As filed with the Securities and Exchange Commission on April 13, 2006
Securities Act Registration No. 333-132569
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
x Pre-Effective Amendment No. _1___ _ Post-Effective Amendment No. _____
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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)
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Raymond L. McFeetors
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)
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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 May 9, 2006 pursuant to
Rule 488 under the Securities Act of 1933, as amended.
No filing fee is due because an indefinite number of common 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
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Part A
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Item No. Form N-14 Item Caption Prospectus Caption
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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
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2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
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3. Fee Table, Synopsis Information and Risk Synopsis: The Reorganization; Operating Expenses -
Factors Fees and Expenses, Examples; Investment Objectives
and Strategies; Distribution and Purchase Procedures
and Exchange Rights; Redemption Procedures; Federal
Income Tax Consequences; Principal Risk Factors of
Investing in the Acquiring Portfolio and the Acquired
Portfolio
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4. Information About the Transaction Information About the Reorganization: The Plan;
Reasons for Proposed Reorganization; Federal Tax
Considerations of Owning the Acquiring Portfolio;
Rights of Security Holders; Capitalization; Principal
Risk Factors of Investing in the Acquiring Portfolio
and the Acquired Portfolio - Comparison of Risk
Factors, Risk/Return Bar Chart and Table
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5. Information About the Registrant Additional Information about Investment Objectives
and Strategies, Risks, and Performance - Maxim U.S.
Government Mortgage Securities Portfolio; Management
of the Acquiring Portfolio; Portfolio Investment;
Past Performance and Financial Highlights of the
Acquiring Portfolio; Legal Proceedings; Information
about the Acquiring Portfolio;
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6. Information About the Company Being Additional Information about Investment Objectives
Acquired and Strategies, Risks, and Performance - Maxim U.S.
Securities Portfolio; Portfolio Investment;
Information about the Acquired Portfolio
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7. Voting Information Voting Information
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8. Interest of Certain Persons and Experts Not Applicable
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9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
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Part B
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Item No. Form N-14 Item Caption Statement of Additional Information of Maxim Series
Fund, dated May XX, 2006
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10. Cover Page Cover Page of Statement of Additional Information
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11. Table of Contents Table of Contents of Statement of Additional
Information
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12. Additional Information About the Statement of Additional Information of Maxim Series
Registrant Fund, dated May XX, 2006
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13. Additional Information About the Company Statement of Additional Information of Maxim Series
Being Acquired Fund, dated May XX, 2006
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14. Financial Statements Financial Statements as Noted in the Statement of
Additional Information
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Part C
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Item No. Form N-14 Item Caption Other Information
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15. Indemnification Indemnification
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16. Exhibits Exhibits
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17. Undertakings Undertakings
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MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
8515 EAST ORCHARD ROAD
GREENWOOD VILLAGE, COLORADO 80111
May XX, 2006
Dear Shareholder:
I am writing to ask for your vote on an important matter concerning an
investment option in your qualified plan or variable annuity contract. You have
allocated some or all of your account/contract value to the U.S. Government
Securities Portfolio of Maxim Series Fund, Inc. ("Maxim"), which is proposed to
be merged with and into the Maxim U.S. Government Mortgage Securities Portfolio.
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
the Maxim U.S. Government Securities Portfolio ("Acquired Portfolio") will be
merged with and into the Maxim U.S. Government Mortgage Securities Portfolio
("Acquiring Portfolio"). The Acquiring Portfolio will then be renamed the Maxim
U.S. Government Securities Portfolio.
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. Plan fiduciaries for qualified plans and
owners of certain variable annuity contracts for which the Acquired Portfolio
serves as an investment option are entitled to provide voting instructions with
respect to their proportionate interests in the Acquired Portfolio.
The Board of Directors recommends that you vote in favor of the
Reorganization.
Enclosed are the following documents:
o Notice of Special Meeting of Shareholders of Maxim U.S.
Government Securities Portfolio (which provides information about
the Meeting and the voting procedures involved);
o Prospectus/Proxy Statement for the Meeting (which provides
comprehensive information on the issue to be considered at the
Meeting);
o Annual Report to Shareholders of the Acquired Portfolio for the
fiscal year ended December 31, 2005 (from which information is
incorporated by reference into the Prospectus/Proxy Statement);
o Annual Report to Shareholders of the Acquiring Portfolio for the
fiscal year ended December 31, 2005 (from which information is
incorporated by reference into the Prospectus/Proxy Statement and
Statement of Additional Information);
o Voting Instruction Card; and
o a postage-paid return envelope.
We encourage you to review thoroughly the proposal 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, sign
and date the card and mail it 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
Maxim Series Fund, Inc.
MAXIM SERIES FUND
8515 E. Orchard Road
Greenwood Village, Colorado 80111
(303) 737-3000
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS OF
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
To be held on June 26, 2006
TO SHAREHOLDERS OF MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO:
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of
Maxim U.S. Government Securities Portfolio, a series of Maxim Series Fund, Inc.
("Maxim"), will be held at 10:30 a.m. on June 26, 2006, at the offices of Maxim,
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 of Reorganization") pursuant to
which the Maxim U.S. Government Securities Portfolio will be merged with and
into the Maxim U.S. Government Mortgage Securities Portfolio of Maxim, as well
as any other business that may properly come before the Meeting or an
adjournment. Only shareholders of the Maxim U.S. Government Securities Portfolio
are entitled to vote on this matter, as follows:
o Proposal 1: Approve or disapprove the Plan of Reorganization,
including the merger of the U.S. Government Securities Portfolio into
the Maxim U.S. Government Mortgage Securities Portfolio and the
renaming of Maxim U.S. Government Mortgage Securities Portfolio, upon
consummation of the Plan of Reorganization, as the Maxim U.S.
Government Securities Portfolio.
A copy of the Plan of Reorganization is attached as Exhibit A to the
Prospectus/Proxy Statement provided with this Notice.
The Board of Directors of Maxim has fixed the close of business on
March 31, 2006 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 Maxim U.S. Government Securities Portfolio 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
or their affiliate provide administrative services. The Life Companies hereby
solicit and agree to vote in proportion the shares of the U.S. Government
Securities Portfolio 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 Maxim U.S. Government Securities Portfolio 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 Maxim U.S. Government Securities Portfolio on the Record Date by the
share value of Maxim U.S. Government Securities Portfolio 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 the
proposal for which a 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 Directors unanimously recommends that you vote in favor
of each proposal.
Please review the enclosed Prospectus/Proxy Statement for additional
information regarding the Plan of Reorganization.
By Order of the Board of Directors,
Beverly A. Byrne
Secretary
Greenwood Village, Colorado
May XX, 2006
PART A:
INFORMATION REQUIRED IN THE PROSPECTUS/PROXY STATEMENT
ii
PROSPECTUS/PROXY STATEMENT
Dated May XX, 2006
ACQUISITION OF THE ASSETS OF: BY AND IN EXCHANGE FOR THE SHARES OF:
Maxim U.S. Government Maxim U.S. Government Mortgage
Securities Portfolio Securities Portfolio
each a series of:
Maxim Series Fund, Inc.
8515 E. Orchard Road
Greenwood Village, Colorado 80111
(303) 737-3000
Maxim Series Fund, Inc. ("Maxim" or the "Fund") is an open-end management
investment company offering shares in several funds/portfolios.
This Prospectus/Proxy Statement relates to the proposed acquisition (the
"Reorganization") of:
o the assets of the Maxim U.S. Government Securities Portfolio ("Maxim
U.S. Government Securities") by and in exchange for shares of the
Maxim U.S. Government Mortgage Securities Portfolio ("Maxim U.S.
Government Mortgage Securities").
The Maxim U.S. Government Securities Portfolio, whose assets will be acquired in
the Reorganization, will be referred to as the "Acquired Portfolio", and the
Maxim U.S. Government Mortgage Securities Portfolio, which will acquire those
assets, will be referred to as the "Acquiring Portfolio." From time to time, the
Acquiring Portfolio or the Acquired Portfolio may be referred to herein as a
"Portfolio" and collectively as the "Portfolios."
At a meeting of the shareholders of the Acquired Portfolio to be held on June
26, 2006, at 10:30 a.m. at the offices of Maxim, 8515 E. Orchard Road, Greenwood
Village, Colorado (together with any adjournments thereof, the "Meeting"),
shareholders of the Acquired Portfolio will be asked to consider and approve or
disapprove an Agreement and Plan of Reorganization (the "Plan") that relates to
the Reorganization. If the Plan is approved by a vote of the shareholders of the
Acquired Portfolio, then the assets of the Acquired Portfolio will be acquired
by, and in exchange for, the shares of the Acquiring Portfolio and the
liabilities of the Acquired Portfolio will be assumed by the Acquiring
Portfolio. The Acquired Portfolio will then be liquidated and terminated by
Maxim and the shares of the Acquiring Portfolio distributed to shareholders of
the Acquired Portfolio in the redemption of the Acquired Portfolio shares.
Immediately after completion of the Reorganization, the number of shares of the
Acquiring Portfolio then held by former shareholders of the Acquired Portfolio
may be different than the number of shares of the Acquired Portfolio 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 Portfolio shares formerly
held immediately before completion of the Reorganization.)
Because shareholders of the Acquired Portfolio are being asked to approve
transactions that will result in their receiving shares of the Acquiring
Portfolio, this Prospectus/Proxy Statement also serves as a prospectus for the
shares of the Acquiring Portfolio 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 May XX, 2006, related to this Prospectus/Proxy
Statement and containing additional information about Maxim 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 Portfolio 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 Portfolio, please call
1-800-537-2033 or write Secretary, Maxim Series Fund, at 8515 East Orchard Road,
Greenwood Village, Colorado 80111. The most recent Annual Reports for the
Acquired Portfolio and the Acquiring Portfolio 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.
2
TABLE OF CONTENTS
SYNOPSIS..........................................................................................................3
The Reorganization......................................................................................3
Operating Expenses......................................................................................4
Fees and Expenses..............................................................................4
Examples.......................................................................................5
Investment Objectives and Strategies....................................................................5
Distribution and Purchase Procedures and Exchange Rights;
Redemption Procedures...................................................................................6
Federal Income Tax Consequences.........................................................................6
INFORMATION ABOUT THE REORGANIZATION..............................................................................7
The Plan................................................................................................7
Reasons for the Proposed Reorganization.................................................................7
Federal Tax Considerations of Owning the Acquiring Portfolio............................................8
Qualification of Maxim as a Regulated Investment Company.......................................8
Diversification Requirements Applicable to Insurance Company
Separate Accounts..............................................................................8
Tax Implications for Contract Owners...........................................................9
Rights of Security Holders..............................................................................9
Capitalization..........................................................................................9
PRINCIPAL RISK FACTORS OF INVESTING IN THE ACQUIRING PORTFOLIO AND THE ACQUIRED PORTFOLIO.........................9
Comparison of Risk Factors..............................................................................9
Risk/Return Bar Chart and Table........................................................................10
ADDITIONAL INFORMATION ABOUT INVESTMENT OBJECTIVES AND STRATEGIES, RISKS , AND PERFORMANCE.......................11
Maxim U.S. Government Mortgage Securities Portfolio....................................................12
Investment Objectives and Strategies..........................................................12
Money Market Instruments...............................................................13
Temporary Investment Strategies........................................................13
Other Investment Practices....................................................................13
Foreign Securities.....................................................................13
Derivatives............................................................................14
Other Risk Factors Associated with the Acquiring Portfolio....................................15
Maxim U.S. Government Securities Portfolio.............................................................15
Investment Objectives and Strategies .........................................................15
i
Money Market Instruments...............................................................16
Temporary Investment Strategies........................................................16
Other Investment Practices....................................................................16
Foreign Securities.....................................................................16
Derivatives............................................................................17
Other Risk Factors Associated with the Portfolio..............................................18
MANAGEMENT OF THE ACQUIRING PORTFOLIO............................................................................18
Maxim Capital Management...............................................................................18
Management of the Acquiring Portfolio..................................................................19
PORTFOLIO INVESTMENT.............................................................................................20
Investing in the Portfolios............................................................................20
Pricing Shares................................................................................20
Purchasing and Redeeming Shares...............................................................21
Exchanging Shares.............................................................................21
Other Information.............................................................................22
Dividends and Capital Gains Distributions.....................................................22
Frequent Purchases and Redemptions of Fund Shares.............................................23
PAST PERFORMANCE AND FINANCIAL HIGHLIGHTS OF THE ACQUIRING PORTFOLIO.............................................24
LEGAL PROCEEDINGS................................................................................................24
ADDITIONAL INFORMATION ABOUT THE ACQUIRING PORTFOLIO.............................................................25
ADDITIONAL INFORMATION ABOUT THE ACQUIRED PORTFOLIO..............................................................25
VOTING INFORMATION...............................................................................................26
The Meeting............................................................................................26
Proxy and Voting Instruction Solicitations.............................................................26
Required Vote .......................................................................................27
Outstanding Shares and Principal Shareholders..........................................................27
EXHIBITS TO PROSPECTUS/PROXY STATEMENT
EXHIBIT A Form of Agreement and Plan of Reorganization by and between Maxim U.S. Government
Securities Portfolio by Maxim U.S. Government Mortgage Securities Portfolio
EXHIBIT B Annual Report to Shareholders of Maxim U.S. Government Mortgage Securities Portfolio for
the year ended December 31, 2005
EXHIBIT C Annual Report to Shareholders of Maxim U.S. Government Securities Portfolio for the year
ended December 31, 2005
ii
SYNOPSIS
The Reorganization
The Maxim Board of Directors (the "Maxim Board"), including a majority of Maxim
Directors who are not "interested persons" of Maxim 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 February 23, 2006 which provides for the Acquired
Portfolio to be merged into the Acquiring Portfolio, as summarized in the table
below:
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Acquired Portfolio Acquiring Portfolio Shareholders Entitled to Vote
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Proposal 1 Maxim U.S. Government Securities Maxim U.S. Government Mortgage Shareholders of Maxim U.S.
