by closing it out in the
secondary market (that is by selling it to another party) at its current price,
if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to suffer
a loss if security prices do not rise sufficiently to offset the cost of the
option.
Writing Put and Call Options. When an Acquiring Portfolio writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Acquiring Portfolio assumes
the obligation to pay the strike price for the option's underlying instrument if
the other party to the option chooses to exercise it. When writing an option on
a futures contract, the Acquiring Portfolio will be required to make margin
payments to an FCM as described above for futures contracts. An Acquiring
Portfolio may seek to terminate its position in a put option it writes before
exercise by closing out the option in the secondary market at its current price.
If the secondary market is not liquid for a put option the Acquiring Portfolio
has written, however, the Acquiring Portfolio must continue to be prepared to
pay the strike price while the option is outstanding, regardless of price
changes, and must continue to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss from
purchasing the underlying instrument directly, which can exceed the amount of
the premium received.
Writing a call option obligates an Acquiring Portfolio to sell or
deliver the option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options are similar
to those of writing put options, except that writing calls generally is a
profitable strategy if prices remain the same or fall. Through receipt of the
option premium, a call writer can mitigate the effect of a price decline. At the
same time, a call writer gives up some ability to participate in security price
increases.
OTC Options. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter ("OTC") options (options not traded
on exchanges) generally are established through negotiation with the other party
to the option contract. While this type of arrangement allows the Acquiring
Portfolios greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which are
guaranteed by the clearing organization of the exchanges where they are traded.
Options and Futures Relating to Foreign Currencies. Currency futures
contracts are similar to forward currency exchange contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call option obtains the right to purchase the underlying currency, and
the purchaser of a currency put obtains the right to sell the underlying
currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above.
Certain Acquiring Portfolios may purchase and sell currency futures and may
purchase and write currency options to increase or decrease their exposure to
different foreign currencies. An Acquiring Portfolio may also purchase and write
currency options in conjunction with each other or with currency futures or
forward contracts. Currency futures and options values can be expected to
correlate with exchange rates, but may not reflect other factors that affect the
value of an Acquiring Portfolio's investments. A currency hedge, for example,
should protect a Yen-denominated security from a decline in the Yen, but will
not protect an Acquiring Portfolio against a price decline resulting from
deterioration in the issuer's creditworthiness. Because the value of an
Acquiring Portfolio's foreign-denominated investments changes in response to
many factors other than exchange rates, it may not be possible to match the
amount of currency options and futures to the value of the Acquiring Portfolio's
investments exactly over time.
Asset Coverage for Futures and Options Positions. The Acquiring
Portfolios will comply with guidelines established by the SEC with respect to
coverage of options and futures strategies by mutual funds, and if the
guidelines so require will set aside appropriate liquid assets in a segregated
custodial account in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or option strategy is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of an Acquiring Portfolio's
assets could impede portfolio management or the Acquiring Portfolio's ability to
meet redemption requests or other current obligations.
Combined Positions. An Acquiring Portfolio may purchase and write
options in combination with each other, or in combination with futures or
forward contracts, to adjust the risk and return characteristics of the overall
position. For example, an Acquiring Portfolio may purchase a put option and
write a call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to selling a
futures contract. Another possible combined position would involve writing a
call option at one strike price and buying a call option at a lower price, in
order to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
Correlation of Price Changes. Options and futures prices can also
diverge from the prices of their underlying instruments, even if the underlying
instruments match an Acquiring Portfolio's investments well. Options and futures
prices are affected by such factors as current and anticipated short-term
interest rates, changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect security prices
the same way. Imperfect correlation may also result from differing levels of
demand in the options and futures markets and the securities markets, from
structural differences in how options and futures and securities are traded, or
from imposition of daily price fluctuation limits or trading halts. An Acquiring
Portfolio may purchase or sell options and futures contracts with a greater or
lesser value than the securities it wishes to hedge or intends to purchase in
order to attempt to compensate differences in volatility between the contract
and the securities, although this may not be successful in all cases. If price
changes in an Acquiring Portfolio's options or futures positions are poorly
correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
Limitations on Futures and Options Transactions. Maxim has filed a
notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity Futures Trading Commission and the National
Futures Association, which regulate trading in the futures markets. The
Acquiring Portfolios intend to comply with Rule 4.5 under the Commodity Exchange
Act, which limits the extent to which the Acquiring Portfolios can commit assets
to initial margin deposits and option premiums. Accordingly, to the extent that
an Acquiring Portfolio may invest in futures contracts and options, an Acquiring
Portfolio may only enter into futures contracts and option positions for other
than bona fide hedging purposes to the extent that the aggregate initial margin
and premiums required to establish such positions will not exceed 5% of the
liquidation value of the Acquiring Portfolio. This limitation on an Acquiring
Portfolio's permissible investments in futures contracts and options is not a
fundamental investment limitation and may be changed as regulatory agencies
permit.
Liquidity of Options and Futures Contracts. There is no assurance that
a liquid secondary market will exist for any particular option or futures
contract at any particular time. Options may have relatively low trading volume
and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and 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 or a trading
halt is imposed, it may be impossible for an Acquiring Portfolio to enter into
new positions or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and potentially could
require an Acquiring Portfolio to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, an Acquiring
Portfolio's access to assets held to cover its options or futures positions
could also be impaired.
INVESTMENT RESTRICTIONS
Maxim has adopted limitations on the investment activity of its
Portfolios, including the Acquiring Portfolios, which are fundamental policies
and may not be changed without the approval of the holders of a majority of the
outstanding voting shares of the affected Portfolio. These limitations apply to
all Maxim Portfolios. If changes to the fundamental policies of only one
Portfolio are being sought, only shares of that Portfolio are entitled to vote.
"Majority" for this purpose and under 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 represented or (ii) more than 50% of the outstanding shares. A
complete statement of all such limitations is set forth below.
Fundamental Investment Restrictions
1. Borrowing. Maxim (i.e., each Maxim Portfolio, including the
Acquiring Portfolios) will not borrow money except that Maxim may (i) borrow for
non-leveraging, temporary, or emergency purposes; and (ii) engage in reverse
repurchase agreements and make other investments or engage in other
transactions, which may involve borrowing, in a manner consistent with Maxim's
investment objective and program, provided that any such borrowings comply with
applicable regulatory requirements..
2. Commodities, Futures, And Options Thereon. Maxim (i.e., each Maxim
Portfolio, including the Acquiring Portfolios) will not purchase or sell
physical commodities; except that it may purchase and sell derivatives
(including, but not limited to, futures contracts and options on futures
contracts). Maxim does not consider currency contracts or hybrid investments to
be commodities.
3. Industry Concentration. Maxim (i.e., each Maxim Portfolio, including
the Acquiring Portfolios) will not purchase the securities of any issuer if, as
a result, more than 25% of the value of Maxim's net assets would be invested in
the securities of issuers having their principal business activities in the same
industry; provided there shall be no limitation on the purchase of obligations
issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities, or of certificates of deposit or bankers acceptances. It is
the current position of the staff of the SEC that foreign governments are
industries for purposes of this restriction.
Notwithstanding the foregoing, each of Maxim Index 600 and Maxim S&P
500 Index(R) may concentrate its investments in a particular industry or group
of industries to approximately the same extent as its benchmark index if its
benchmark index (as described in the current prospectuses for Maxim Index 600
and Maxim S&P 500 Index(R)) is so concentrated; for purposes of this limitation,
whether Maxim Index 600 and/or Maxim S&P 500 Index(R) is concentrating in an
industry or group of industries shall be determined in accordance with the 1940
Act and as interpreted or modified from time to time by any regulatory or
judicial authority having jurisdiction.
4. Loans. Maxim (i.e., each Maxim Portfolio, including the Acquiring
Portfolios) will not make loans, although Maxim may (i) lend portfolio
securities; (ii) enter into repurchase agreements; and (iii) acquire debt
securities, bank loan participation interests, bank certificates of deposit,
bankers' acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities; and (iv) purchase
debt.