Portfolio Securities Portfolio Government Securities
Portfolio
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The Maxim Board has determined that the Reorganization is in the best interests
of the Acquired Portfolio and their shareholders and that the interests of
shareholders and Contract owners with values allocated to sub-accounts that
invest in the Acquired Portfolio will not be diluted as a result of the proposed
Reorganization.
Shares of the Acquired Portfolio and the Acquiring Portfolio are sold only to
separate accounts of 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") to fund benefits under
certain variable annuity contracts, variable life insurance policies and to
participants in connection with qualified retirement plans for which the Life
Companies provide administrative services.
Under the Plan, the assets of the Acquired Portfolio will be acquired by, and in
exchange for, the shares of the Acquiring Portfolio and the liabilities of the
Acquired Portfolio will be assumed by the Acquiring Portfolio. The Acquired
Portfolio will then be terminated by Maxim and the shares of the Acquiring
Portfolio distributed to shareholders of the Acquired Portfolio in the
redemption of the Acquired Portfolio shares. Immediately after completion of the
Reorganization, the number of shares of the Acquiring Portfolio then held by
former shareholders of the Acquired Portfolio may be different than the number
of shares of the Acquired Portfolio 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 Portfolio 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. Because both Portfolios are
part of the same intermediate government bond fund market, the Reorganization is
intended to streamline product offerings while maintaining a competitive set of
underlying investment options to help variable contract holders and plan
participants meet their financial goals.
The Reorganization is also designed to address the difficulties associated with
the lower and decreasing asset levels of the Acquired Portfolio. Lower asset
levels result, for example, in higher per share fixed expenses, while higher
asset levels can enable a Portfolio to trade more efficiently at lower costs.
The Acquired Portfolio has not been as successful as anticipated in attracting
assets to an increasingly competitive marketplace. Moreover, the prospects for
significant growth in the assets of the Acquired
3
Portfolio are believed to be limited, while the Acquiring Portfolio already has
a higher existing asset base and seemingly greater prospects for future asset
growth. Thus, the Reorganization is intended to offer current shareholders in
the Acquired Portfolio an opportunity to invest in a larger, more efficiently
managed portfolio, with greater prospects for future asset growth.
Costs of the Reorganization will not be borne by the Acquiring Portfolio or
Acquired Portfolio, but rather will be borne solely by GW Capital Management,
LLC, d/b/a Maxim Capital Management, investment advisor to Maxim ("MCM" or the
"Advisor"). 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, if any, relating to
disposition of non-conforming securities.
Further, Maxim will have received opinions from Jorden Burt LLP, tax counsel to
Maxim, which conclude, on the basis of the assumptions stated in the opinions,
that neither the Acquired Portfolio, the Acquiring Portfolio, their shareholders
nor the Contract Owners with contract values allocated to the Acquiring
Portfolio or the Acquired Portfolio will incur any additional tax obligations as
a result of the Reorganization.
The Maxim Board called the Meeting to allow shareholders to consider and vote on
the Reorganization. The Board unanimously recommends that the shareholders of
the Acquired Portfolio vote FOR the Plan and the resulting Reorganization.
Operating Expenses
Shareholders of the Acquiring Portfolio and Acquired Portfolio pay various fees
and expenses. The table below describes the fees and expenses paid by
shareholders of the Acquiring Portfolio and the Acquired Portfolio. These
expenses are based on the expenses for the fiscal year ended December 31, 2005
for both the Acquiring Portfolio and the Acquired Portfolio. Neither the
Acquired Portfolio nor the Acquiring Portfolio imposes sales charges (loads),
redemption fees, or other shareholder transaction fees. In addition, neither the
Acquired Portfolio nor the Acquiring Portfolio imposes 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 the Acquired Portfolio
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
Portfolio are expected to remain unchanged as a result of the acquisition of the
Acquired Portfolio.
Fees and Expenses
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Annual Portfolio Operating Expenses Maxim U.S. Government Maxim U.S. Government Pro Forma Combined
(expenses that are deducted from Portfolio Securities Portfolio Mortgage Securities
assets as a % of average net assets) Portfolio
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Management Fees 0.60% 0.60% 0.60%
- -------------------------------------------- ------------------------ ------------------------ -----------------------
- -------------------------------------------- ------------------------ ------------------------ -----------------------
Other Expenses 0.00% 0.00% 0.00%
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- -------------------------------------------- ------------------------ ------------------------ -----------------------
Total Annual Portfolio Operating Expenses 0.60% 0.60% 0.60%
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4
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
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Maxim U.S. Government $62 $194 $340 $774
Securities Portfolio
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
Maxim U.S. Government $62 $194 $340 $774
Mortgage Securities Portfolio
- ------------------------------- ------------------- ------------------- ------------------- -----------------
- ------------------------------- ------------------- ------------------- ------------------- -----------------
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 Acquired Portfolio and the
Acquiring Portfolio are set forth in the following table. There is no guarantee
that a Portfolio will meet its objectives. The table compares the objectives and
strategies of the Acquiring Portfolio to the Acquired Portfolio whose assets it
will acquire:
- ------------------ ------------------------------------------------ -------------------------------------------------
Maxim U.S. Government Securities Portfolio Maxim U.S. Government Mortgage Securities
Portfolio
- ------------------ ------------------------------------------------ -------------------------------------------------
- ------------------ ------------------------------------------------ -------------------------------------------------
Investment o Seek the highest level of return o Seek the highest level of return
Objective consistent with preservation of capital consistent with preservation of capital
and substantial credit protection. and substantial credit protection
- ------------------ ------------------------------------------------ -------------------------------------------------
- ------------------ ------------------------------------------------ -------------------------------------------------
Principal o Under normal circumstances, invest at o Under normal circumstances, invest at
Investment least 80% of its net assets (plus the least 80% of its net assets (plus the
Strategies amount of any borrowings for investment amount of any borrowings for investment
purposes) in securities issued or purposes) in mortgage related securities
guaranteed by the U.S. Government or its that have been issued or guaranteed by the
agencies or instrumentalities. U.S. Government or its agencies or
instrumentalities.
o Focus on relative value of the
security by analyzing the current and o Focus on relative value of the
expected level of interest rates, and security by analyzing the current and
current and historical asset yields expected level of interest rates, and
versus treasury yields. current and historical asset yields versus
treasury yields.
o Invest in private mortgage
5
pass-through securities and o Invest in private mortgage
collateralized mortgage obligations pass-through securities and collateralized
(CMOs). CMOs may be issued by private mortgage obligations (CMOs). CMOs may be
issuers and collateralized by securities issued by private issuers and
issued or guaranteed by the U.S. collateralized by securities issued or
Government or its agencies or guaranteed by the U.S. Government or its
instrumentalities. agencies or instrumentalities.
o Invest in U.S. Treasury bills, notes or
bonds or in certificates (which are
fully backed by the U.S. Government)
representing individual interests in pools
of these types of U.S. Treasury securities.
- ------------------ ------------------------------------------------ -------------------------------------------------
- ------------------ --------------------------------------------------------------------------------------------------
Key Differences The Acquired Portfolio's and the Acquiring Portfolio's stated investment objectives are
identical. The principal investment strategies are substantially similar, with the exception
being that the Acquired Portfolio has the additional option of investing in U.S. Treasury
bills, notes or bonds or in certificates (which are fully backed by the U.S. Government)
representing individual interests in pools of these types of U.S. Treasury securities. Both the
Acquiring Portfolio and the Acquired Portfolio utilize the Lehman Aggregate Bond Index
benchmark. The Lehman Aggregate Bond Index covers the U.S. investment grade fixed rate bond
market, including government and corporate securities, agency mortgage pass-through securities,
commercial mortgage-backed securities, and asset-backed securities having a final maturity of
greater than one year that are traded on U.S. financial markets.
- ------------------ --------------------------------------------------------------------------------------------------
Distribution and Purchase Procedures and Exchange Rights; Redemption Procedures
The distribution and purchase procedures and exchange rights, as well as the
redemption procedures, for the Acquiring Portfolio and the Acquired Portfolio
set forth in this Prospectus are identical, and are set for the in the section,
below, entitled "Investing in the Portfolios."
Federal Income Tax Consequences
As a condition to the consummation of the Reorganization, the Acquired Portfolio
and the Acquiring Portfolio will have received an opinion of Jorden Burt LLP,
tax counsel to Maxim, which concludes, on the basis of the assumptions stated in
the opinions, that neither the Acquired Portfolio, the Acquiring Portfolio,
their shareholders nor the Contract Owners with contract values allocated to the
Acquiring Portfolio or the Acquired Portfolio will incur any additional tax
obligations as a result of the Reorganization.
The opinion of Jorden Burt will conclude that, based on the facts and
assumptions stated therein, for federal income tax purposes the Reorganization
contemplated by the Plan shall qualify as a "tax-free reorganization" under
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code")
or, in the alternative, that the transaction will not qualify as a tax-free
reorganization under Section 368(a)(1) of the Code, but that: (a) the contract
owners and employee benefit plan participants with
6
beneficial interests in the Acquired Portfolio and Acquiring Portfolio will not
realize a tax gain or loss as a result of the transaction, (b) the Acquiring
Portfolio will not realize a tax gain or loss as a result of the transaction,
and (c) the Acquired Portfolio will realize a tax gain or loss as a result of
the transaction, but will not incur any tax liabilities as a result of the
transaction.
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 the Acquired Portfolio approve the Plan, then the assets of
the Acquired Portfolio will be acquired by, and in exchange for, the shares of
the corresponding Acquiring Portfolio and the liabilities of the Acquired
Portfolio will be assumed by the Acquiring Portfolio. The Acquired Portfolio
will then be terminated by Maxim and the shares of the Acquiring Portfolio
distributed to shareholders of the Acquired Portfolio in the redemption of the
Acquired Portfolio shares. Immediately after completion of the Reorganization,
the number of shares of the Acquiring Portfolio then held by former shareholders
of the Acquired Portfolio may be different than the number of shares of the
Acquired Portfolio 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 Portfolio
shares formerly held immediately before completion of the Reorganization).
It is anticipated that the Reorganization will be consummated as of the close of
business on July 14, 2006, or such later date as may be determined by mutual
agreement of the officers of Maxim (the "Closing Date"), subject to the
satisfaction of all conditions precedent to the closing. In the event that the
Acquired Portfolio 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 Portfolio 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 Acquiring Portfolio's Benchmark Index will be transferred by the
Acquired Portfolio to the corresponding Acquiring Portfolio, and all other
investments of the Acquired Portfolio will be liquidated prior to the Closing
Date.
MCM will pay or reimburse the Acquired Portfolio for brokerage commissions
incurred by them in connection with the disposition of any non-permitted assets.
Reasons for Proposed Reorganization
The investment objectives and strategies of the Acquired Portfolio overlap with
the investment objectives and strategies of the Acquiring Portfolio. Because
both Portfolios are part of the same intermediate government bond fund market,
the Reorganization is intended to streamline product offerings while maintaining
a competitive set of underlying investment options to help variable contract
holders and plan participants meet their financial goals.
The Reorganization is also designed to address the difficulties associated with
the lower and decreasing asset levels of the Acquired Portfolio. Lower asset
levels result, for example, in higher per share fixed expenses, while higher
asset levels can enable a Portfolio to trade more efficiently at lower costs.
7
The Acquired Portfolio has not been as successful as anticipated in attracting
assets to an increasingly competitive marketplace. Moreover, we believe that the
prospects for significant growth in the assets of the Acquired Portfolio are
limited, while the Acquiring Portfolio already has a higher existing asset base
and, we believe, greater prospects for future asset growth. Thus, we believe
that the Reorganization will offer current shareholders in the Acquired
Portfolio an opportunity to invest in a larger, more efficiently managed
portfolio, with greater prospects for future asset growth.
Although the expected lack of prospects for future growth factored into the
decision to propose the Reorganization, the Maxim Board approved the Plan only
after considering a variety of factors, including the past performance of the
Acquiring Portfolio and Acquired Portfolio, 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 Portfolio or
Acquired Portfolio.
Federal Tax Considerations of Owning the Acquiring Portfolio
Qualification of Maxim as a Regulated Investment Company.
Maxim believes that the Acquiring Portfolio is a regulated investment company
under Subchapter M of the Code. As a result of qualifying as a regulated
investment company, the 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. The 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, the Acquiring Portfolio intends to make sufficient
distributions to avoid the application of both corporate income and excise
taxes.
If the 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 ("IRS") diversification regulations (ownership of beneficial interests
only by insurance company segregated asset accounts and certain other entities
set forth in IRS regulations and no direct ownership by the public), each
insurance company separate account will be treated as owning its proportionate
share of the assets of the Acquiring Portfolio in which it invests, provided the
Acquiring Portfolio qualified as a regulated investment company. The Acquiring
Portfolio intends to meet the additional diversification requirements that are
applicable to insurance company separate accounts under Subchapter L of the
Code.
If the Acquiring Portfolio failed to comply with the diversification
requirements of the regulations under Subchapter L of the Code, owners of
contracts based on the Acquiring Portfolio might also be taxed on the investment
earnings under their contracts. Maxim and its Advisor and sub-advisor intend
that the Acquiring Portfolio will comply with the rules regarding registered
investment companies and asset
8
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 advisors for
further information.
Rights of Security Holders
There are no material differences between the rights of security holders of the
Acquiring Portfolio and those of the Acquired Portfolio.
Capitalization
The following tables show the net assets, shares outstanding and net asset value
per share of the Acquired Portfolio and the Acquiring Portfolio. This
information is generally referred to as "capitalization." The term "pro forma
combined" means the expected capitalization of the Acquiring Portfolio after it
has combined with the Acquired Portfolio, i.e., as if the Reorganization had
already occurred.
The capitalization tables are based on figures as of December 31, 2005. The
ongoing investment performance and daily share purchase and redemption activity
of the Acquired Portfolio and Acquiring Portfolio affect capitalization.
Therefore, the capitalization on the Closing Date may vary from the
capitalization shown in the following tables.
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Maxim U.S. Government Maxim U.S. Government Pro Forma Combined
Securities Portfolio Mortgage Securities
Portfolio
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net assets 65,859,491 247,118,705 312,978,196
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Shares outstanding 6,099,518 21,230,406 26,888,161
- -------------------------------- --------------------------- ---------------------------- ----------------------------
- -------------------------------- --------------------------- ---------------------------- ----------------------------
Net asset value per share 10.80 11.64 11.64
- -------------------------------- --------------------------- ---------------------------- ----------------------------
PRINCIPAL RISK FACTORS OF INVESTING IN
THE ACQUIRING PORTFOLIO AND THE ACQUIRED PORTFOLIO
Comparison of Risk Factors
The following table describes the principal risks associated with investments in
the Acquiring Portfolio. In addition, the risks of investing in the Acquired
Portfolio are identified. The principal risks associated with investing in both
the Acquiring Portfolio and the Acquired Portfolio are identical.
9
- ------------------- ------------------------------------------------- ------------------------------------------------
Maxim U.S. Government Securities Portfolio Maxim U.S. Government Mortgage Securities
Portfolio
- ------------------- ------------------------------------------------- ------------------------------------------------
- ------------------- ------------------------------------------------- ------------------------------------------------
Principal Risks Interest Rate Risk Interest Rate Risk
o The market value of a debt security is o The market value of a debt security
affected significantly by changes in is affected significantly by changes in
interest rates. When interest rates rise, interest rates. When interest rates
the security's market value declines and rise, the security's market value
when interest rates decline, market value declines and when interest rates decline,
rises. The longer a bond's maturity, the market value rises. The longer a bond's
greater the risk and the higher its maturity, the greater the risk and the
yield. Conversely, the shorter a bond's higher its yield. Conversely, the shorter
maturity, the lower the risk and the lower a bond's maturity, the lower the risk and
its yield. the lower its yield.
Credit Risk Credit Risk
o A bond's value can also be affected by o A bond's value can also be affected
changes in its credit quality rating or by changes in its credit quality rating its
issuer's financial conditions. or its issuer's financial conditions.
o An issuer may default on its o An issuer may default on its
obligation to pay principal and/or obligation to pay principal and/or
interest. interest.
Prepayment Risk Prepayment Risk
o When homeowners prepay their mortgages o When homeowners prepay their
in response to lower interest rates, mortgages in response to lower
the Portfolio may be required to interest rates, the Portfolio may be
reinvest the proceeds at the lower required to reinvest the proceeds at
interest rates then available. Also, the lower interest rates then
when interest rates fall, the price of available. Also, when interest rates
mortgage-backed securities may not fall, the price of mortgage-backed
rise to as great an extent as that of securities may not rise to as great
other fixed income securities. an extent as that of other fixed
income securities.
Liquidity Risk
o The fixed income securities in which Liquidity Risk
the Portfolio invests may be less o The fixed income securities in which
readily marketable and may be subject the Portfolio invests may be less
to greater fluctuation in price than readily marketable and may be subject
other securities. to greater fluctuation in price than
other securities.
Possible Loss of Money
o When you sell your shares of the Possible Loss of Money
Portfolio, they could be worth less than o When you sell your shares of the
what you paid for them. Portfolio, they could be worth less than
what you paid for them.
- ------------------- ------------------------------------------------- ------------------------------------------------
10
Risk/Return Bar Chart and Table
The following Risk/Return Bar Chart and Table illustrate the risks of investing
in the Acquiring Portfolio by showing changes in the performance from calendar
year to calendar year, and comparing the average annual returns to those of an
appropriate market index. Fees and expenses incurred at the contract level are
not reflected in the bar chart and table. If these amounts were reflected,
returns would be less than those shown. Past performance is not necessarily an
indication of how the Acquiring Portfolio will perform in the future.
- --------------------------------------------------------------------------------
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
(BAR CHART)*
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES
PORTFOLIO -- ANNUAL TOTAL RETURNS
1996 4.29%
1997 8.64%
1998 7.12%
1999 0.51%
2000 10.71%
2001 7.13%
2002 9.83%
2003 2.52%
2004 3.44%
2005 2.17%
The average annual total return for one year, five years and ten years for the
period ended December 31, 2005:
AVERAGE ANNUAL TOTAL RETURN One Year Five Years Ten Years
-------- ---------- ---------
Maxim U.S. Government Mortgage Securities Portfolio 2.17% 4.98% 5.58%
Lehman Aggregate Bond Index 2.43% 5.87% 6.17%
The inception date for the Maxim U.S. Government Mortgage Securities Portfolio was December 1, 1992.
* 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.
ADDITIONAL INFORMATION ABOUT INVESTMENT OBJECTIVES
AND STRATEGIES, RISKS, AND PERFORMANCE
See the above "Investment Objectives and Strategies" section for a description
and comparison of the Acquiring Portfolio and the Acquired Portfolio's
investment objectives or goals and strategies, and a description of the
Benchmark Index used by both the Acquiring Portfolio and Acquired Portfolio.
11
See the above section entitled "Principal Risk Factors of Investing in the
Acquiring Portfolio and the Acquired Portfolio" for a description and comparison
of the principal risks associated with investments in the Acquiring Portfolio
and the Acquired Portfolio.
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
Investment Objectives and Strategies
The Acquiring Portfolio follows a distinct set of investment strategies. All
percentage limitations relating to the Portfolio's investment strategies are
applied at the time the Portfolio acquires a security.
The Acquiring Portfolio will normally invest at least 80% of its assets in debt
securities. Therefore, as an investor in a Debt Portfolio, the return on your
investment will be based primarily on the risks and rewards of debt securities
or bonds. Bonds include debt securities of all types excluding money market
instruments. Examples of bonds include, but are not limited to, corporate debt
securities (including notes), asset-backed securities, securities issued by the
U.S. Government and its agencies, and mortgage pass-through securities and
collateralized mortgage obligations issued by both government agency and private
issuers. Bond issuers may be foreign corporations or governments as limited in
the Portfolio's investment strategies. In addition to bonds, debt securities
also include money market instruments.
Bonds are used by issuers to borrow money from investors. The issuer pays the
investor a fixed or variable rate of interest and must repay the amount borrowed
at maturity. In general, bond prices rise when interest rates fall, and vice
versa. Bonds have varying degrees of quality and varying levels of sensitivity
to changes in interest rates. Longer-term bonds are generally more sensitive to
interest rate changes than short-term bonds. This sensitivity to interest rates
is also referred to as "interest rate risk."
Debt obligations are rated based on their estimated credit risks by independent
services such as S&P and Moody's. "Credit risk" relates to the issuer's ability
to make payments of principal and interest when due.
The lower a bond's quality, the more it is subject to credit risk and interest
rate risk and the more speculative it becomes.
Investment grade securities are those rated in one of the four highest rating
categories by S&P or Moody's or, if unrated, are judged to be of comparable
quality. Debt securities rated in the fourth highest rating categories by S&P or
Moody's and unrated securities of comparable quality are viewed as having
adequate capacity for payment of principal and interest, but do involve a higher
degree of risk than that associated with investments in the higher rating
categories. Money market instruments are short-term debt securities of the
highest investment grade quality. They are discussed separately below under
"Money Market Instruments and Temporary Investment Strategies."
Debt securities rated below investment grade are commonly referred to as "high
yield-high risk securities" or "junk bonds." These securities are considered
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. It is, therefore,
possible that these types of factors could in certain instances, reduce the
value of securities held with a commensurate effect on share value. The
Portfolio may not invest in below investment grade debt securities.
The Portfolio may invest in bonds of U.S. and foreign issuers. Investments in
foreign securities present special risks and other considerations - these are
discussed below under "Foreign Securities."
12
The Portfolio may invest in derivatives in order to hedge against market risk or
reduce interest rate or credit risk. Derivatives are discussed below under
"Derivatives."
Money Market Instruments
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 the securities owned by the Acquiring Portfolio
does not guarantee the net asset value of its 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.
Temporary Investment Strategies
The Acquiring Portfolio may hold cash or cash equivalents and may invest in
money market instruments as deemed appropriate by the sub-advisor. The Portfolio
may invest up to 100% of its assets in money market instruments as deemed
necessary by the sub-advisor, for temporary defensive purposes to respond to
adverse market, economic or political conditions, or as a cash reserve. Should
the Acquiring Portfolio take this action, it may not achieve its investment
objective.
Other Investment Practices
Foreign Securities
The Portfolio may, in a manner consistent with its investment objective and
policies, invest in foreign securities. Accordingly, as an investor in this
Portfolio, you also should be aware of the risks associated with foreign
securities investments.
Debt and equity securities of foreign companies and governments generally have
the same risk characteristics as those issued by the U.S. government and U.S.
companies. In addition, foreign investments present other risks and
considerations not presented by U.S. investments. Investments in foreign
securities may cause the Portfolio to lose money when converting investments
from foreign currencies into U.S. dollars due to unfavorable currency exchange
rates.
Investments in foreign securities also subject the Portfolio to the adverse
political or economic conditions of the foreign country. These risks increase in
the case of "emerging market" countries which are more likely to be politically
and economically unstable. Foreign countries, especially emerging market
countries, may prevent or delay the Portfolio from selling its investments and
taking money out of the country. In addition, foreign securities may not be as
liquid as U.S. securities which could result in the Portfolio being unable to
sell its investments in a timely manner. Foreign countries, especially emerging
market countries, also have less stringent investor protection, disclosure and
accounting standards than the U.S. As a result, there is generally less publicly
available information about foreign companies than U.S. companies.
The Portfolio may invest in foreign securities has some exposure to foreign
markets. This exposure will be minimized to the extent this Portfolio invests
primarily in securities of U.S. issuers.
13
ADRs are negotiable certificates, issued by a U.S. depository bank, which
represent an ownership interest in shares of non-U.S. companies that are being
held by a U.S. depository bank. Each ADR may represent one ordinary share (or a
fraction or multiple of an ordinary share) on deposit at the depository bank.
The foreign shares held by the depository bank are known as American Depository
Shares (ADSs). Although there is a technical distinction between ADRs and ADSs,
market participants often use the two terms interchangeably. ADRs are traded
freely on U.S. exchanges or in the U.S. over-the-counter market. ADRs can be
issued under different types of ADR programs, and, as a result, some ADRs may
not be registered with the SEC.
ADRs are a convenient alternative to direct purchases of shares on foreign stock
exchanges. Although they offer investment characteristics that are virtually
identical to the underlying ordinary shares, they are often as easy to trade as
stocks of U.S. domiciled companies. A high level of geographic and industry
diversification can be achieved using ADRs, with all transactions and dividends
being in U.S. dollars and annual reports and shareholder literature printed in
English.
Derivatives
The Portfolio can 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. Derivatives may be used by the Portfolio to
hedge investments or manage interest or currency-sensitive assets. The Portfolio
will enter into derivative transactions only to protect the value of its
investments and not for speculative purposes. Derivatives can, however, subject
the Portfolio to various levels of risk. There are four basic derivative
products: forward contracts, futures contracts, options and swaps.
Forward contracts commit the parties to buy or sell an asset at a time in the
future at a price determined when the transaction is initiated. They are the
predominant means of hedging currency or commodity exposures. Futures contracts
are similar to forwards but differ in that (1) they 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.
Derivatives involve special risks. If the sub-advisor judges market conditions
incorrectly or employs a strategy that does not correlate well with the
Portfolio's investments, these techniques could result in a loss. These
techniques may increase the volatility of the Portfolio and may involve a small
investment of cash relative to the magnitude of the risk assumed. Thus, it is
possible for the Portfolio to lose more than its original investment in a
derivatives transactions. In addition, these techniques could result in a loss
if the counterparty to the transaction does not perform as promised.
14
Derivative transactions may not always be available and/or may be infeasible to
use due to the associated costs.
Other Risk Factors Associated with the Acquiring Portfolio
As a mutual fund, the Portfolio is subject to market risk. The value of the
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
Portfolio.
No 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 deciding whether to purchase shares of any
Portfolio.
A complete listing of the Portfolio's investment limitations and more detailed
information about its investment practices are contained in the Statement of
Additional Information.
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
Investment Objectives and Strategies
The Acquired Portfolio follows a distinct set of investment strategies. All
percentage limitations relating to the Portfolio's investment strategies are
applied at the time the Portfolio acquires a security.
The Acquired Portfolio will normally invest at least 80% of its assets in debt
securities. Therefore, as an investor in a Debt Portfolio, the return on your
investment will be based primarily on the risks and rewards of debt securities
or bonds. Bonds include debt securities of all types excluding money market
instruments. Examples of bonds include, but are not limited to, corporate debt
securities (including notes), asset-backed securities, securities issued by the
U.S. Government and its agencies, and mortgage pass-through securities and
collateralized mortgage obligations issued by both government agency and private
issuers. Bond issuers may be foreign corporations or governments as limited in
each Portfolio's investment strategies. In addition to bonds, debt securities
also include money market instruments.
Bonds are used by issuers to borrow money from investors. The issuer pays the
investor a fixed or variable rate of interest and must repay the amount borrowed
at maturity. In general, bond prices rise when interest rates fall, and vice
versa. Bonds have varying degrees of quality and varying levels of sensitivity
to changes in interest rates. Longer-term bonds are generally more sensitive to
interest rate changes than short-term bonds. This sensitivity to interest rates
is also referred to as "interest rate risk."
Debt obligations are rated based on their estimated credit risks by independent
services such as S&P and Moody's. "Credit risk" relates to the issuer's ability
to make payments of principal and interest when due.
The lower a bond's quality, the more it is subject to credit risk and interest
rate risk and the more speculative it becomes.
Investment grade securities are those rated in one of the four highest rating
categories by S&P or Moody's or, if unrated, are judged to be of comparable
quality. Debt securities rated in the fourth highest rating categories by S&P or
Moody's and unrated securities of comparable quality are viewed as having
adequate capacity for payment of principal and interest, but do involve a higher
degree of risk than that associated with investments in the higher rating
categories. Money market instruments are short-term debt securities of the
15
highest investment grade quality. They are discussed separately below under
"Money Market Instruments and Temporary Investment Strategies."