5. Diversification. Maxim (i.e., each Maxim Portfolio, including the
Acquiring Portfolios) will not, with respect to 75% of the value of the
Portfolio's total assets, purchase a security if, as a result (i) more than 5%
of the value of the Portfolio's total assets would be invested in the securities
of a single issuer (other than the U.S. government or any of its agencies or
instrumentalities or repurchase agreements collateralized by U.S. government
securities, and other investment companies) or (ii) more than 10% of the
outstanding voting securities of any issuer would be held by Maxim (other than
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities or by other investment companies). This investment restriction
does not apply to Maxim Index 600 and Maxim S&P 500 Index(R), as the Acquiring
Portfolios are considered non-diversified for purposes of the 1940 Act.
6. Real Estate. Maxim (i.e., each Maxim Portfolio, including the
Acquiring Portfolios) will not purchase or sell real estate, including limited
partnership interests therein, unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent Maxim from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business).
7. Senior Securities. Maxim (i.e., each Maxim Portfolio, including the
Acquiring Portfolios) will not issue senior securities except in compliance with
the 1940 Act.
8. Underwriting. Maxim (i.e., each Maxim Portfolio, including the
Acquiring Portfolios) will not underwrite securities issued by other persons,
except to the extent Maxim may be deemed to be an underwriter under applicable
law in connection with the sale of its portfolio securities in the ordinary
course of pursuing its investment program.
Non-fundamental Investment Restrictions
In accordance with the requirements of Rule 35d-1 under the 1940 Act,
it is a non-fundamental policy of Maxim S&P 500 Index(R) to normally invest at
least 80% of the value of its net assets plus the amount of any borrowings for
investment purposes in the particular type of investments suggested by the
Portfolio's name. If the Maxim Board determines to change the non-fundamental
policy for Maxim S&P 500 Index(R), that Portfolio will provide no less than 60
days prior notice to its shareholders before implementing the change of policy.
Maxim has also adopted the following additional operating restrictions
that are not fundamental and may be changed by the Maxim Board without
shareholder approval.
Under these policies, Maxim (i.e., each Maxim Portfolio, including the
Acquiring Portfolios) will not:
1. Purchase a futures contract or an option thereon, if, with respect
to positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums required to establish such
positions would exceed 5% of Maxim's net asset value;
2. Purchase illiquid securities if, as a result, more than 15% of its
net assets would be invested in such securities;
3. Purchase securities of open-end or closed-end investment companies
except in compliance with the 1940 Act and any orders issued by the SEC; or
4. Purchase participations or other direct interest in, or enter into
leases with respect to oil, gas, or other mineral exploration or development
programs if, as a result thereof, more than 5% of the value of the total assets
of Maxim would be invested in such programs, except that Maxim may purchase
securities of issuers which invest or deal in the above.
MAXIM DIRECTORS AND OFFICERS
Maxim is organized under Maryland law, and is governed by the Board of
Directors. The Board is responsible for overall management of Maxim's business
affairs. The Directors meet at least four times during the year to, among other
things, oversee Maxim's activities, review contractual arrangements with
companies that provide services to Maxim, and review performance.
Information regarding the Maxim Directors and executive officers
including their ages, position(s) with Maxim, and their principal occupations
during the last five years (or as otherwise indicated) are set forth in the
following table. The business address of each Director and officer is 8515 East
Orchard Road, Greenwood Village, Colorado 80111 (unless otherwise indicated).
There are no arrangements or understanding between any Director or
officer and any other person(s) pursuant to which s/he was elected as Director
or officer.
Name, Address and Age Positions Position Held Principal Number of Other
Held with Since Occupation(s) During Portfolios Directorships Held
Maxim Past 5 Years in Fund by Director
Complex
Overseen by
Director
- ---------------------------
INDEPENDENT DIRECTOR*
REX JENNINGS (78) Director March 22, 1988 President Emeritus, 39 Trustee, Orchard
Denver Metro Chamber Series Fund;
of Commerce Committee Member,
Great-West
Variable Annuity
Account A
RICHARD P. KOEPPE Director April 30, 1987 Retired 39 Trustee, Orchard
(73) Superintendent, Series Fund;
Denver Public Schools Committee Member,
Great-West
Variable Annuity
Account A
SANFORD ZISMAN (63) Director March 19, 1982 Attorney, Firm of 39 Trustee, Orchard
Zisman, Ingraham and Series Fund;
Daniel, P.C. Committee Member,
Great-West
Variable Annuity
Account A; Jones
Intercable, Inc.
INTERESTED DIRECTORS* AND
OFFICERS
WILLIAM T. MCCALLUM (61) Director June 1, 2000 President and Chief 39 Trustee, Orchard
and Executive Officer of Series Fund;
President Great-West Life & Committee Member,
Annuity Insurance Great-West
Company; President Variable Annuity
and Chief Executive Account A;
Officer, United Director,
States Operations, Great-West Lifeco,
The Great-West Life Inc.
Assurance Company
(1990 to present);
Co-President and
Chief Executive
Officer of
Great-West Lifeco
Inc.; President and
Chief Executive
Officer of GWL&A
Financial, Inc.;
President and Chief
Executive Officer of
First Great-West
Life & Annuity
Insurance Company
MITCHELL T.G. GRAYE (48) Director June 1, 2000 Executive Vice 39 Trustee, Orchard
President and Chief Series Fund;
Financial Officer of Committee Member,
Great-West Life & Great-West
Annuity Insurance Variable Annuity
Company; Executive Account A
Vice President and
Chief Financial
Officer, United
States Operations,
The Great-West Life
Assurance Company;
Executive Vice
President and Chief
Operating Officer,
One Benefits, Inc.;
Executive Vice
President and Chief
Financial Officer of
GWL&A Financial
Inc.; Manager, MCM;
Director and
Executive Vice
President, Orchard
Trust Company;
Manager and
President, Orchard
Capital Management,
LLC
GRAHAM MCDONALD (57) Treasurer November 29, 2001 Senior Vice 39 Greenwood
President, Corporate Investments, LLC
Finance and
Investment
Operations;
Treasurer, MCM,
Orchard Capital
Management, LLC,
Orchard Series Fund
and Great-West
Variable Annuity
Account A; Director
and President,
Greenwood
Investments, LLC
BEVERLY A. BYRNE (48) Secretary April 10, 1997 Vice President and 39 None
Counsel, U.S.
Operations, The
Great-West Life
Assurance Company
and Orchard Trust
Company; Vice
President, Counsel,
and Associate
Secretary,
Great-West Life &
Annuity Insurance
Company, GWL&A
Financial Inc.,
First Great-West
Life & Annuity
Insurance Company;
Vice President,
Counsel and
Secretary, Financial
Administrative
Services
Corporation;
Secretary, MCM, One
Orchard Equities,
Inc., Orchard
Capital Management,
LLC, Greenwood
Investments, LLC,
BenefitsCorp
Equities, Inc.,
BenefitsCorp, Inc.,
Advised Assets
Group, LLC,
Great-West Variable
Annuity Account A,
and Orchard Series
Fund; Vice
President, Orchard
Trust Company
- ---------------
* A Director who is not an "interested person" of Maxim (as defined in the 1940
Act) is referred to as an "Independent Director." An "Interested Director"
refers to a Director or officer who is an "interested person" of Maxim by virtue
of their affiliation with either Maxim or MCM.
Standing Committees
The Maxim Board has two standing committees: an Executive Committee and
an Audit Committee.
The Executive Committee may exercise all the powers and authority of
the Board with respect to all matters other than: (1) the submission to
stockholders of any action requiring authorization of stockholders pursuant to
state or federal law, or the Articles of Incorporation; (2) the filling of
vacancies on the Board of Directors; (3) the fixing of compensation of the
Directors for serving on the Board or on any committee of the Board, including
the Executive Committee; (4) the approval or termination of any contract with an
investment adviser or principal underwriter, as such terms are defined in the
1940 Act, or the taking of any other action required to be taken by the Board of
Directors by the 1940 Act; (5) the amendment or repeal of the By-laws or the
adoption of new By-laws; (6) the amendment or repeal of any resolution of the
Board that by its terms may be amended or repealed only by the Board; and (6)
the declaration of dividends and the issuance of capital stock of Maxim. Messrs.