Debt securities rated below investment grade are commonly referred to as "high
yield-high risk securities" or "junk bonds." These securities are considered
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. It is, therefore,
possible that these types of factors could in certain instances, reduce the
value of securities held with a commensurate effect on share value. The
Portfolio may not invest in below investment grade debt securities.
The Portfolio may invest in bonds of U.S. and foreign issuers. Investments in
foreign securities present special risks and other considerations - these are
discussed below under "Foreign Securities."
The Portfolio may invest in derivatives in order to hedge against market risk or
reduce interest rate or credit risk. Derivatives are discussed below under
"Derivatives."
Money Market Instruments
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 the securities owned by the Portfolio does not
guarantee the net asset value of its 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.
Temporary Investment Strategies
The Portfolio may hold cash or cash equivalents and may invest in money market
instruments as deemed appropriate by the sub-advisor. The Portfolio may invest
up to 100% of its assets in money market instruments as deemed necessary by the
sub-advisor, for temporary defensive purposes to respond to adverse market,
economic or political conditions, or as a cash reserve. Should the Portfolio
take this action, it may not achieve its investment objective.
Other Investment Practices
Foreign Securities
The Portfolio may, in a manner consistent with its investment objective and
policies, invest in foreign securities. Accordingly, as an investor in this
Portfolio, you also should be aware of the risks associated with foreign
securities investments.
Debt and equity securities of foreign companies and governments generally have
the same risk characteristics as those issued by the U.S. government and U.S.
companies. In addition, foreign investments present other risks and
considerations not presented by U.S. investments. Investments in foreign
securities may cause the Portfolio to lose money when converting investments
from foreign currencies into U.S. dollars due to unfavorable currency exchange
rates.
16
Investments in foreign securities also subject the Portfolio to the adverse
political or economic conditions of the foreign country. These risks increase in
the case of "emerging market" countries which are more likely to be politically
and economically unstable. Foreign countries, especially emerging market
countries, may prevent or delay the Portfolio from selling its investments and
taking money out of the country. In addition, foreign securities may not be as
liquid as U.S. securities which could result in the Portfolio being unable to
sell its investments in a timely manner. Foreign countries, especially emerging
market countries, also have less stringent investor protection, disclosure and
accounting standards than the U.S. As a result, there is generally less publicly
available information about foreign companies than U.S. companies.
The Portfolio may invest in foreign securities has some exposure to foreign
markets. This exposure will be minimized to the extent this Portfolio invests
primarily in securities of U.S. issuers.
ADRs are negotiable certificates, issued by a U.S. depository bank, which
represent an ownership interest in shares of non-U.S. companies that are being
held by a U.S. depository bank. Each ADR may represent one ordinary share (or a
fraction or multiple of an ordinary share) on deposit at the depository bank.
The foreign shares held by the depository bank are known as American Depository
Shares (ADSs). Although there is a technical distinction between ADRs and ADSs,
market participants often use the two terms interchangeably. ADRs are traded
freely on U.S. exchanges or in the U.S. over-the-counter market. ADRs can be
issued under different types of ADR programs, and, as a result, some ADRs may
not be registered with the SEC.
ADRs are a convenient alternative to direct purchases of shares on foreign stock
exchanges. Although they offer investment characteristics that are virtually
identical to the underlying ordinary shares, they are often as easy to trade as
stocks of U.S. domiciled companies. A high level of geographic and industry
diversification can be achieved using ADRs, with all transactions and dividends
being in U.S. dollars and annual reports and shareholder literature printed in
English.
Derivatives
The Portfolio can 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. Derivatives may be used by the Portfolio to
hedge investments or manage interest or currency-sensitive assets. The Portfolio
will enter into derivative transactions only to protect the value of its
investments and not for speculative purposes. Derivatives can, however, subject
the Portfolio to various levels of risk. There are four basic derivative
products: forward contracts, futures contracts, options and swaps.
Forward contracts commit the parties to buy or sell an asset at a time in the
future at a price determined when the transaction is initiated. They are the
predominant means of hedging currency or commodity exposures. Futures contracts
are similar to forwards but differ in that (1) they 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.
17
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.
Derivatives involve special risks. If the sub-advisor judges market conditions
incorrectly or employs a strategy that does not correlate well with the
Portfolio's investments, these techniques could result in a loss. These
techniques may increase the volatility of the Portfolio and may involve a small
investment of cash relative to the magnitude of the risk assumed. Thus, it is
possible for the Portfolio to lose more than its original investment in a
derivatives transactions. In addition, these techniques could result in a loss
if the counterparty to the transaction does not perform as promised.
Derivative transactions may not always be available and/or may be infeasible to
use due to the associated costs.
Other Risk Factors Associated with the Portfolio
As a mutual fund, the Portfolio is subject to market risk. The value of the
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
Portfolio.
No 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 deciding whether to purchase shares of any
Portfolio.
A complete listing of the Portfolio's investment limitations and more detailed
information about its investment practices are contained in the Statement of
Additional Information.
MANAGEMENT OF THE ACQUIRING PORTFOLIO
Maxim Capital Management
MCM provides investment advisory, accounting and administrative services to
Maxim. MCM's address is 8515 East Orchard Road, Greenwood Village, Colorado
80111. MCM provides investment management services for mutual funds and other
investment portfolios representing assets of over $9.6 million. MCM and its
affiliates have been providing investment management services since 1969.
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-advisor's performance through quantitative and qualitative analysis and will
periodically report to the Maxim Board as to whether each sub-advisor's
agreement should be renewed, terminated or modified. A discussion regarding the
basis for the Board of Directors' approving any investment advisory contract of
Maxim is available both in the Acquiring Portfolio's and Acquired Portfolio's
annual report to shareholders for the year ended December 31, 2005.
18
Maxim will furnish to shareholders of the applicable Maxim portfolios all
information about a new sub-advisor 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-advisor 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-advisor, 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-advisor 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-advisor 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-advisor 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-advisors who are affiliated persons with
MCM.
For those Maxim portfolios for which MCM has entered into an agreement with a
sub-advisor, the sub-advisor is responsible for the daily management of the
portfolio and for making decisions to buy, sell or hold any particular security.
Each sub-advisor 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-advisor for its services.
Management of the Acquiring Portfolio
MCM does not currently have an agreement with anyone to provide sub-advisory
services to the Acquiring Portfolio.
The Acquiring Portfolio is "directly" advised by MCM (i.e., without the
assistance of a sub-adviser). MCM uses teams of professionals to manage the
assets of the directly advised portfolios. Each portfolio has a separate team
and all of the members of the team are jointly and primarily responsible for the
day-to-day management of their respective portfolios. The teams meet regularly
to review portfolio holdings and to discuss purchase and sale activity. Team
members buy and sell securities for a portfolio as they see fit, guided by the
portfolio's investment objective and strategy.
The Acquiring Portfolio is managed by a team of professionals consisting of Mr.
Bruce Masters and Ms. Catherine Tocher. Ms. Tocher has handled the day-to-day
management responsibility for the Maxim U.S. Government Mortgage Securities
Portfolio and Maxim U.S. Government Securities Portfolio since 1993. Ms. Tocher
is Vice President, Investments of Great-West Life & Annuity Insurance Company
and joined the Great-West Investments Department in 1987. Ms. Tocher was
educated at the University of Manitoba, where she received a Bachelor of
Commerce (Honours Degree) in Finance, and she is a Chartered Financial Analyst.
Mr. Masters is Assistant Vice President, Investments of Great-West Life &
Annuity Insurance Company and joined the Great-West Investments Department in
1987. Mr. Masters is a graduate of Red River Community College in Winnipeg,
Manitoba, Canada.
The management fees paid to MCM by the Acquiring Portfolio for the last fiscal
year are as follows:
19
Portfolio Percentage of Average Net Assets
Maxim U.S. Government Mortgage Securities 0.60%
PORTFOLIO INVESTMENT
Investing in the Portfolios
Shares of the Portfolios are not for sale directly to the public. Currently, the
Portfolios' shares are sold only to separate accounts of GWL&A, First Great-West
Life & Annuity Insurance Company and New England Life Insurance Company to fund
benefits under certain variable annuity contracts, variable life insurance
policies and to participants in connection with qualified retirement plans. In
the future, shares of the portfolios may be used to fund other variable
contracts offered by Great-West, or its affiliates, or other unrelated insurance
companies. For information concerning your rights under a specific variable
contract, please refer to the applicable prospectus and/or disclosure documents
for that contract.
Pricing Shares
The transaction price for buying, selling, or exchanging shares of either the
Acquiring Portfolio or the Acquired Portfolio is the net asset 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 the Fund is not open for business. In addition, trading in
some of a Portfolio's assets may not occur on days when the Fund is open for
business. Your share price will be the next net asset value calculated after
your order is received in good form. Each Portfolio values its assets at current
market prices where current market prices are readily available, or at fair
value as determined in good faith in accordance with procedures adopted by the
Board of Directors when a determination is made that current market prices are
not readily available. In valuing securities that trade principally on foreign
markets, the most recent closing market prices of these securities is used from
the market on which they principally trade, unless the most recent closing
market prices, in the Fund's judgment, do not represent current market values of
these securities. Because developments that could affect the values of foreign
securities may occur between the close of the foreign market where the security
is principally traded and the valuation time, current market prices may not be
readily available when te Fund determines the net asset value as of valuation
time, and therefore, the Fund may adjust previous closing market prices of
foreign securities to reflect what it believes to be the fair value of the
securities as of the valuation time. While fair value determinations involve
judgments that are inherently subjective, these determinations are made in good
faith in accordance with procedures adopted by the Board of Directors. The
effect of fair value pricing as described above is that securities may not be
priced on the basis of quotations from the primary market in which they are
traded, but rather may be priced by another method that the board believes
reflects fair value. This policy is intended to assure that a Portfolio's net
asset value fairly reflects security values at the time of pricing.
Net asset value for the Portfolios is based on the market value of the
securities in the 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
20
foreign exchange or market), that security may be valued by another method that
the Board of Directors of the Fund believes 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.
The Fund determines net asset value by dividing net assets of the Portfolio (the
value of its investments, cash, and other assets minus its liabilities) by the
number of the Portfolio's outstanding shares.
Purchasing and Redeeming Shares
Variable contract owners or Qualified Plan participants will not deal directly
with the Fund regarding the purchase or redemption of a Portfolio's shares.
Insurance company separate accounts place orders to purchase and redeem shares
of each 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 the Fund directly to purchase shares
of the Portfolios but may invest in shares of the Portfolios only through their
Qualified Plan. Participants should contact their Qualified Plan sponsor or
administrator for information concerning the appropriate procedure for investing
in the Fund.
The price to buy or sell shares of each Portfolio is the Portfolio's net asset
value next calculated after the Portfolio receives the order in proper form or
"good order." This means that the requests must be accompanied by proper payment
and sufficient information, documentation and detail before the close of regular
trading on the NYSE to enable a Portfolio to allocate assets properly.
Due to differences in tax treatment or other considerations, material
irreconcilable conflicts may arise between the interests of variable annuity
contract owners, variable life insurance policy owners and Qualified Plans that
invest in the Fund. The Board of Directors will monitor each Portfolio for any
material conflicts that may arise and will determine what action should be
taken.
Each Portfolio may stop offering shares completely or may offer shares only on a
limited basis, for a period of time or permanently.
Exchanging Shares
This section is only applicable to participants in Qualified Plans that purchase
shares of the Fund outside a variable annuity contract.
An exchange involves selling all or a portion of the shares of one Portfolio and
purchasing shares of another Portfolio. There are no sales charges or
distribution fees for an exchange. The exchange will occur at the next net asset
value calculated for the two Portfolios after the exchange request is received
in proper form. Before exchanging into a Portfolio, read its prospectus.
Please note the following policies governing exchanges:
o You can request an exchange in writing or by telephone.
o Written requests should be submitted to:
8515 East Orchard Road
Greenwood Village, CO 80111.
o The form should be signed by the account owner(s) and include the following
information:
(1) the name of the account;
(2) the account number;
(3) the name of the Portfolio from which the shares are to be sold;
21
(4) the dollar amount or number of shares to be exchanged;
(5) the name of the Portfolio(s) in which new shares will be purchased;
and
(6) the signature(s) of the person(s) authorized to effect exchanges
in the account.
o You can request an exchange by telephoning 1-800-537-2033.
o A Portfolio may refuse exchange purchases by any person or group if, in
MCM's judgment, the Portfolio would be unable to invest the money
effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected.
Other Information
o We may modify, suspend or terminate at any time the policies and procedures
to request an exchange of shares of the Portfolios by telephone.
o If an account has more than one owner of record, we may rely on the
instructions of any one owner.
o Each account owner has telephone transaction privileges unless we receive
cancellation instructions from an account owner.
o We will not be responsible for losses or expenses arising from unauthorized
telephone transactions, as long as we use reasonable procedures to confirm
that exchange instructions communicated over the telephone are genuine,
including requiring various forms of personal identification such as name,
mailing address, personal identification numbers (PINs) or other
information.
o All telephone calls will be recorded.
o During periods of unusual market activity, severe weather, or other
unusual, extreme, or emergency conditions, you may not be able to complete
a telephone transaction and should consider placing your order by mail.
o Telephone instructions will be accepted if received prior to the close of
the NYSE (generally 4:00 p.m. Eastern Time) on any day the NYSE is open for
business.