McCallum and Graye are the members of the Executive Committee. No meetings of
the Executive Committee were held in 2002.
As set out in Maxim's Audit Committee Charter, the basic purpose of the
Audit Committee is to enhance the quality of Maxim's financial accountability
and financial reporting by providing a means for Maxim's disinterested Directors
to be directly informed as to, and participate in the review of, Maxim's audit
functions. Another objective is to ensure the independence and accountability of
Maxim's outside auditors and provide an added level of independent evaluation of
Maxim's internal accounting controls. Finally, the Audit Committee reviews the
extent and quality of the auditing efforts. The function of the Audit Committee
is oversight. It is management's responsibility to maintain appropriate systems
for accounting and internal control, and the auditor's responsibility to plan
and carry out a proper audit. Messrs. Jennings, Koeppe and Zisman are the
members of the Audit Committee. Two meetings of the Audit Committee were held in
2002.
DIRECTOR OWNERSHIP OF PORTFOLIO SHARES
As of December 31, 2002, the following members of the Maxim Board of
Directors had beneficial ownership in Maxim and/or any other investment
companies overseen by the Director:
Independent Directors
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY
INDEPENDENT DOLLAR RANGE OF EQUITY DIRECTOR IN FAMILY OF INVESTMENT
DIRECTOR* SECURITIES IN THE PORTFOLIO COMPANIES
R.P. Koeppe $1,000 - $10,000 $10,001 - $50,000
(Maxim Money Market Portfolio)
- ------------------------
* Director is not an "interested person" of the Fund (as defined in the 1940
Act), also referred to as an "Independent Director."
Independent Directors and their Immediate Family Members
As of December 31, 2002, other than as described above under
"Independent Directors," no Independent Director and no immediate family member
of an Independent Director beneficially or of record owned any equity securities
of an investment adviser or the principal underwriter of Maxim, or any person
(other than a registered investment company) directly or indirectly controlling,
controlled by, or under common control with an investment adviser or the
principal underwriter of Maxim.
As of December 31, 2002, no Independent Director and no immediate
family member of an Independent Director has, during the two most recently
completed calendar years, held a position, including as an officer, employee,
director or general partner, with any of the following:
o Maxim;
o any investment company or a person that would be an investment company but for
the exclusions provided by sections 3(c)(1) and 3(c)(7) of the 1940 Act which
has the same investment adviser or principal underwriter as Maxim or has an
investment adviser or principal underwriter that directly or indirectly
controls, is controlled by, or is under common control with an investment
adviser or the principal underwriter of Maxim;
o an investment adviser, the principal underwriter or affiliated person of
Maxim; or
o any person directly or indirectly controlling, controlled by, or under common
control with an investment adviser or the principal underwriter of Maxim.
As of December 31, 2002, no Independent Director and no immediate
family member of an Independent Director has, during the two most recently
completed calendar years, had any direct or indirect interest, the value of
which exceeded $60,000, in any of the following:
o an investment adviser or the principal underwriter of Maxim; or
o any person (other than a registered investment company) directly or indirectly
controlling, controlled by, or under common control with an investment adviser
or the principal underwriter of Maxim.
As of December 31, 2002, no Independent Director and no immediate
family member of an Independent Director has, during the two most recently
completed calendar years, had any material direct or indirect interest in any
transaction or series of similar transactions, in which the amount involved
exceeded $60,000 and to which any of the following persons was a party:
o Maxim, or officer thereof;
o any investment company or a person that would be an investment company but for
the exclusions provided by sections 3(c)(1) and 3(c)(7) of the 1940 Act which
has the same investment adviser or principal underwriter as Maxim or has an
investment adviser or principal underwriter that directly or indirectly
controls, is controlled by, or is under common control with an investment
adviser or the principal underwriter of Maxim, or officer thereof;
o an investment adviser or the principal underwriter of Maxim, or officer
thereof; or
o any person directly or indirectly controlling, controlled by, or under common
control with an investment adviser or the principal underwriter of Maxim,
or officer thereof.
As of December 31, 2002, no Independent Director and no immediate
family member of an Independent Director has, during the two most recently
completed calendar years, had any direct or indirect relationship, in which the
amount involved exceeded $60,000, with any of the following persons:
o Maxim, or officer thereof;
o any investment company or a person that would be an investment company but for
the exclusions provided by sections 3(c)(1) and 3(c)(7) of the 1940 Act which
has the same investment adviser or principal underwriter as Maxim or has an
investment adviser or principal underwriter that directly or indirectly
controls, is controlled by, or is under common control with an investment
adviser or the principal underwriter of Maxim, or officer thereof;
o an investment adviser or the principal underwriter of Maxim, or officer
thereof; or
o any person directly or indirectly controlling, controlled by, or under common
control with an investment adviser or the principal underwriter of Maxim,
or officer thereof.
As of December 31, 2002, no officer of an investment adviser or the
principal underwriter of Maxim or an officer of any person directly or
indirectly controlling, controlled by, or under common control with an
investment adviser or the principal underwriter of Maxim, during the two most
recently completed calendar years, has served on the board of directors of a
company where an Independent Director of Maxim or an immediate family member of
an Independent Director has also served as an officer of such company during the
two most recently completed calendar years.
Compensation
Maxim pays no salaries or compensation to any of its officers or
Directors affiliated with Maxim or MCM. The chart below sets forth the annual
compensation paid to the Independent Directors and certain other information.
PENSION OR RETIREMENT
INDEPENDENT AGGREGATE BENEFITS ACCRUED AS TOTAL COMPENSATION FROM
COMPLEX COMPENSATION PART OF MAXIM AND FUND
DIRECTOR FROM MAXIM MAXIM EXPENSES PAID TO DIRECTORS *
R. Jennings $22,500 -- $22,500
R.P. Koeppe $22,500 -- $22,500
S. Zisman $22,500 -- $22,500
* As of December 31, 2002, there were 43 funds for which the Directors serve as
Directors or Trustees, 36 of which were Portfolios of Maxim. The total
compensation paid is comprised of the amount paid during Maxim's most recently
completed fiscal year by Maxim and its affiliated investment companies.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
MCM is a Colorado limited liability company, located at 8515 East
Orchard Road, Greenwood Village, Colorado 80111, and serves as investment
adviser to Maxim pursuant to an Investment Advisory Agreement dated December 5,
1997. MCM is a wholly-owned subsidiary of GWL&A, which is an indirectly owned
subsidiary of Great-West Lifeco Inc., a holding company. Great-West Lifeco Inc.
is in turn a subsidiary of Power Financial Corporation, a financial services
company. Power Corporation of Canada, a holding and management company, has
voting control of Power Financial Corporation. Mr. Paul Desmarais, through a
group of private holding companies, which he controls, has voting control of
Power Corporation of Canada.
Investment Advisory Agreement
Under the terms of the investment advisory agreement with the Fund, MCM
acts as investment adviser and, subject to the supervision of the Maxim Board,
directs the investments of each Maxim Portfolio in accordance with its
investment objective, policies and limitations. MCM also provides Maxim with all
necessary office facilities and personnel for servicing the Portfolios'
investments, compensates all officers of Maxim and all Directors who are
"interested persons" of Maxim or of MCM, and all personnel of Maxim or MCM
performing services relating to research, statistical and investment activities.
In addition, MCM, subject to the supervision of the Maxim Board,
provides the management and administrative services necessary for the operation
of Maxim. These services include providing facilities for maintaining Maxim's
organization; supervising relations with custodians, transfer and pricing
agents, accountants, underwriters and other persons dealing with Maxim;
preparing all general shareholder communications and conducting shareholder
relations; maintaining Maxim's records and the registration of Maxim shares
under federal securities laws and making necessary filings under state
securities laws; developing management and shareholder services for Maxim; and
furnishing reports, evaluations and analyses on a variety of subjects to the
Directors.
The Investment Advisory Agreement became effective on December 5, 1997
and was amended effective July 26, 1999, May 1, 2002 and May 1, 2003. As
approved, the Agreement will remain in effect until May 1, 2004, and will
continue in effect from year to year if approved annually by the Maxim Board
including the vote of a majority of the Directors who are not parties to the
Agreement or interested persons of any such party, or by vote of a majority of
the outstanding shares of the affected Portfolio. Any material amendment to the
Agreement becomes effective with respect to the affected Portfolio upon approval
by vote of a majority of the outstanding voting securities of that Portfolio.
The agreement is not assignable and may be terminated without penalty with
respect to any Portfolio either by the Maxim Board or by vote of a majority of
the outstanding voting securities of such Portfolio or by MCM, each on 60 days
notice to the other party.
In approving the Investment Advisory Agreement and the sub-advisory
agreements with each sub-adviser ("Sub-Advisory Agreements"), the Board
considered a wide range of information of the type they regularly consider. The
Board requested and received materials relating to the Investment Advisory
Agreement and each Sub-Advisory Agreement in advance of the meeting at which the
Investment Advisory Agreement and Sub-Advisory Agreements were considered, and
had the opportunity to ask questions and request further information in
connection with such consideration.
At regular meetings of the Board held throughout the year, the Board
meets with representatives of MCM and of the sub-advisers to discuss portfolio
management strategies, benchmark index tracking for each Index Portfolio and
performance of each Portfolio. The Board also considers MCM's and each
sub-adviser's practices regarding the selection and compensation of brokers and
dealers that execute portfolio transactions for the Portfolios and procedures
MCM and each sub-adviser use for obtaining best execution for transactions in
the Portfolios.
With respect to the nature, scope and quality of the services provided
by MCM and each sub-adviser, the Board considered, among other things, MCM's and
each sub-adviser's personnel, experience, resources and track record, which are
well-positioned to provide or obtain such services as may be necessary in
managing, acquiring and disposing of investments on behalf of the Portfolios,
consulting by the sub-advisers as appropriate with MCM, and performing research
and obtaining and evaluating the economic, statistical and financial data
relevant to the investment policies of the Portfolios. The Board also considered
MCM's and each sub-adviser's reputation for management of their specific
investment strategies, MCM's and each sub-adviser's overall financial condition,
technical resources, and operational capabilities.
With respect to the advisory fee rates payable to sub-advisers by MCM,
the Maxim Board considered fees payable by similar funds managed by other
advisers, which indicate that fees to be paid do not deviate greatly from those
fees paid by other similar funds. The Maxim Board also considered the total
expense ratio of each Portfolio and of similar funds managed by other advisers
with respect to peer group averages. In this review process, the Maxim Board
analyzed all compensation flowing to MCM and its affiliates in relation to the
quality of all services provided as well as the overall profitability to MCM and
its affiliates.
Adviser Compensation
Each Maxim Portfolio, including the Acquiring Portfolios, pays a
management fee to MCM for managing its investments and business affairs. MCM is
paid monthly at an annual rate of the Acquiring Portfolios' average net assets
as described below.
PORTFOLIO FEE RATE
--------- --------
Maxim S&P 500 Index(R) 0.60% of Net Assets
Maxim Index 600 0.60% of Net Assets
The following table sets forth the total advisory fees received by MCM
from each Acquiring Portfolio pursuant to the Investment Advisory Agreement for
the fiscal years ended December 31, 2000, 2001 and 2002.
Advisory Fees
Portfolio 2002 2001 2000
--------- ---- ---- ----
Maxim S&P 500 Index(R) N/A N/A N/A*
Maxim Index 600 $ 193,802 $ 173,599 $ 166,023
* This Portfolio commenced operations on September 8, 2003. As a result, no
advisory or sub-advisory fees have yet been paid with respect to this Portfolio.
Payment of Expenses
MCM provides investment advisory services and pays all compensation of
and furnishes office space for officers and employees of the Investment Adviser
connected with investment and economic research, trading and investment
management of Maxim, as well as the fees of all Directors of Maxim who are
affiliated persons of MCM or any of its affiliates.
Expenses that are paid by MCM with respect to the Acquiring Portfolios
include redemption expenses, expenses of portfolio transactions, shareholder
servicing costs, expenses of registering the shares under federal and state
securities laws, pricing costs (including the daily calculation of net asset
value), interest, certain taxes, charges of the Custodian, independent
Directors' fees, legal expenses, state franchise taxes, costs of auditing
services, costs of printing proxies and stock certificates, Securities and
Exchange Commission fees, advisory fees, certain insurance premiums, costs of
corporate meetings, costs of maintenance of corporate existence, investor
services (including allocable telephone and personnel expenses), extraordinary
expenses, and other expenses properly payable by Maxim. Accounting services are
provided for Maxim by MCM and Maxim reimburses MCM for its costs in connection
with such services.
CODE OF ETHICS - PERSONAL SECURITIES TRADING
Maxim, MCM, and Greenwood Investments, LLC ("Greenwood") each have
adopted a Code of Ethics addressing investing by their personnel pursuant to
Rule 17j-1 under the 1940 Act. Each Code permits personnel to invest in
securities, including securities purchased or held by Maxim under certain
circumstances. Each Code places appropriate restrictions on all such
investments.
DISTRIBUTION AGREEMENT
Effective April 30, 2002, Maxim entered into a principal underwriting
agreement with Greenwood, 8515 East Orchard Road, Greenwood Village, Colorado
80111. Greenwood is an affiliate of MCM and is a broker-dealer registered under
the Securities Exchange Act of 1934 (the "1934 Act") and a member of the
National Association of Securities Dealers, Inc. ("NASD"). The principal
underwriting agreement calls for Greenwood to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of the Maxim
Portfolios, including the Acquiring Portfolios, which are continuously offered
at net asset value.
Compensation received by Principal Underwriter during Maxim's last
fiscal year:
Net
Name of Underwriting Compensation
Principal Discounts and on Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
Greenwood -0- -0- -0- -0-
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The following is only a summary of certain tax considerations generally
affecting an Acquiring Portfolio and its shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of Maxim or its shareholders, and this discussion is not intended as a
substitute for careful tax planning or legal advice from a qualified tax
advisor. Qualification as a Regulated Investment Company
The Internal Revenue Code of 1986, as amended (the "Code"), provides
that each investment portfolio of a series investment company is to be treated
as a separate corporation. Accordingly, an Acquiring Portfolio will seek to be
taxed as a regulated investment company ("RIC") under Subchapter M of the Code.
As a RIC, an Acquiring Portfolio will not be subject to federal income tax on
the portion of its net investment income (i.e., its taxable interest, dividends
and other taxable ordinary income, net of expenses) and net realized capital
gain (i.e., the excess of capital gains over capital losses) that it distributes
to shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at least 90% of its
tax-exempt income (net of expenses allocable thereto) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. An Acquiring Portfolio will be subject to tax at
regular corporate rates on any income or gains that it does not distribute.
Distributions by an Acquiring Portfolio made during the taxable year or, under
specified circumstances, within one month after the close of the taxable year,
will be considered distributions of income and gains during the taxable year and
can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, an Acquiring
Portfolio must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are ancillary to an Acquiring Portfolio's principal business of
investing in stock and securities) and other income (including but not limited
to gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies (the "Income
Requirement"). An Acquiring Portfolio is also subject to certain investment
diversification requirements.
Certain debt securities purchased by an Acquiring Portfolio (such as
zero-coupon bonds) may be treated for federal income tax purposes as having
original issue discount. Original issue discount, generally defined as the
excess of the stated redemption price at maturity over the issue price, is
treated as interest for federal income tax purposes. Whether or not an Acquiring
Portfolio actually receives cash, it is deemed to have earned original issue
discount income that is subject to the distribution requirements of the Code.