Dividends and Capital Gains Distributions
Each Portfolio earns dividends, interest and other income from its investments,
and distributes this income (less expenses) to shareholders as dividends. Each
Portfolio also realizes capital gains from its investments, and distributes
these gains (less any losses) to shareholders as capital gains distributions.
o The Maxim Money Market Portfolio ordinarily declares dividends from net
investment income daily and distributes dividends monthly.
o The Maxim Bond Index, Maxim Federated Bond, Maxim U.S. Government Mortgage
Securities, Maxim U.S. Government Securities and Maxim Short Duration Bond
Portfolios ordinarily distribute dividends from net investment income
quarterly.
o The Maxim T. Rowe Price Equity/Income, Maxim Janus Large Cap Growth, Maxim
Salomon Brothers High Yield Bond, Maxim Ariel MidCap Value, Maxim T. Rowe
Price MidCap Growth, Maxim Ariel Small-Cap Value, Maxim Loomis Sayles
Small-Cap Value, Maxim MFS(R) Small-Cap Growth, Maxim Stock Index, Maxim
Index 600, Maxim Value Index, Maxim Growth Index, Maxim S&P 500 Index(R),
Maxim Global Bond, Maxim Loomis Sayles Bond and all Profile Portfolios
ordinarily distribute dividends semi-annually.
o The Maxim Templeton(R) International Equity, Maxim INVESCO ADR and Maxim
MFS(R) International Growth, Portfolios ordinarily distribute dividends
annually.
o All of the Portfolios generally distribute capital gains, at least once
annually.
22
Frequent Purchases and Redemptions of Fund Shares
The Portfolios of the Fund are not intended for the purpose of market timing or
excessive trading activity. Market timing activity may dilute the interests of
shareholders in the Portfolios. Market timing generally involves frequent or
unusually large trades that are intended to take advantage of short-term
fluctuations in the value of a Portfolio's securities and the reflection of that
change in the Portfolio's share price. In addition, frequent or unusually large
trades may harm performance by increasing Portfolio expenses and disrupting
Portfolio management strategies. For example, excessive trading may result in
forced liquidations of portfolio securities or cause the Portfolio to keep a
relatively higher cash position, resulting in increased brokerage costs and lost
investment opportunities.
The Fund maintains policies and procedures, approved by the board, which are
designed to discourage market timing and excessive trading activity by
shareholders. As part of the procedures, all transaction requests (received in
"good order," as described above) will be processed at the Portfolio's next
determined net asset value. In all cases, if the order is received from the
investor before the close of regular trading on the New York Stock Exchange,
generally 4 p.m. Eastern Time, it is processed with that day's trade date at
that day's net asset value.
The Portfolios have also adopted pricing procedures and guidelines, including
procedures for fair value pricing of portfolio securities to reflect significant
market events occurring after the close of a foreign exchange on which portfolio
securities are traded, or which otherwise may not be reflected in the market
price of a foreign or domestic security. The procedures serve to limit dilution
to the Portfolios that may be caused by market-timing activities following a
significant market event that occurs prior to the Portfolio's pricing time.
MCM has also implemented two additional processes to assist with the
identification of potential market-timing and/or excessive trading activity.
1. Daily subscription and redemption amounts are compared to daily net
assets. If the subscription or redemption amount is greater than one
percent of the daily net assets of a Portfolio, additional verification
of the subscription or redemption amount takes place. If market timing
or excessive trading is believed to be occurring, the plan
recordkeeper's resources will be utilized to assist with the
identification of such investors; and
2. Detailed exception reports are prepared monthly showing investors that
have made purchases and sales in the same Portfolio within 5 business
days of each other. Upon identification of such investors, the past 90
days of the investor's activity is obtained for further review.
Upon identification of investors that have participated in market timing and/or
excessive trading, MCM utilizes the resources of Great-West Retirement Services
to contact the investor and the Plan involved. The investor receives a written
request to discontinue market timing and/or excessive trading activity. If
market timing and/or excessive trading activity does not stop, trading
restrictions may be implemented. The Portfolios and their agents reserve the
right to restrict, reject or cancel purchase and exchange orders, as described
above, which the Portfolios believe represent market timing or excessive
trading.
Please note that the Fund's market timing procedures are such that the Fund does
not impose trading restrictions unless or until a Portfolio or its agent first
detects and notifies us of potential market timing or excessive trading
activity. Accordingly, we cannot prevent all market timing or excessive trading
activity, as it may not be possible to identify it unless and until a trading
pattern is established.
23
Shareholders seeking to engage in market timing or excessive trading practices
may deploy a variety of strategies to avoid detection, and there is no guarantee
that the Portfolios or their agents will be able to identify such shareholders
or curtail their trading practices. The ability of the Portfolios and their
agents to detect and curtail market timing or excessive trading practices may
also be limited by operational systems and technological limitations. As a
result, the Portfolios and their agents may have limited ability to monitor and
discourage trading practices, which may materially affect the Portfolio. To the
extent the Portfolios do not detect market timing and/or excessive trading, it
is possible that a market timer may be able to make market timing and/or
excessive trading transactions with the result that management of the Portfolios
may be disrupted and shareholders may suffer detrimental effects such as
increased costs, reduced performance, and dilution of their interests in the
affected Portfolios.
The practices and policies described above are intended to deter and curtail
market timing in the Portfolios. However, there can be no assurance that these
policies, individually or collectively, will be totally effective in this regard
because of various factors. In particular, all Portfolio purchase, redemption
and exchange orders are received through omnibus accounts. Omnibus accounts, in
which shares are held in the name of an intermediary on behalf of multiple
beneficial owners, are a common form of holding shares among financial
intermediaries, retirement plans, and variable insurance products. The
Portfolios typically are not able to identify trading by a particular beneficial
owner through an omnibus account, which may make it difficult or impossible to
determine if a particular account is engaged in market timing prior to
completion of a specific Portfolio trade. Also, certain financial
intermediaries, retirement plans and variable insurance products have different
policies regarding monitoring and restricting market timing in the underlying
beneficial owner accounts maintained through an omnibus account, that may be
more or less restrictive than the Fund's practices discussed above.
We endeavor to ensure that our procedures are uniformly and consistently applied
to all shareholders, and we do not exempt any persons from these procedures. In
addition, we do not enter into agreements with shareholders whereby we permit
market timing or excessive trading. However, because of the discretionary nature
of the restrictions and given that the Fund reserves the right to reject orders,
the possibility exists that some shareholders may be permitted to engage in
market timing before restrictions are imposed. We may revise our market timing
and excessive trading policy and related procedures at our sole discretion, at
any time and without prior notice, as we deem necessary or appropriate to comply
with state or federal regulatory requirements or to impose additional or
alternative restrictions on shareholders engaging in market timing or excessive
trading.
PAST PERFORMANCE AND FINANCIAL HIGHLIGHTS
OF THE ACQUIRING PORTFOLIO
The past performance and Financial Highlights of the Maxim U.S. Government
Mortgage Securities Portfolio are and the Maxim U.S. Government Securities
Portfolio for the fiscal year ended December 31, 2005 are setforth below.
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Selected data for a share of capital stock of the portfolio for the periods
indicated are as follows:
Year Ended December 31,
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 11.88 $ 11.96 $ 12.36 $ 11.85 $ 11.69
Income from Investment Operations
Net investment income 0.49 0.48 0.49 0.20 0.63
Net realized and unrealized gain (loss) (0.24) (0.08) (0.19) 0.54 0.18
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Total Income From Investment Operations 0.25 0.40 0.30 0.74 0.81
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Less Distributions
From net investment income (0.49) (0.48) (0.50) (0.19) (0.65)
From net realized gains (0.20) (0.04)
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Total Distributions (0.49) (0.48) (0.70) (0.23) (0.65)
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 11.64 $ 11.88 $ 11.96 $ 12.36 $ 11.85
============= ============== ============ ============ ============
============= ============== ============ ============ ============
Total Return 2.17% 3.44% 2.52% 9.83% 7.13%
Net Assets, End of Period ($000) $ 247,119 $ 264,419 $ 306,288 $ 347,127 $ 219,596
Ratio of Expenses to Average Net Assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of Net Investment Income to
Average Net Assets 4.20% 4.00% 4.10% 4.98% 5.66%
Portfolio Turnover Rate 46.40% 79.23% 105.93% 82.56% 49.85%
See notes to financial statements.
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Selected data for a share of capital stock of the portfolio for the periods
indicated are as follows:
Year Ended December 31,
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 11.10 $ 11.15 $ 11.43 $ 11.00 $ 10.87
Income from Investment Operations
Net investment income 0.47 0.47 0.48 0.19 0.60
Net realized and unrealized gain (loss) (0.23) (0.05) (0.19) 0.43 0.15
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Total Income From Investment Operations 0.24 0.42 0.29 0.62 0.75
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Less Distributions
From net investment income (0.48) (0.46) (0.48) (0.19) (0.62)
From net realized gains (0.06) (0.01) (0.09)
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Total Distributions (0.54) (0.47) (0.57) (0.19) (0.62)
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 10.80 $ 11.10 $ 11.15 $ 11.43 $ 11.00
============= ============== ============ ============ ============
============= ============== ============ ============ ============
Total Return 2.19% 3.90% 2.57% 9.81% 7.07%
Net Assets, End of Period ($000) $ 65,859 $ 70,350 $ 78,434 $ 82,835 $ 93,613
Ratio of Expenses to Average Net Assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of Net Investment Income to
Average Net Assets 4.27% 4.17% 4.28% 5.25% 5.65%
Portfolio Turnover Rate 46.48% 62.58% 71.74% 91.64% 66.47%
See notes to financial statements.
LEGAL PROCEEDINGS
There are no pending legal proceedings that would have an adverse material
effect on the Fund or the ability of MCM or GWFS Equities, Inc., the principal
underwriter, to perform their contracts with the Fund. GWL&A is engaged in
various kinds of routine litigation that, in our judgment, is not material to
its total assets or material with respect to the Fund.
24
INFORMATION ABOUT THE ACQUIRING PORTFOLIO
Maxim has filed this Prospectus/Proxy Statement with the SEC. Additional
information about the Acquiring Portfolio 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. Additional
information about the Acquiring Portfolio's investments is available in its
Annual Report to shareholders, which is enclosed with this Prospectus/Proxy
Statement. In the Acquiring Portfolio's Annual Report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Acquiring Portfolio's performance during its last fiscal year.
Shareholders may make inquiries about the Acquiring Portfolio, and may obtain
copies of the Statement of Additional Information related to this
Prospectus/Proxy Statement or other information, 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 does not have an internet
web site. However, the Acquiring Portfolio is subject to the requirements of the
1940 Act and, in accordance with such requirements Maxim files reports, proxy
materials and other information with the SEC. You can inspect and copy those
reports, proxy materials and other information at the public reference
facilities maintained by the SEC at 100 F Street N.E., 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.
INFORMATION ABOUT THE ACQUIRED PORTFOLIO
The current Prospectus, Statement of Additional Information, and Annual Report
for the Acquired Portfolio are incorporated herein by reference, and the current
Annual Report for the Acquired Portfolio is enclosed with this Prospectus/Proxy
Statement. Copies may be obtained, without charge, by writing to Maxim at its
address noted above or by calling 1-800-537-2033. Additional information about
the Acquired Portfolio 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. Additional information about the
Acquired Portfolio's investments is available in its Annual Report to
shareholders. In the Acquired Portfolio's Annual Report, you will find a
discussion of the market conditions and investment strategies that significantly
affected its performance during its last fiscal year. Shareholders may make
inquiries about the Acquired Portfolio, and may obtain copies of the Statement
of Additional Information related to this Prospectus/Proxy Statement and copies
of the Acquired Portfolio's Annual Report or other information, 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 does not have
an internet web site. However, the Acquired Portfolio is subject to the
requirements of the 1940 Act and, in accordance with such requirements 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 100 F Street N.E., 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.
25
VOTING INFORMATION
The Meeting
The Meeting will be held at 10:30 a.m., Mountain Time, on June 26, 2006, at the
offices of Maxim, 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 the Acquired Portfolio will be merged into the Acquiring
Portfolio, as well as any other business that may properly come before the
Meeting. Only shareholders of the Acquired Portfolio are entitled to vote on
this matter.
A copy of the Plan is attached hereto as Exhibit A of this Prospectus/Proxy
Statement.
The Maxim Board fixed the close of business on March 31, 2006 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 Portfolio 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 Portfolio on the Record Date by the share value of that Acquired
Portfolio 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, Maxim 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 proposal 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 Maxim Board is soliciting proxies from shareholders of the Acquired
Portfolio. 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.
26
Required Vote
Approval of the Acquisition requires the affirmative vote of "a majority of the
outstanding voting securities" of the Acquired Portfolio, 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 Portfolio means the lesser of (1)
the vote of 67% or more of the shares of the Acquired Portfolio represented at
the Meeting at which the holders of more than 50% or more of the outstanding
shares of the Acquired Portfolio are present or represented by proxy, or (2) the
vote of the holders of more than 50% of the outstanding shares of the Acquired
Portfolio.
Outstanding Shares and Principal Shareholders
The name, address and percentage of ownership of shareholders that owned of
record 5% or more of the Acquired Portfolio on December 31, 2005, their
percentage ownership of the Acquired Portfolio and the total number of shares of
the Acquired Portfolio outstanding on December 31, 2005 are as follows:
- --------------------------- ------------------------- ------------------------------------------- --------------------
Acquired Portfolio Total Number of Shares Name & Address of Acquired Portfolio Percentage of
of Acquired Portfolio Shareholders with at least 5% Ownership Acquired Portfolio
Outstanding at December at December 31, 2005 Shares Held as of
31, 2005 December 31, 2005
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
Maxim U.S. Government 470,855 COLI VUL 2 Series Account 7.72%
Securities Portfolio 3,847,411 Futurefunds Series Account 63.06%
1,196,735 Futurefunds II Series Account 19.62%
391,435 Maxim II Series Account 6.42%
- --------------------------- ------------------------- ------------------------------------------- --------------------
The name, address and percentage of ownership of shareholders that owned of
record 5% or more of each Acquiring Portfolio on December 31, 2005, their
percentage ownership of each Acquiring Portfolio and the total number of shares
of each Acquiring Portfolio outstanding on December 31, 2005 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, 2005 Portfolio Shares
31, 2005 Held as of
December 31, 2005
- --------------------------- ------------------------- ------------------------------------------- --------------------
- --------------------------- ------------------------- ------------------------------------------- --------------------
Maxim U.S. Government 1,237,390 TNE Series Account 5.78%
Mortgage Securities 1,854,503 Maxim Conservative Profile II 8.74%
Portfolio 4,365,399 Maxim Moderate Profile II 20.56%
11,101,654 Futurefunds II Series Account 51.90%
- --------------------------- ------------------------- ------------------------------------------- --------------------
As of December 31, 2005, the officers and directors of Maxim, as a group, owned
less than 1% of the outstanding shares of the Acquired Portfolio.
27
[Back Cover Page of Prospectus]
STATEMENT OF ADDITIONAL INFORMATION
OF
MAXIM SERIES FUND, INC. ("MAXIM")
Dated May XX, 2006
TABLE OF CONTENTS
INTRODUCTION................................................................................3
MAXIM.......................................................................................3
INVESTMENT OBJECTIVES AND POLICIES AND INVESTMENT RESTRICTIONS..............................3
Fundamental Investment Restrictions.................................................4
Non-Fundamental Investment Restrictions.............................................5
Securities and Investment Practices and Techniques..................................5
Portfolio Holdings Disclosure......................................................18
MAXIM DIRECTORS AND OFFICERS...............................................................19
Directors and Officers.............................................................19
Standing Committees................................................................23
Ownership..........................................................................23
Independent Directors and their Immediate Family Members...........................24
Compensation.......................................................................25
CODES OF ETHICS............................................................................25
PRINCIPAL SECURITY HOLDERS.................................................................26
PROXY VOTING POLICIES......................................................................26
INVESTMENT ADVISORY AND OTHER SERVICES.....................................................26
Investment Advisor.................................................................26
Investment Advisory Agreement......................................................27
Sub-Advisory Fees..................................................................28
Advisory Fees......................................................................28
Payment of Expenses................................................................28
Portfolio Management...............................................................28
DISTRIBUTION AGREEMENT.....................................................................29
Principal Underwriter..............................................................29
ADMINISTRATIVE SERVICES AGREEMENT..........................................................30
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES.................................................30
Qualification as a Regulated Investment Company....................................30
Excise Tax on Regulated Investment Companies.......................................32
Effect of Future Legislation; Local Tax Considerations.............................32
PERFORMANCE DATA...........................................................................32
Maxim U.S. Government Mortgage Securities Portfolio................................32
Performance Comparisons............................................................34
VOTING RIGHTS..............................................................................35
PRICING, PURCHASE AND REDEMPTION OF SHARES.................................................35
Pricing Shares.....................................................................35
Purchasing and Redeeming Shares....................................................36
Frequent Purchases and Redemptions of
Fund Shares ................................................................36
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................................37
Brokerage Commissions..............................................................38
Portfolio Turnover.................................................................39
FINANCIAL STATEMENTS.......................................................................39
Maxim U.S. Government Mortgage Securities Portfolio................................39
Maxim U.S. Government Securities Portfolio.........................................39
Pro Forma Financial Statements.....................................................39
GENERAL INFORMATION........................................................................39
Custodian..........................................................................39
Transfer and Dividend Paying Agent.................................................39
Independent Registered Public Accounting Firm......................................40
Registration Statement.............................................................40
APPENDIX A..... CORPORATE BOND AND COMMERCIAL PAPER RATINGS
APPENDIX B..... GW CAPITAL MANAGEMENT, LLC
PROXY POLICIES & PROCEDURES
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made this __ day of
_______, 2006, by and between two portfolios of Maxim Series Fund, Inc., a
Maryland corporation ("Maxim"): (i) Maxim U.S. Government Mortgage Securities
Portfolio (the "Acquiring Portfolio"); and (ii) Maxim U.S. Government Securities
Portfolio (the "Acquired Portfolio"), both, with their principal place of
business at 8515 East Orchard Road, Greenwood Village, Colorado 80111.
PLAN OF REORGANIZATION
The Reorganization described in this Agreement and Plan of
Reorganization ("Agreement" or "Plan") will take place at a closing (the
"Closing") on a date determined under Section 4 and will consist of:
(i) the transfer of all of the assets of the Acquired Portfolio to
the Acquiring Portfolio;
(ii) the distribution to the shareholders of the Acquired Portfolio
of shares of the Acquiring Portfolio in exchange for and in
redemption of such shareholders' shares in the Acquired
Portfolio;
(iii) the termination of the Acquired Portfolio as soon as
practicable after the Closing, all upon and subject to the
terms and conditions of this Plan hereinafter set forth; and
(iv) the change of name of the Acquiring Portfolio to the current
name of the Acquired Portfolio.
1. Shareholder Approval
A meeting of the shareholders of the Acquired Portfolio shall be called
and held for the purpose of acting on and authorizing the transactions
contemplated in this Agreement. Maxim shall furnish to the Acquired Portfolio's
shareholders such data and information as shall be reasonably necessary in
connection with the meeting.
2. Plan of Reorganization
(a) The Acquired Portfolio shall convey, transfer and deliver to the
Acquiring Portfolio at the Closing all of the Acquired Portfolio's then existing
assets (including, without limitation, all portfolio securities and instruments,
dividends and interest receivable, cash, goodwill, contractual rights of the
Acquired Portfolio, all other intangible property owned by the Acquired
Portfolio, originals or copies of all books and records of the Acquired
Portfolio, and all other assets of the Acquired Portfolio on the Closing), 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 (the "Securities
Act")), 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; and
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(ii) pay such contingent liabilities as the Treasurer of Maxim shall
reasonably deem to exist against the Acquired Portfolio, if any,
at the Closing, for which contingent and other appropriate
liability reserves shall be established on the Acquired
Portfolio'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 Portfolio's "Net Assets." Notwithstanding the foregoing,
the Acquiring Portfolio shall also assume any other liabilities
incurred on behalf of the Acquired Portfolio.
(b) Subject to the terms and conditions of this Plan, the Acquiring
Portfolio shall at the Closing deliver to the Acquired Portfolio 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 the Acquired Portfolio 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 Portfolio, 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 below in Section 3.
(c) Immediately following the Closing, or as soon thereafter as is
conveniently practicable, the Acquired Portfolio shall distribute to each of its
shareholders of record as of the close of business on the Closing that number of
shares of the 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 Portfolio 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 Portfolio, such values
to be determined in the manner and as of the time set forth below in Section 3.
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 Portfolio
simultaneously shall be cancelled on the books of the Acquired Portfolio.
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3. Valuation
(a) The value of the Acquired Portfolio's Net Assets to be transferred to the
Acquiring Portfolio hereunder shall be computed as of the close of trading on
the New York Stock Exchange (normally 4 p.m. ET) on the business day
immediately preceding the date of the Closing (the "Valuation Date") using the
valuation procedures set forth in Maxim's current prospectus and statement of
additional information.
(b) The net asset value of a share of the Acquired Portfolio's and the Acquiring
Portfolio's shares for purposes of Section 2 shall be determined to the nearest
full cent as of the close of trading on the New York Stock Exchange on the
Valuation Date using the valuation procedures set forth in Maxim's currently
effective prospectus.
4. Closing
The Closing shall occur at either the later of:
(i) receipt of all necessary regulatory approvals and the
final adjournment of the meeting of shareholders of the Acquired Portfolio at
which the Plan will be considered, or
(ii) July 14, 2006.
5. Distribution, Liquidation and Dissolution
(a) As soon as practicable after the Closing, the Acquired Portfolio
will distribute pro rata to the Acquired Portfolio's shareholders of record as
of the close of business on the Closing the shares of the Acquiring Portfolio
received by the Acquired Portfolio pursuant to Section 2(a) of this Agreement.
(b) Promptly after the distribution described above in Section 5(a),
appropriate notification will be mailed to each shareholder of the Acquired
Portfolio receiving such distribution of shares of the Acquiring Portfolio
informing such shareholder of the number of such shares distributed to such
shareholder and confirming the registration thereof in such shareholder's name.
(c) Share certificates representing holdings of shares of the Acquiring
Portfolio shall not be issued unless requested by the shareholders and, if such
a request is made, share certificates of the Acquiring Portfolio will be issued
only for full shares of the Acquiring Portfolio and any fractional interests in
shares shall be credited in the shareholder's account with the Acquiring
Portfolio.
(d) As promptly as is practicable after the liquidation of the Acquired
Portfolio, and in no event later than 12 months from the date of this Agreement,
the Acquired Portfolio shall be terminated pursuant to the provisions of the
Plan and the Maxim By-laws and Articles of Incorporation.
(e) Immediately after the Closing, the share transfer of the Acquired
Portfolio shall be closed and no transfer of shares shall thereafter be made on
Maxim's shareholder record books.
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6. Representations and Warranties
Maxim makes the following representations and warranties with respect
to the Acquiring Portfolio and the Acquired Portfolio:
(a) The Acquiring Portfolio and the Acquired Portfolio are duly
organized series of Maxim, a corporation 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 and the Acquired
Portfolio's business as they are now being conducted.
(b) 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 Maxim's shares were sold pursuant to an effective registration statement
filed under the Securities Act, except for those shares sold pursuant to an
exemption under the Securities Act for private offerings, for the purpose of
raising the required initial capital.
(c) All of the outstanding shares of the Acquiring Portfolio and the
Acquired 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.
(d) The financial statements appearing in Maxim's Annual Report to
Shareholders for the fiscal year ended December 31, 2005, audited by the
Independent Registered Public Accounting Firm, Deloitte & Touche LLP, fairly
present the financial position of the Acquired Portfolio as of December 31,
2005, and the results of its operations for the year ended December 31, 2005,
and the changes in net assets for the two years ended December 31, 2005 in
conformity with generally accepted accounting principles in the United States of
America applied on a consistent basis, and since December 31, 2005, there has
not been any material adverse change in the Acquired Portfolio's financial
condition, assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired 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 Maxim. For
purposes of this subsection (d), a decline in net asset value per share of the
Acquired Portfolio due to declines in market values of securities in the
Acquired Portfolio's portfolio, the discharge of the Acquired Portfolio's
liabilities, or the redemption of the Acquired Portfolio shares by the Acquired
Portfolio's shareholders shall not constitute a material adverse change.
(e) Maxim has the power to enter into the Plan on behalf of its series,
the Acquiring Portfolio and the Acquired Portfolio, and to carry out its
obligations under this Agreement. The execution and delivery of the Plan and the
consummation of the transactions contemplated have been duly authorized by the
Board of Directors of Maxim and no other proceedings by Maxim are necessary to
authorize its officers to effectuate the Plan and the transactions contemplated.
Neither the Acquiring Portfolio nor the Acquired Portfolio are a party to or
obligated under any charter, by-law, indenture, or contract provision or any
other commitment or obligation, or subject to any order or decree, which would
be violated by its executing and carrying out the Plan.
(f) There is no material suit, judicial action, or legal or
administrative proceeding pending or threatened against Maxim, the Acquiring
Portfolio, or the Acquired Portfolio.
(g) Except for contracts and agreements previously disclosed to the
Acquiring Portfolio and the Acquired Portfolio under which no default exists,
the Acquiring Portfolio and the Acquired Portfolio are not a party to or subject
to any material contract, debt instrument, plan, lease, franchise, license,
or permit of any kind or nature whatsoever.
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(h) Maxim's federal and other tax returns and reports required by law
to be filed on or before the Closing 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.
(i) All securities to be listed in the schedule of investments of the
Acquired Portfolio as of the Closing of the Reorganization will be owned by
Maxim on behalf of the Acquired Portfolio free and clear of any liens, claims,
charges, options, and encumbrances, except as indicated in the schedule. Except
as so indicated, none of the securities is, or after the Reorganization as
contemplated by this Agreement will be, subject to any legal or contractual
restrictions on disposition (including restrictions as to the public offering or
sale of the securities under the Securities Act), and all the securities are or
will be readily marketable.
(j) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by the Acquired Portfolio.
(k) 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"), 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.
7. Additional Covenants
(a) (i) As soon as reasonably practicable following adoption and
approval of this Plan by Maxim's Board of Directors, 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 Securities Act relating to the
shares of the Acquiring Portfolio 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 Portfolio, 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 Securities 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 Maxim for inclusion therein; (2) that, at the date of the
mailing to the Acquired Portfolio's shareholders, the date of the meeting, and
at the Closing, the prospectus and statement of additional information of the
Acquiring Portfolio 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
Acquiring Portfolio included in the Registration Statement will fairly present
the financial position of the Acquiring 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
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accepted in writing by Maxim. For purposes of clause (3) of this subsection
7(a)(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 the Acquiring Portfolio's shares by the Acquiring Portfolio's
shareholders shall not constitute a material adverse change.
(b) The Acquired Portfolio shall have the right to sell any of the
securities or other assets shown on the list of assets prior to the Closing but
will not, without the prior approval of Maxim, acquire any additional securities
other than securities which the 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
the Acquired Portfolio holds any investments that the Acquiring Portfolio would
not be permitted to hold, the Acquired Portfolio will dispose of such securities
prior to the Closing 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 Maxim, on behalf of the Acquired Portfolio
and the Acquiring Portfolio, respectively, shall occur prior
to the Closing; and
(iii) 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
the Acquired Portfolio or the Acquiring Portfolio or would prohibit the
transactions contemplated hereby.
(d) This Plan shall have been approved by a vote of two-thirds of all
votes of shareholders of the Acquired Portfolio entitled to be cast on the
matter, as required by Section 3-105(e) of the General Corporation Law of the
state of Maryland, the governing statute, as referenced in Maxim's Articles of
Incorporation.