Generally, the amount of original issue discount included in the income of an
Acquiring Portfolio each year is determined on the basis of a constant yield to
maturity that takes into account the compounding of accrued interest.
In addition, an Acquiring Portfolio may purchase debt securities at a
discount that exceeds any original issue discount that remained on the
securities at the time the Acquiring Portfolio purchased the securities. This
additional discount represents market discount for income tax purposes.
Treatment of market discount varies depending upon the maturity of the debt
security and the date on which it was issued. For a debt security issued after
July 18, 1984 having a fixed maturity date or more than one year from the date
of issue and having market discount, the gain realized on disposition will be
treated as interest to the extent it does not exceed the accrued market discount
on the security (unless an Acquiring Portfolio elects for all its debt
securities having a fixed maturity date or more than one year from the date of
issue to include market discount in income in taxable years to which it is
attributable). Generally, market discount accrues on a daily basis. For any debt
security issued on or before July 18, 1984 (unless an Acquiring Portfolio makes
the election to include market discount in income currently), or any debt
security having a fixed maturity date of not more than one year from the date of
issue, the gain realized on disposition will be characterized as long-term or
short-term capital gain depending on the period that Acquiring Portfolio held
the security. An Acquiring Portfolio may be required to capitalize, rather than
deduct currently, part or all of any net direct interest expense on indebtedness
incurred or continued to purchase or carry any debt security having market
discount (unless that Acquiring Portfolio makes the election to include market
discount in income currently).
If for any taxable year an Acquiring Portfolio does not qualify as a
regulated investment company, all of its taxable income (including its net
capital gain) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable as ordinary dividends to the extent of the current and accumulated
earnings and profits of that Acquiring Portfolio. In such event, such
distributions generally will be eligible for the dividends-received deductions
in the case of corporate shareholders.
If an Acquiring Portfolio were to fail to qualify as a RIC for one or
more taxable years, the Portfolio could then qualify (or requalify) as a RIC for
a subsequent taxable year only if the Portfolio had distributed to the
Portfolio's shareholders a taxable dividend equal to the full amount of any
earnings and profits (less the interest charge mentioned below, if applicable)
attributable to such period. An Acquiring Portfolio might also be required to
pay to the U.S. Internal Revenue Service interest on 50% of such accumulated
earnings and profits. In addition, pursuant to the Code and proposed and
temporary U.S. Treasury regulations, if the Acquiring Portfolio should fail to
qualify as a RIC and should thereafter seek to requalify as a RIC, the Acquiring
Portfolio may be subject to tax on the excess (if any) of the fair market value
of the Portfolio's assets over the Portfolio's basis in such assets, as of the
day immediately before the first taxable year for which the Portfolio seeks to
requalify as a RIC.
If an Acquiring Portfolio determines that it will not qualify as a RIC
under Subchapter M of the Code, the Portfolio will establish procedures to
reflect the anticipated tax liability in the Portfolio's net asset value.
Excise Tax on Regulated Investment Companies
The Acquiring Portfolios intend to make sufficient distributions or
deemed distributions of their ordinary taxable income and capital gain net
income prior to the end of each calendar year to avoid liability for the excise
tax that applies to a regulated investment company that fails to distribute
specified percentages of its ordinary taxable income and capital gain net
income. However, investors should note that the Acquiring Portfolios may in
certain circumstances be required to liquidate portfolio investments to make
sufficient distributions to avoid excise tax liability.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on our understanding of the Code and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. Future legislative or administrative changes or court decisions may
significantly change the discussion expressed herein, and any such changes or
decisions may have a retroactive effect with respect to the transactions
contemplated herein.
Performance Data
The Acquiring Portfolios may quote measures of investment performance
in various ways. All performance information supplied by Maxim in advertising is
historical and is not intended to indicate future returns.
Maxim S&P 500 Index(R) and Maxim Index 600
Standardized Average Annual Total Return Quotations. Average annual
total return quotations for shares of a Portfolio are computed by finding the
average annual compounded rates of return that would cause a hypothetical
investment made on the first day of a designated period to equal the ending
redeemable value of such hypothetical investment on the last day of the
designated period in accordance with the following formula:
P(I+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $ 1,000 initial
payment made at the beginning of the designated period (or
fractional portion thereof)
The computation above assumes that all dividends and distributions made
by a Portfolio are reinvested at net asset value during the designated period.
The average annual total return quotation is determined to the nearest 1/100 of
1%.
One of the primary methods used to measure performance is "total
return." Total return will normally represent the percentage change in value of
a Portfolio, or of a hypothetical investment in a Portfolio, over any period up
to the lifetime of the Portfolio. Unless otherwise indicated, total return
calculations will usually assume the reinvestment of all dividends and capital
gains distributions and will be expressed as a percentage increase or decrease
from an initial value, for the entire period or for one or more specified
periods within the entire period.
Total return percentages for periods longer than one year will usually
be accompanied by total return percentages for each year within the period
and/or by the average annual compounded total return for the period. The income
and capital components of a given return may be separated and portrayed in a
variety of ways in order to illustrate their relative significance. Performance
may also be portrayed in terms of cash or investment values, without
percentages. Past performance cannot guarantee any particular result. In
determining the average annual total return (calculated as provided above),
recurring fees, if any, that are charged to all shareholder accounts are taken
into consideration.
Each Portfolio's average annual total return quotations and yield
quotations as they may appear in the Prospectus, this Statement of Additional
Information or in advertising are calculated by standard methods prescribed by
the SEC.
Distribution Rate Calculation. Each Portfolio may also publish its
distribution rate and/or its effective distribution rate. A Portfolio's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current net asset value per share. A Portfolio's
effective distribution rate is computed by dividing the distribution rate by the
ratio used to annualize the most recent monthly distribution and reinvesting the
resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. A Portfolio's yield is
calculated using a standardized formula, the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on a Portfolio's last
monthly distribution. A Portfolio's monthly distribution tends to be relatively
stable and may be more or less than the amount of net investment income and
short- term capital gain actually earned by the Portfolio during the month.
Other data that may be advertised or published about each Portfolio
include the average portfolio quality, the average portfolio maturity and the
average portfolio duration.
Standardized Yield Quotations. The yield of a Portfolio is computed by
dividing the Portfolio's net investment income per share during a base period of
30 days, or one month, by the maximum offering price per share on the last day
of such base period in accordance with the following formula:
2[( a - b + 1 )6 - 1 ]
-----
(cd)
Where:
a = net investment income earned during the period
b = net expenses accrued for the period
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share
Net investment income will be determined in accordance with rules
established by the SEC.
Calculation of Total Return. Total return is a measure of the change
in value of an investment in a Portfolio over the time period covered. In
calculating total return, any dividends or capital gains distributions are
assumed to have been reinvested in the Portfolio immediately rather than paid to
the investor in cash. The formula for total return includes four steps (1)
adding to the total number of shares purchased by a hypothetical $1,000
investment in the Portfolio all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of they
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period and deducting any applicable contingent
deferred sales charge; and (4) dividing this account value for the hypothetical
investor by the initial $1,000 investment. Total return will be calculated for
one year, five years and ten years or some other relevant periods if a Portfolio
has not been in existence for at least ten years.
FORMULA: P(1+T) to the power of N = ERV
WHERE: T = Average annual total return
N = The number of years including portions of years where applicable
for which the performance is being measured
ERV = Ending redeemable value of a hypothetical $1.00 payment made a
the inception of the portfolio
P = Opening redeemable value of a hypothetical $1.00 payment made at
the inception of the portfolio
The above formula can be restated to solve for T as follows:
T = [(ERV/P) to the power of 1/N]-1
Set forth below is a table showing each Acquiring Portfolio's
inception date and its average annual total return for one, five and ten years
or the life of the Acquiring Portfolio for the periods ended December 31, 2002.
Portfolio Since Inception One Year Five Years Ten Years
[Date]
- ---------------------------------- ----------------------- ---------------- ------------------- ----------------------
- ---------------------------------- ----------------------- ---------------- ------------------- ----------------------
Maxim S&P 500 N/A N/A N/A N/A
Index(R) [9/08/03]
Maxim Index 600 7.01% -15.23% 1.71% N/A
[12/1/93]
Performance Comparisons
Each Acquiring Portfolio may from time to time include its yield and/or
total return in advertisements or in information furnished to present or
prospective shareholders. Each Portfolio may include in such advertisements the
ranking of those performance figures relative to such figures for groups of
mutual funds categorized by Lipper Analytical Services, Morningstar, Inc.,
relevant indices and Donoghue Money Fund Report as having the same or similar
investment objectives.
The manner in which total return and yield will be calculated for
public use is described above. The table in the Prospectus under the heading
"Risk/Return Bar Charts and Tables," summarizes the calculation of total return
and yield for each Acquiring Portfolio, where applicable, through December 31,
2002.
VOTING POLICIES
The shares of the Acquiring Portfolios have no preemptive or conversion
rights. Shares are fully paid and nonassessable. Maxim or any individual
Acquiring Portfolio may be terminated upon the sale of its assets to another
investment company (as defined in the 1940 Act), or upon liquidation and
distribution of its assets, if approved by vote of the holders of a majority of
the outstanding shares of Maxim or the affected Acquiring Portfolios. If not so
terminated, Maxim or the Portfolios (as defined under the 1940 Act) will
continue indefinitely.
Shareholders of an Acquiring Portfolio are entitled to one vote for
each Portfolio share owned and fractional votes for fractional shares owned.
Pursuant to current interpretations of the 1940 Act, insurance companies that
invest in an Acquiring Portfolio will solicit voting instructions from owners of
variable insurance contracts that are issued through separate accounts
registered under the 1940 Act with respect to any matters that are presented to
a vote of shareholders of that Acquiring Portfolio.
Dividends rights, the right of redemption, and exchange privileges are
described in the Prospectus.
PRICING, PURCHASE AND REDEMPTION OF SHARES
Pricing. For the Acquiring Portfolios, the transaction price for
buying, selling, or exchanging a Portfolio's shares is the net asset value
(market value) of that Portfolio. Each Portfolio's net asset value is generally
calculated as of the close of trading on the New York Stock Exchange ("NYSE")
every day the NYSE is open (generally 4:00 p.m. Eastern Time). If the NYSE
closes at any other time, or if an emergency exists, the time at which the net
asset value is calculated may differ. To the extent that a Portfolio's assets
are traded in other markets on days when the NYSE is closed, the value of the
Portfolio's assets may be affected on days when Maxim is not open for business.
In addition, trading in some of a Portfolio's assets may not occur on days when
Maxim is open for business. Your share price will be the next net asset value
calculated after we receive your order in good form.
Short-term securities with a maturity of 60 days or less are valued on
the basis of amortized cost. If market prices are not available or if a
security's value has been materially affected by events occurring after the
close of the exchange or market on which the security is principally traded (for
example, a foreign exchange or market), that security may be valued by another
method that the Maxim Board and/or Orchard Board believe accurately reflects
fair value. If a Portfolio holds securities listed primarily on exchanges (for
example, a foreign exchange) that trade on days when a Portfolio does not price
its shares, the value of your shares may change on days that you cannot buy or
sell shares.
Maxim determines net asset value by dividing net assets of a Portfolio
(the value of its investments, cash, and other assets minus its liabilities) by
the number of that Portfolio's outstanding shares.
Purchase and Redemption. Shares of the Acquiring Portfolios are offered
and sold only to insurance company separate accounts and certain qualified and
non-qualified plans and thus may not be purchased directly. Rather you must own
a variable insurance contract or participate in certain qualified or
non-qualified plans that make the Acquiring Portfolios available for investment.
The Acquiring Portfolios are available only as investment options for certain
variable annuity contracts, variable life insurance policies and certain
qualified retirement plans.
Shares are sold at net asset value and are redeemed at net asset value.
Variable contract owners or qualified/non-qualified plan participants will not
deal directly with Maxim regarding the purchase or redemption of Acquiring
Portfolio shares. Insurance company separate accounts place orders to purchase
and redeem shares of the Acquiring Portfolio based on allocation instructions
received from variable contract owners. Similarly, qualified/non-qualified plan
sponsors and administrators purchase and redeem Acquiring Portfolio shares based
on orders received from participants. Qualified/non-qualified plan participants
cannot contact Maxim directly to purchase or redeem shares of Acquiring
Portfolios but may invest in or redeem shares of the Acquiring Portfolio only
through their qualified/non-qualified plan. Participants should contact their
qualified/non-qualified plan sponsor or administrator for information concerning
the appropriate procedure for investing in or redeeming shares of the Acquiring
Portfolios. Individuals may not purchase or redeem these shares directly from
those Portfolios.
EXECUTION OF PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the direction of the Maxim Board, MCM, or a Sub-Adviser for
those Maxim Portfolios which are managed on a day-to-day basis by a Sub-Adviser,
is primarily responsible for placement of Maxim's portfolio transactions,
including the selection of brokers and dealers through or with which
transactions are executed. Neither MCM nor any Sub-Adviser has an obligation to
deal with any broker, dealer or group of brokers or dealers in the execution of
transactions in portfolio securities. In placing orders, it is the policy of
Maxim to seek to obtain the most favorable net results, taking into account
various factors, including price, dealer spread or commissions, if any, size of
the transaction and difficulty of execution. While MCM and the Sub-Advisers
generally will seek reasonably competitive commissions, the policy of Maxim of
seeking to obtain the most favorable net results means the Maxim Portfolios will
not necessarily pay the lowest spread or commission available.
Transactions on U.S. futures and stock exchanges are effected through
brokers acting on an agency basis and involve the payment of negotiated
brokerage commissions. Commissions vary among different brokers and dealers,
which may charge different commissions according to such factors as the
difficulty and size of the transaction. Transactions in foreign securities often
involve the payment of fixed brokerage commissions, which may be higher than
those for negotiated commission transactions in the United States. Transactions
in over-the-counter equities and most fixed income instruments, including U.S.
government securities, generally are effected with dealers acting as principal
on a "net" basis not involving the payment of brokerage commissions. Prices for
such over-the-counter transactions with dealers acting as principal usually
include an undisclosed "mark-up" or "mark down" sometimes called a "spread")
that is retained by the dealer effecting the trade. Recently, several dealers
have begun trading over-the-counter securities on a disclosed fee basis,
resulting in payment by Maxim of a separately identifiable and disclosed fee
similar to the commissions paid brokers acting on an agency basis. The cost of
securities purchased from an underwriter or from a dealer in connection with an
underwritten offering usually includes a fixed commission (sometimes called an
"underwriting discount" or "selling concession") which is paid by the issuer to
the underwriter or dealer.
In selecting brokers and dealers through which to effect portfolio
transactions for Maxim, MCM and the Sub-Advisers may give consideration for
investment research information or services provided to them by brokers and
dealers, and cause Maxim to pay commissions to such brokers or dealers
furnishing such services which are in excess of commissions which another broker
or dealer may have charged for the same transaction. Such investment research
information or services ordinarily consists of assessments and analyses of the
business or prospects of a company, industry, or economic sector, compilations
of company or security data, attendance at conferences or seminars on investment
topics, and may also include subscriptions to financial periodicals, and
computerized news, financial information, quotation and communication systems,
including related computer hardware and software, used in making or implementing
investment decisions. Some investment research information or services may be
used by MCM or a Sub-Adviser both for investment research purposes and for
non-research purposes, such as for presentations to prospective investors or
reports to existing clients regarding their portfolios. Where MCM or a
Sub-Adviser uses such information or services for both research and non-research
purposes, it makes a good faith allocation of the cost of such information or
service between the research and non-research uses. The portion of the cost of
the information or service allocable to the non-research use is paid by MCM or
the Sub-Adviser, as the case may be, while the portion of the cost allocable to
research use may be paid by the direction of commissions paid on Maxim portfolio
transactions to the broker or dealer providing the information or service.