(e) The Acquired Portfolio shall have received the opinion of counsel,
addressed to and in form and substance satisfactory to the Acquired Portfolio,
as to certain of the federal income tax consequences of the Reorganization under
the Internal Revenue Code of 1986, as amended (the "Tax Code") to the Acquiring
Portfolio and its shareholders. The opinion of counsel will be to the effect
that, based on the facts and assumptions stated therein, for federal income tax
purposes:
A6
(i) the Reorganization contemplated by the Plan shall qualify
as a "tax-free reorganization" under Section 368(a)(1) of the Tax Code or, in
the alternative, a satisfactory written opinion that such transaction shall not
qualify as a tax-free reorganization under Section 368(a)(1) of the Tax Code,
but that: (a) the contract owners and employee benefit plan participants with
beneficial interests in the Acquired Portfolio and Acquiring Portfolio will not
realize a tax gain or loss as a result of the transaction because of the nature
of the contracts and the nature of the plan, respectively, (b) the Acquiring
Portfolio will not realize a tax gain or loss as a result of the transaction,
and (c) the Acquired Portfolio will realize a tax gain or loss as a result of
the transaction, but will not incur any tax liabilities as a result of the
transaction because of the operation of the tax rules applicable to regulated
investment companies if it pays dividends to its shareholders in an amount
sufficient to offset its regulated investment company taxable income and its
capital gains, and
(ii) the securities to be issued in connection with such
transaction have been duly authorized and when issued in accordance with this
Plan, will have been validly issued and fully paid and will be non-assessable by
Maxim on behalf of the Acquiring Portfolio.
9. Brokerage Fees and Expenses
(a) Maxim, on behalf of the Acquiring Portfolio and the Acquired
Portfolio, represents and warrants 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 Portfolio and the Acquired Portfolio, 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 the Acquired Portfolio for brokerage commissions and other
portfolio transaction costs incurred by the Acquired Portfolio in connection
with the Reorganization with respect to the disposition by the Acquired
Portfolio of any portfolio securities or other assets that the 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 the
Acquired Portfolio (whether before or after approval thereof by the shareholders
of the Acquired Portfolio) prior to the Closing, or the Closing may be postponed
by resolution of Maxim's Board of Directors, if circumstances develop that, in
the opinion of the Board of Directors, make proceeding with the Plan inadvisable
with respect to the Acquired Portfolio.
(b) If the transaction contemplated by this Plan has not been
consummated by January 1, 2007, the Plan shall automatically terminate on that
date, unless a later date is established by subsequent 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, the Acquired Portfolio, the Acquiring Portfolio nor the Directors,
directors, officers, agents or shareholders of Maxim shall have any liability in
respect of this Plan.
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(d) At any time prior to the Closing, any of the terms or conditions of
this Plan may be waived by Maxim's Board of Directors, 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 Portfolio
or the Acquiring Portfolio, as the case may be.
11. Articles of Incorporation and By-laws
Maxim's Articles of Incorporation and By-laws, which govern its series,
including the Acquired Portfolio and the Acquiring Portfolio, in effect at the
time of the Reorganization, shall continue to be the Articles of Incorporation
and By-laws until amended as provided by law.
12. Name Change
After the Reorganization has been effected, the name of the Acquiring
Portfolio will be changed to the Maxim U.S. Government Securities Portfolio,
which is the name of the Acquired Portfolio.
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13. 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 Maxim on behalf
of the Acquiring Portfolio and the Acquired Portfolio.
A copy of Maxim's Articles of Incorporation is on file with the Office
of the Secretary of State of the State of Maryland, and notice is hereby given
that this Plan is executed by Maxim, on behalf of the Acquiring Portfolio and
the Acquired Portfolio, 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 Directors, officers or shareholders of Maxim individually, but
are binding only upon Maxim, the Acquiring Portfolio and the Acquired Portfolio
and its or their assets.
A9
IN WITNESS WHEREOF, Maxim Series Fund, Inc., on behalf of the Acquiring
Portfolio, has caused this Plan to be executed on its 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 U.S.
Government Mortgage Securities Portfolio
Attest:
By: By:
----------------------------------- -----------------------------------
Name: Name:
----------------------------------- -----------------------------------
Title: Title
----------------------------------- -----------------------------------
A9
IN WITNESS WHEREOF, Maxim Series Fund, Inc., on behalf of the Acquired
Portfolio, has caused this Plan to be executed on its 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 U.S.
Attest: Government Securities Portfolio
By: By:
-----------------------------
Name: Name:
----------------------------
Title: Title:
----------------------------
EXHIBIT B
ANNUAL REPORT TO SHAREHOLDERS OF
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31, 2005
MAXIM SERIES FUND, INC.
Maxim U.S. Government Mortgage Securities Portfolio
Annual Report
December 31, 2005
This report and the financial statements attached are submitted for general
information and are not authorized for distribution to prospective investors
unless preceded or accompanied by an effective prospectus. Nothing herein is to
be considered an offer of the sale of any Portfolio of Maxim Series Fund, Inc.
Such offering is made only by the prospectus(es) of Maxim Series Fund, Inc.,
which include details as to offering price and other information.
Maxim U.S. Government Mortgage Securities Portfolio
The Maxim Government Mortgage Securities Portfolio was positioned early in 2005
for rising interest rates and solid performance from the MBS sector. The
Portfolio characteristics lent themselves well to a moderately bearish outlook
and we maintained this profile throughout 2005. As a result of the positioning
of the Portfolio, performance was modestly stronger than the Morningstar
Intermediate Government Benchmark. The Portfolio's performance was also
moderately stronger than its proxy benchmark, the Lehman Aggregate Balance
Index, on a gross basis. Based on our view that the economic expansion will
continue, albeit at a slower rate of growth, that the business side of the
equation is contributing more to growth, and that wage inflation is picking up,
we have continued to manage the duration of the Maxim Government Mortgage
Securities Portfolio closely to the duration of the competitive Morningstar
Benchmark and to maximize the MBS sector allocation within the policy dictated
diversification constraints. Maxim Government Mortgage Securities Portfolio
performance was favorable relative to the Morningstar Intermediate Government
Fund competitive Benchmark in 2005 and, on a gross basis, was favorable relative
to its proxy benchmark, the Lehman Aggregate Balance Index. The Maxim Government
Mortgage Securities Portfolio generated excess returns of + .27% (27 basis
points) versus the Morningstar Benchmark, ranking in the 73rd percentile on a
risk/return basis and maintaining its 4 star Morningstar rating as a result.
Maxim U.S. Government Mortgage Lehman Aggregate Balance
Securities Portfolio Index
12/01/1992 10,000.00 10,000.00
12/31/1996 10,429.00 10,363.10
12/31/1997 11,330.07 11,363.55
12/31/1998 12,136.77 12,350.59
12/31/1999 12,198.66 12,249.32
12/31/2000 13,505.14 13,673.91
12/31/2001 14,468.06 14,827.99
12/31/2002 15,890.27 16,349.34
12/31/2003 16,290.70 17,019.67
12/31/2004 16,851.10 17,758.15
12/31/2005 17,216.77 18,189.49
Maxim U.S. Government Mortgage Securities Portfolio
Total Return -
One Year: 2.17%
Five Year: 4.98%
Ten Year: 5.58%
Portfolio Inception: 12/01/1992
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Maxim U.S. Government Mortgage Securities Portfolio, made at
its inception, with the performance of the Lehman Aggregate Balance Index.
Results include the reinvestment of all dividends and capital gains
distributions. Past performance is no guarantee of future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. The graph and
table do not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Maxim Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of U.S. Government Mortgage Securities Portfolio of
the Maxim Series Fund, Inc. (the "Fund") as of December 31, 2005, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Funds' internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2005, by correspondence with the
custodian. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of U.S.
Government Mortgage Securities Portfolio of the Maxim Series Fund, Inc. as of
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
February 23, 2006
MAXIM SERIES FUND, INC.
Financial Statements and Financial Highlights for the Years Ended December 31,
2005 and 2004
Maxim U.S. Government Mortgage Securities Portfolio
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2005
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, market value (1) $ 247,814,347
Cash 11,060
Collateral for securities loaned 21,128,502
Interest receivable 1,287,142
Subscriptions receivable 441,736
---------------------
---------------------
Total assets 270,682,787
---------------------
---------------------
LIABILITIES:
Due to investment adviser 127,100
Payable upon return of securities loaned 21,128,502
Redemptions payable 2,308,480
---------------------
---------------------
Total liabilities 23,564,082
---------------------
---------------------
NET ASSETS $ 247,118,705
=====================
=====================
NET ASSETS REPRESENTED BY:
Capital stock, $.10 par value $ 2,123,041
Additional paid-in capital 249,428,143
Net unrealized depreciation on investments (4,200,489)
Undistributed net investment income 55,578
Accumulated net realized loss on investments (287,568)
---------------------
---------------------
NET ASSETS $ 247,118,705
=====================
=====================
NET ASSET VALUE PER OUTSTANDING SHARE $ 11.64
=====================
=====================
(Offering and Redemption Price)
SHARES OF CAPITAL STOCK:
Authorized 250,000,000
Outstanding 21,230,406
(1) Cost of investments in securities: $ 252,014,836
See notes to financial statements.
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 12,432,993
Income from securities lending 64,406
--------------------
--------------------
Total income 12,497,399
--------------------
--------------------
EXPENSES:
Management fees 1,562,562
--------------------
--------------------
NET INVESTMENT INCOME 10,934,837
--------------------
--------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 310,106
Change in net unrealized depreciation on investments (5,749,620)
--------------------
--------------------
Net realized and unrealized loss on investments (5,439,514)
--------------------
--------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,495,323
====================
====================
See notes to financial statements.
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 2005 AND 2004
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
2005 2004
----------------- ----------------
----------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 10,934,837 $ 11,065,366
Net realized gain (loss) on investments 310,106 (885,931)
Change in net unrealized appreciation (depreciation) on investments (5,749,620) (1,881,424)
----------------- ----------------
----------------- ----------------
Net increase in net assets resulting from operations 5,495,323 8,298,011
----------------- ----------------
----------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (10,762,526) (10,964,503)
----------------- ----------------
----------------- ----------------
SHARE TRANSACTIONS:
Net proceeds from sales of shares 118,055,157 136,855,321
Reinvestment of distributions 10,762,526 10,964,503
Redemptions of shares (140,850,749) (187,022,423)
----------------- ----------------
----------------- ----------------
Net decrease in net assets resulting from share transactions (12,033,066) (39,202,599)
----------------- ----------------
----------------- ----------------
Total decrease in net assets (17,300,269) (41,869,091)
NET ASSETS:
Beginning of period 264,418,974 306,288,065
----------------- ----------------
----------------- ----------------
End of period (1) $ 247,118,705 $ 264,418,974
================= ================
================= ================
OTHER INFORMATION:
SHARES:
Sold 9,987,768 11,453,655
Issued in reinvestment of distributions 918,131 923,558
Redeemed (11,935,052) (15,719,879)
----------------- ----------------
----------------- ----------------
Net decrease (1,029,153) (3,342,666)
================= ================
================= ================
(1) Including undistributed net investment income $ 55,578 $ 597
See notes to financial statements.
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Selected data for a share of capital stock of the portfolio for the periods
indicated are as follows:
Year Ended December 31,
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 11.88 $ 11.96 $ 12.36 $ 11.85 $ 11.69
Income from Investment Operations
Net investment income 0.49 0.48 0.49 0.20 0.63
Net realized and unrealized gain (loss) (0.24) (0.08) (0.19) 0.54 0.18
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Total Income From Investment Operations 0.25 0.40 0.30 0.74 0.81
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Less Distributions
From net investment income (0.49) (0.48) (0.50) (0.19) (0.65)
From net realized gains (0.20) (0.04)
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Total Distributions (0.49) (0.48) (0.70) (0.23) (0.65)
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 11.64 $ 11.88 $ 11.96 $ 12.36 $ 11.85
============= ============== ============ ============ ============
============= ============== ============ ============ ============
Total Return 2.17% 3.44% 2.52% 9.83% 7.13%
Net Assets, End of Period ($000) $ 247,119 $ 264,419 $ 306,288 $ 347,127 $ 219,596
Ratio of Expenses to Average Net Assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of Net Investment Income to
Average Net Assets 4.20% 4.00% 4.10% 4.98% 5.66%
Portfolio Turnover Rate 46.40% 79.23% 105.93% 82.56% 49.85%
See notes to financial statements.
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION & SIGNIFICANT ACCOUNTING POLICIES
Maxim Series Fund, Inc. (the Fund) is a Maryland corporation organized
on December 7, 1981 and is registered under the Investment Company Act
of 1940 (the 1940 Act) as an open-end management investment company. The
Fund presently consists of thirty-four portfolios. Interests in the
Maxim U.S. Government Mortgage Securities Portfolio (the Portfolio) are
included herein and are represented by a separate class of beneficial
interest of the Fund. The investment objective of the Portfolio is to
seek the highest level of return consistent with preservation of capital
and substantial credit protection. The Portfolio is diversified as
defined in the 1940 Act. The Portfolio is available only as an
investment option for certain variable annuity contracts and variable
life policies issued by Great-West Life & Annuity Insurance Company
(GWL&A), First Great-West Life & Annuity Insurance Company and New
England Financial, and certain qualified retirement plans for which
GWL&A, First Great-West Life & Annuity Insurance Company and New England
Financial provide administrative services and for the Maxim Profile
Portfolios.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
the significant accounting policies of the Fund.
Security Valuation
Short-term securities with a maturity of 60 days or less are valued on
the basis of amortized cost.
For securities that are traded on an exchange, the last sale price as of
the close of business of the principal exchange will be used. If the
closing price is not available, the current bid will be used. For
securities that principally trade on the NASDAQ National Market System,
the NASDAQ official closing price will be used. In the event that
trading on a security is halted prior to the end of the trading day due
to a significant event, portfolio management will determine whether
further pricing adjustment is necessary.
Fixed income and other securities are valued by independent pricing
services approved by the Board of Directors.
While fair value determinations involve judgments that are inherently
subjective, these determinations are made in good faith in accordance
with procedures adopted by the Board of Directors. Factors used in the
determination of fair value may include monitoring news to identify
significant market or security specific events such as changes in the
value of U.S. securities market, reviewing developments in foreign
markets and evaluating the performance of ADRs, futures contracts and
exchange-traded funds. The effect of fair value pricing as described
above is that securities may not be priced on the basis of quotations
from the primary market in which they are traded, but rather may be
priced by another method that the board believes reflects fair value.