MCM and the Sub-Advisers may use any investment research information or
services obtained through the direction of commissions on portfolio transactions
of Maxim in providing investment advice to any or all of their other investment
advisory accounts, and may use such information in managing their own accounts.
The use of particular investment research information or services is not limited
to, and may not be used at all in making investment decisions for, the portfolio
of Maxim the transactions of which are directed to the broker or dealer
providing the investment research information or services.
If in the best interests of both one or more Maxim Portfolios and other
MCM client accounts, MCM may, to the extent permitted by applicable law, but
need not, aggregate the purchases or sales of securities for these accounts to
obtain favorable overall execution. When this occurs, MCM will allocate the
securities purchased and sold and the expenses incurred in a manner that it
deems equitable to all accounts. In making this determination, MCM may consider,
among other things, the investment objectives of the respective client accounts,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally, and the opinions of persons responsible for managing the Maxim
Portfolios and other client accounts. The use of aggregated transactions may
adversely affect the size of the position obtainable for the Portfolios, and may
itself adversely affect transaction prices to the extent that it increases the
demand for the securities being purchased or the supply of the securities being
sold.
. No brokerage commissions have been paid by Maxim S&P 500 Index(R) for
the years ended December 31, 2000 through December 31, 2002 because that
Portfolio commenced operations effective September 8, 2003. For the years 2000,
2001 and 2002, the Acquiring Portfolios paid commissions as follows:
Brokerage Commissions
Portfolio 2002 2001 2000
- --------- ---- ---- ----
Maxim Index 600 $9,936 $11,196 $27,271
Portfolio Turnover
The turnover rate for each Acquiring Portfolio is calculated by
dividing (a) the lesser of purchases or sales of portfolio securities for the
fiscal year by (b) the monthly average value of portfolio securities owned by
the Acquiring Portfolio during the fiscal year. In computing the portfolio
turnover rate, certain U.S. government securities (long-term for periods before
1986 and short-term for all periods) and all other securities, the maturities or
expiration dates of which at the time of acquisition are one year or less, are
excluded.
There are no fixed limitations regarding the portfolio turnover of the
Acquiring Portfolios. Portfolio turnover rates are expected to fluctuate under
constantly changing economic conditions and market circumstances. Securities
initially satisfying the basic policies and objectives of each Acquiring
Portfolio may be disposed of when appropriate in MCM's judgment.
With respect to any Acquiring Portfolio, a higher portfolio turnover
rate may involve correspondingly greater brokerage commissions and other
expenses which might be borne by the Portfolio and, thus, indirectly by its
shareholders. Higher portfolio turnover may also increase a shareholder's
current tax liability for capital gains by increasing the level of capital gains
realized by an Acquiring Portfolio.
Based upon the formula for calculating the portfolio turnover rate, as
stated above, the portfolio turnover rate for each Acquiring Portfolio (other
than Maxim S&P 500 Index(R)) for 2001 and 2002 is as follows:
Portfolio 2001 Turnover Rate 2002 Turnover Rate
--------- ------------------ ------------------
Maxim Index 600 33.31% 18.06%
FINANCIAL STATEMENTS
Maxim
The financial statements of the Maxim Index 600 are incorporated by
reference herein from the Annual Report to shareholders of the Acquiring
Portfolios for the fiscal year ended December 31, 2002, and from the Semi-Annual
Report to shareholders of the Acquiring Portfolios for the six month period
ended June 30, 2003. The Maxim S&P Index(R) 500 commenced operations on
September 8, 2003. As a result, only pro forma financial statements are provided
for this Acquiring Portfolio.
Orchard
The financial statements of the Acquired Funds are incorporated by
reference herein from the Annual Report to shareholders of the Acquired Funds
for the fiscal year ended October 31, 2003.
Pro Forma Financial Statements
Pursuant to Item 14(a)(2) of the instructions to Part B of Form N-14,
pro forma financial statements are not included for the reorganization of
Orchard DJIASM Index into Maxim S&P 500 Index(R), Orchard S&P 500 Index(R) into
Maxim S&P 500 Index(R) or Orchard Nasdaq-100 Index(R) into Maxim S&P 500
Index(R) because the net asset value of the fund being acquired does not exceed
ten percent of the acquiring portfolio's net asset value as of December 15,
2003. Similarly, pro forma financial statements are not included for the
reorganization of Orchard DJIASM Index, Orchard S&P 500 Index(R) and Orchard
Nasdaq-100 Index(R) into Maxim S&P 500 Index(R) because the collective net asset
value of the funds being acquired does not exceed ten percent of the acquiring
portfolio's net asset value as of December 15, 2003. Finally, pro forma
financial statements are not included for the reorganization of Orchard Index
600 into Maxim Index 600 because the net asset value of the fund being acquired
does not exceed ten percent of the acquiring portfolio's net asset value as of
December 15, 2003.
GENERAL INFORMATION
Custodian. The Bank of New York, One Wall Street, New York, New York
10286, is custodian of the assets for all Acquiring Portfolios. Prior to April
1, 2003, Barclays Global Investors, N.A., 45 Fremont Street, San Francisco,
California 94105, was custodian of the assets for Maxim Index 600. Fees paid for
custodial services by MCM for the period 2000-2002 are as follows:
Year Barclays Global Investors
2000 $ 0
2001 $183,021
2002 $187,568
The custodians are responsible for the safekeeping of the Acquiring
Portfolios' assets and the appointment of the sub-custodian banks and clearing
agencies. The custodians take no part in determining the investment policies of
an Acquiring Portfolio or in deciding which securities are purchased or sold by
an Acquiring Portfolio. However, an Acquiring Portfolio may invest in
obligations of the custodian and may purchase securities from or sell securities
to the custodian.
Transfer and Dividend Paying Agent. Financial Administrative Services
Corporation ("FASCorp"), 8515 East Orchard Road, Greenwood Village, Colorado
80111 serves as Maxim's transfer agent and dividend paying agent. FASCorp is an
affiliate of Maxim and charges no fee for its services.
Independent Auditors. Deloitte & Touche LLP, 555 17th Street, Suite
3600, Denver, Colorado 80202, serves as Maxim's independent auditor. Deloitte &
Touche LLP audits financial statements for Maxim and provides other audit, tax,
and related services.
Registration Statement. A registration statement has been filed with
the SEC under the Securities Act of 1933, as amended, and the 1940 Act. The
Prospectus/Proxy Statement and this Statement of Additional Information do not
contain all information set forth in the registration statement, its amendments
and exhibits thereto, that Maxim has filed with the SEC, Washington, D.C., to
all of which reference is hereby made.
APPENDIX
- --------------------------------------------------------------------------------
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
- --------------------------------------------------------------------------------
Corporate Bond Ratings by Moody's Investors Service, Inc.
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds where are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Corporate Bonds Ratings by Standard & Poor's Corporation
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in a small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity for bonds rated BBB than for bonds in the A category.
BB & B - Standard & Poor's describes the BB and B rated issues together
with issues rated CCC and CC. Debt in these categories is regarded on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Commercial Paper Ratings by Moody's Investors Service, Inc.
Prime-1 - Commercial Paper issuers rated Prime-1 are judged to be of
the best quality. Their short-term debt obligations carry the smallest degree of
investment risk. Margins of support for current indebtedness are large or stable
with cash flow and asset protection well assured. Current liquidity provides
ample coverage of near-term liabilities and unused alternative financing
arrangements are generally available. While protective elements may change over
the intermediate or longer term, such changes are most unlikely to impair the
fundamentally strong position of short-term obligations.
Prime-2 - Issuers in the Commercial Paper market rated Prime-2 are high
quality. Protection for short-term holders is assured with liquidity and value
of current assets as well as cash generation in sound relationship to current
indebtedness. They are rated lower than the best commercial paper issuers
because margins of protection may not be as large or because fluctuations of
protective elements over the near or immediate term may be of greater amplitude.
Temporary increases in relative short and overall debt load may occur.
Alternative means of financing remain assured.
Prime-3 - Issuers in the Commercial Paper market rated Prime-3 have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earning and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Commercial Paper Ratings by Standard & Poor's Corporation
A - Issuers assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issuers in this category are further
refined with the designation 1, 2 and 3 to indicate the relative degree of
safety.
A-1 - This designation indicates that the degree of safety regarding
timely payment is very strong.
A-2 - Capacity for timely payment for issuers with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
A-3 - Issuers carrying this designation have a satisfactory capacity
for timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designation.
PART C:
OTHER INFORMATION
Item 15. Indemnification
Article VI of Maxim Series Fund, Inc.'s (the "Corporation's" or
"Registrant's") By-Laws relating to the indemnification of Maxim's officers and
directors is quoted below:
ARTICLE VI
INDEMNIFICATION
Each officer, director, employee, or agent of the Corporation shall be
indemnified by the Corporation to the full extent permitted under the General
Laws of the State of Maryland, except that such indemnity shall not protect any
such person against any liability to the Corporation or its security holders to
which such person would otherwise be subjected by reason of disabling conduct,
consisting of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. In the absence of
an adjudication on the merits by a court or administrative body that the person
seeking indemnification was not liable by reason of such disabling conduct,
indemnification shall be conditioned upon (i) the vote of a majority of
directors who are neither "interested persons" of the Corporation (as defined in
the Investment Company Act of 1940, as amended) nor parties to the proceeding
or, in the event that no quorum of such directors is available or if the quorum
of such directors so directs, (ii) the written opinion of independent legal
counsel, in either case based upon a review of the facts, determining that the
person to be indemnified was not liable by reason of such disabling conduct.
Item 16. Exhibits
Exhibits.
(1) Articles of Incorporation are incorporated by reference to the exhibits to
Registrant's Post-Effective Amendment No. 67 to its Registration Statement filed
on February 28, 2000, Post-Effective Amendment No. 72 filed April 27, 2001,
Post-Effective Amendment No. 73 filed December 31, 2001, File No. 002-75503,
Post-Effective Amendment No. 74 filed March 1, 2002, Post-Effective Amendment
No. 77, filed February 14, 2003, and Post-Effective Amendment No. 78, filed
April 14, 2003, File No. 002-75503.
(2) Bylaws are incorporated by reference to the exhibits to Registrant's
Post-Effective Amendment No. 67 to its Registration Statement filed on February
28, 2000, File No. 002-75503.
(3) Inapplicable.
(4) Form of Agreement and Plan of Reorganization between the portfolio series of
Maxim Series Fund, Inc. (the "Acquiring Portfolios") and the portfolio series of
Orchard Series Fund (the "Acquired Funds"). Filed herewith as Exhibit A to the
Prospectus/Proxy Statement.
(5) Inapplicable.
(6)(i) Investment Advisory Agreement and all amendments thereto are incorporated
by reference to the exhibits to Registrant's Post-Effective Amendment No. 64 to
the Registration Statement filed on July 22, 1999, File No. 002-75503,
Post-Effective Amendment No. 76 filed on April 26, 2002, Post-Effective
Amendment No. 78, filed April 14, 2003, File No. 002-75503, and Post-Effective
Amendment No. 80, filed June 30, 2003, File No. 002-75503.
(6)(ii) Sub-Advisory Agreement on behalf of Maxim Index 600 is incorporated by
reference to the exhibits to Registrant's Post-Effective Amendment No. 78, filed
April 14, 2003, File No. 002-75503.
(6)(iii) Subadvisory Agreement on behalf of Maxim S&P 500 Index(R) is
incorporated by reference to the exhibits to Registrant's Post-Effective
Amendment No. 80, filed June 30, 2003, File No. 002-75503.
(7) Principal Underwriting Agreement is incorporated by reference to the
exhibits to Registrant's Post-Effective Amendment No. 76 to the Registration
Statement filed on April 26, 2002, File No. 002-75503.
(8) Inapplicable.
(9) Custody Agreements with The Bank of New York and JPMorgan Chase Bank are
incorporated by reference to the exhibits to Registrant's Post-Effective
Amendment No. 72 to its Registration Statement filed on April 27, 2001, File No.
002-75503.
(10) Inapplicable.
(11) Form of Opinion and Consent of Counsel regarding legality of shares. Filed
herewith.
(12) Opinion and Consent of Counsel regarding tax matters and consequences to
shareholders discussed in the Prospectus/Proxy Statement. Filed herewith.
(13)(i) Transfer Agency Agreement is incorporated by reference to the exhibits
to Registrant's Post-Effective Amendment No. 72 to its Registration Statement
filed on April 27, 2001, File No. 002-75503.
(13)(ii) Securities Lending Agreement with The Bank of New York is incorporated
by reference to the exhibits to Registrant's Post-Effective Amendment No. 74
filed on March 1, 2002, File No. 002-75503.
(14) Consent of Deloitte & Touche LLP, Independent Auditors, regarding the
audited financial statements and highlights of the Acquired Funds and the
audited financial statements and highlights of the Acquiring Portfolios. Filed
herewith.
(15) Inapplicable.
(16) Powers of Attorney. Filed herewith.
(17) Form of Proxy Card. Filed herewith.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
part of this registration statement by any person or party which is deemed to be
an underwriter within the meaning of Rule 145(c) under the Securities Act of
1933, the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new registration statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, as amended, this
Registration Statement on Form N-14 has been signed on behalf of the Registrant,
in the City of Greenwood Village, and State of Colorado, on the 23rd day of
December, 2003.
Maxim Series Fund, Inc.
By: /s/ W.T. McCallum
W.T. McCallum
President and Chief Executive Officer
(Principal Executive Officer)
As required by the Securities Act of 1933, as amended, this
Registration Statement on Form N-14 has been signed by the following persons in
the capacities and on the dates indicated:
President and Director December 23, 2003
/s/ William T. McCallum (Principal Executive Officer)
- -----------------------
William T. McCallum
/s/ Mitchell T.G. Graye Director December 23, 2003
- -----------------------
Mitchell T.G. Graye
/s/ Richard P. Koeppe* Director December 23, 2003
- ---------------------
Richard P. Koeppe
/s/ Rex Jennings* Director December 23, 2003
- ----------------
Rex Jennings
/s/ Sanford Zisman* Director December 23, 2003
- ------------------
Sanford Zisman
/s/ Graham McDonald Treasurer (Principal Financial December 23, 2003
- ------------------- and Accounting Officer)
Graham McDonald
* By: /s/ Beverly A. Byrne December 23, 2003
--------------------
Beverly A. Byrne
Attorney-in-Fact
INDEX TO EXHIBITS
Exhibit Number Exhibit Title
Exhibit A to Prospectus/Proxy Statement Form of Agreement and Plan of
Reorganization
Exhibit B to Prospectus/Proxy Statement Annual Report to Shareholders of
Orchard Series Fund, dated October
31, 2003, filed December 23, 2003,
accession 0001019977-03-000012.
Exhibit C to Prospectus/Proxy Statement Annual Report to Shareholders of
Maxim 600 Index Portfolio, dated
December 31, 2002, filed February
27, 2003, accession no.
0000346476-03-000020.
Exhibit D to Prospectus/Proxy Statement Semi-Annual Report to Shareholders
of Maxim 600 Index Portfolio, dated
June 30, 2003, filed August 27,
2003, accession no.
0000346476-03-000091.
(11) Form of Opinion and Consent of
Counsel regarding Legality of Shares
(12) Opinion and Consent of Counsel
regarding Tax Matters and
Consequences to Shareholders
(14) Consent of Deloitte & Touche LLP,
Independent Auditors, regarding the
Financial Statements and Highlights
of the Acquired Funds and the
Financial Statements and Highlights
of the Acquiring Portfolios
(16) Powers of Attorney
(17) Form of Proxy Card