This policy is intended to assure that the Portfolio's net asset value
fairly reflects security values at the time of pricing. Developments
that might be considered significant events to trigger fair value
pricing could be a natural disaster, government actions or significant
fluctuations in domestic or foreign markets.
Investments in securities of governmental agencies may only be
guaranteed by the respective agency's limited authority to borrow from
the U.S. Government and may not be guaranteed by the full faith and
credit of the U.S. Government.
Dividends
Dividends from net investment income of the Portfolio are declared and
paid quarterly. Income dividends are reinvested in additional shares at
net asset value. Dividends from capital gains of the Portfolio, if any,
are declared and reinvested at least annually in additional shares at
net asset value.
Security Transactions
Security transactions are accounted for on the date the security is
purchased or sold (trade date). The cost of investments sold is
determined on a specific lot selection.
Interest income, including amortization of discounts and premiums, is
recorded daily.
Financing Transactions
To earn additional income, the Portfolio may employ a trading strategy
known as mortgage dollar rolls, which involves the sale by the Portfolio
of mortgage securities with a simultaneous agreement to repurchase
similar securities at a future date at an agreed-upon price. Proceeds of
the sale are reinvested in other securities and may enhance the
Portfolio's current yield and total return. The difference between the
sales price and the future repurchase price is recorded as an adjustment
to interest income. During the period between the sale and repurchase,
the Portfolio will not be entitled to receive interest and principal
payments on the securities sold. Losses may arise from changes in the
value of the securities or if the counterparty does not perform under
the terms of the agreement. If the counterparty to whom the Portfolio
sells the security files for bankruptcy or becomes insolvent, the
Portfolio's right to repurchase the security may be restricted. Amounts
owing to brokers under these agreements are included in the "Payable for
investments purchased" on the Statement of Assets and Liabilities. At
December 31, 2005, there were no mortgage dollar rolls held.
Federal Income Taxes
For federal income tax purposes, the Portfolio currently qualifies, and
intends to remain qualified, as a regulated investment company under the
provisions of the Internal Revenue Code by distributing substantially
all of its taxable net income (both ordinary and capital gain) to its
shareholders and complying with other requirements for regulated
investment companies. Accordingly, no provision for federal income taxes
has been made.
Classification of Distributions to Shareholders
The character of distributions made during the year from net investment
income or net realized gains are determined in accordance with income
tax regulations that may differ from accounting principles generally
accepted in the United States of America.
2. INVESTMENT ADVISORY AGREEMENT & OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment advisory agreement with GW
Capital Management, LLC, doing business as Maxim Capital Management,
LLC, a wholly-owned subsidiary of GWL&A. As compensation for its
services to the Fund, the investment adviser receives monthly
compensation at the annual rate of 0.60% of the average daily net assets
of the Portfolio. The management fee encompasses fund operation
expenses.
Greenwood Investments, LLC, a wholly-owned subsidiary of GWL&A, is the
principal underwriter to distribute and market the Portfolio. FASCore,
LLC, a wholly-owned subsidiary of GWL&A, performs transfer agent
servicing functions for the Portfolio.
As of December 31, 2005, there were thirty-four Portfolios of the Fund
for which the Directors served as Directors. The total compensation paid
to the independent directors with respect to all funds for which they
serve as Directors was $96,750 for the year ended December 31, 2005.
Certain officers of the Fund are also directors and/or officers of GWL&A
or its subsidiaries. No officer or interested director of the Fund
receives any compensation directly from the Fund.
3. PURCHASES & SALES OF INVESTMENT SECURITIES
For the year ended December 31, 2005, the aggregate cost of purchases
and proceeds from sales of investment securities (excluding all U.S.
Government securities and short-term securities) were $11,812,820 and
$5,605,324, respectively. For the same period, the aggregate cost of
purchases and proceeds from sales of long-term U.S. Government
securities were $107,317,600 and $125,160,513, respectively.
4. UNREALIZED APPRECIATION (DEPRECIATION)
At December 31, 2005, the U.S. Federal income tax cost basis was
$252,001,698. The Portfolio had gross appreciation of securities in
which there was an excess of value over tax cost of $593,603 and gross
depreciation of securities in which there was an excess of tax cost over
value of $4,780,954 resulting in net depreciation of $4,187,351.
5. SECURITIES LOANED
The Portfolio has entered into a securities lending agreement with its
custodian. Under the terms of the agreement the Portfolio receives annual
income, recorded monthly, after deductions of other amounts payable to
the custodian or to the borrower from lending transactions. In exchange
for such fees, the custodian is authorized to loan securities on behalf
of the Portfolio against receipt of cash collateral at least equal in
value at all times to the value of the securities loaned plus accrued
interest. Cash collateral is invested by the custodian in securities
approved by the Board of Directors and is disclosed as "Collateral for
securities loaned" in the Statement of Assets and Liabilities. The
Portfolio also continues to receive interest or dividends on the
securities loaned. As of December 31, 2005, the Portfolio had securities
on loan valued at $21,105,513 and received collateral of $21,128,502 for
such loan. The Portfolio bears the risk of any deficiency in the amount
of collateral available for return to a borrower due to a loss in an
approved investment.
6. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December
31, 2005 and 2004 were from ordinary income in the amount of $10,762,526
and $10,964,503, respectively.
As of December 31, 2005, the components of distributable earnings on a
tax basis were as follows:
Undistributed ordinary income 55,578
Undistributed capital gains 0
---------------
---------------
Net accumulated earnings 55,578
---------------
---------------
Net unrealized depreciation on investments (4,187,351)
Capital loss carryforwards (expiring in 2012) (194,123)
Post-October losses (106,583)
---------------
---------------
Total accumulated loss on investments (4,432,479)
===============
Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting
purposes. The differences between book basis and tax basis are primarily
due to differing treatments regarding recognition of market discount and
original issue discount and capital loss carryforwards. For the year
ended December 31, 2005 the Portfolio reclassified $117,330 from
undistributed net investment income to accumulated net realized loss on
investments. These adjustments have no impact on net assets or the
results of operations. Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which the income or realized gain was
recorded by the Portfolio.
For the year ended December 31, 2005, the Portfolio utilized $575,193 of
capital loss carryforwards and had current year deferred post-October
capital losses of $106,583.
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
BONDS
Par Value ($) Value ($)
- --------------------------------------------------------------------------------
AGENCY --- 75.20%
3,593,262 Fannie Mae 3,558,827
5.500% November 1, 2035
1,591,099 Fannie Mae 1,576,182
5.500% April 1, 2035
1,575,676 Fannie Mae 1,568,556
5.027% September 1, 2034
3,050,311 Fannie Mae 3,024,665
5.500% December 1, 2033
3,169,411 Fannie Mae 3,273,408
6.500% January 1, 2032
1,931,783 Fannie Mae 1,995,170
6.500% December 1, 2031
959,250 Fannie Mae 1,008,112
7.000% January 1, 2032
2,311,226 Fannie Mae 2,387,064
6.500% February 1, 2032
2,312,439 Fannie Mae 2,385,787
6.500% February 1, 2017
1,294,574 Fannie Mae 1,305,497
6.000% February 1, 2032
3,721,937 Fannie Mae 3,689,370
5.500% November 1, 2033
408,902 Fannie Mae 422,447
7.000% April 1, 2017
1,429,488 Fannie Mae 1,449,813
6.000% September 1, 2032
1,590,728 Fannie Mae 1,608,062
6.000% January 1, 2033
5,517,583 Fannie Mae 5,458,097
5.000% May 1, 2018
4,856,567 Fannie Mae 4,890,082
5.500% April 1, 2018
991,944 Fannie Mae 1,042,471
7.000% December 1, 2031
303,009 Fannie Mae 311,758
6.500% July 1, 2014
2,386,120 Fannie Mae 2,325,436
4.500% May 1, 2019
13,903,295 Fannie Mae 13,471,713
5.000% September 1, 2035
8,441 Fannie Mae 8,946
7.500% November 1, 2024
100,908 Fannie Mae 108,691
8.500% April 1, 2025
81,256 Fannie Mae 88,082
8.500% August 1, 2021
2,799,193 Fannie Mae 2,774,700
5.500% February 1, 2034
212,555 Fannie Mae 223,947
7.500% September 1, 2031
1,456,122 Fannie Mae 1,442,471
5.500% April 1, 2033
8,565,652 Fannie Mae 8,682,593
6.000% May 1, 2033
1,660,554 Fannie Mae 1,677,892
6.000% April 1, 2033
1,174,715 Fannie Mae 1,185,850
6.000% February 1, 2033
7,035,469 Fannie Mae 6,983,875
5.500% July 1, 2033
3,411,254 Fannie Mae 3,383,197
5.500% February 1, 2035
1,292,959 Fannie Mae 1,311,343
6.000% September 1, 2033
388,697 Fannie Mae 408,496
7.000% September 1, 2031
6,935,431 Fannie Mae 6,860,658
5.000% August 1, 2018
1,730,767 Fannie Mae 1,748,838
6.000% August 1, 2033
3,143,982 Fannie Mae 3,120,927
5.500% September 1, 2033
602,779 Fannie Mae 633,483
7.000% February 1, 2031
15,932 Fannie Mae 17,578
9.500% March 1, 2020
59,875 Fannie Mae 64,921
8.500% August 1, 2024
368,971 Fannie Mae 377,028
6.000% June 1, 2013
296,395 Fannie Mae 307,016
6.500% February 1, 2019
463,963 Fannie Mae 474,094
6.000% May 1, 2013
133,956 Fannie Mae 148,286
9.500% September 1, 2020
457,582 Fannie Mae 463,398
6.000% February 1, 2029
114,228 Fannie Mae 123,815
8.500% November 1, 2026
642,348 Fannie Mae 663,425
6.500% April 1, 2032
1,760,729 Fannie Mae 1,803,097
6.000% March 1, 2017
1,835,609 Fannie Mae 1,818,400
5.500% January 1, 2035
1,457,306 Fannie Mae 1,471,085
6.000% September 1, 2034
1,580,221 Fannie Mae 1,595,530
6.000% February 1, 2035
374,157 Fannie Mae 370,571
5.500% August 1, 2035
6,000,000 Federal Home Loan Bank ** ^^ 6,183,798
5.250% June 18, 2014
1,000,000 Federal Home Loan Bank ** ^^ 984,366
4.500% November 15, 2012
2,454,261 Freddie Mac 2,391,637
4.500% April 1, 2019
4,823,660 Freddie Mac 4,703,787
4.500% March 1, 2019
1,353,586 Freddie Mac 1,320,466
4.500% May 1, 2018
593,742 Freddie Mac 628,068
7.500% March 1, 2032
1,853,589 Freddie Mac 1,873,284
6.000% December 1, 2032
194,503 Freddie Mac 196,213
6.000% February 1, 2009
1,372,132 Freddie Mac 1,345,368
5.000% April 1, 2023
444,127 Freddie Mac 447,181
5.500% March 1, 2017
796,461 Freddie Mac 814,382
6.000% April 1, 2017
35,630 Freddie Mac 39,622
11.000% June 1, 2020
122,839 Freddie Mac 136,836
11.000% August 1, 2020
931,439 Freddie Mac 930,093
5.000% July 1, 2009
8,449,571 Freddie Mac 8,392,706
5.500% August 1, 2033
1,882,327 Freddie Mac 1,894,386
5.500% April 1, 2019
1,374,081 Freddie Mac 1,362,916
5.500% November 1, 2033
1,489,471 Freddie Mac 1,479,447
5.500% December 1, 2033
12,808,502 Freddie Mac 12,400,227
5.000% August 1, 2035
1,802,375 Freddie Mac 1,825,468
6.000% February 1, 2035
2,006,291 Freddie Mac 1,988,736
5.500% September 1, 2033
106,460 Freddie Mac 117,440
9.500% April 1, 2025
758,819 Freddie Mac 793,203
7.000% September 1, 2032
967,060 Freddie Mac 997,885
6.500% January 1, 2032
1,889,001 Freddie Mac 1,876,605
5.500% February 1, 2035
115,297 Freddie Mac 126,469
9.000% December 1, 2014
39,858 Freddie Mac 43,713
9.500% June 1, 2020
21,647 Freddie Mac 23,404
9.500% September 1, 2020
1,613,282 Freddie Mac 1,573,851
4.500% April 1, 2018
904,141 Freddie Mac 854,031
4.500% August 1, 2033
2,411,680 Freddie Mac 2,395,450
5.500% May 1, 2033
1,425,570 Freddie Mac 1,415,976
5.500% January 1, 2034
975,078 Freddie Mac 949,330
4.500% September 1, 2020
3,278,572 Freddie Mac 3,251,688
5.500% October 1, 2034
249,806 Ginnie Mae 262,962
7.000% November 15, 2026
74,524 Ginnie Mae 79,877
8.000% June 15, 2025
308,487 Ginnie Mae 324,836
7.000% January 15, 2024
320,544 Ginnie Mae 343,148
8.000% March 15, 2025
8,044,111 Ginnie Mae 7,949,955
5.000% June 15, 2033
402,367 Ginnie Mae 412,664
6.000% May 15, 2028
87,878 Ginnie Mae 94,044
8.000% May 15, 2017
4,583 Ginnie Mae II 4,938
8.500% May 20, 2026
8,693 Ginnie Mae II 9,366
8.500% January 20, 2026
2,609 Ginnie Mae II 2,812
8.500% June 20, 2026
8,965 Ginnie Mae II 9,660
8.500% July 20, 2026
36,609 Ginnie Mae II 39,446
8.500% December 20, 2026
2,295,894 Ginnie Mae II 2,259,146
5.000% February 20, 2034
1,695,651 Ginnie Mae II 1,703,062
5.500% November 20, 2034
3,373 Ginnie Mae II 3,669
8.500% December 20, 2025
6,742 Ginnie Mae II 7,193
8.000% August 20, 2025
16,357 Ginnie Mae II 17,429
8.000% November 20, 2023
$186,376,989
AGENCY MORTGAGE BACKED --- 10.44%
3,000,000 Fannie Mae 2,959,278
Series 2003-24 Class VM
5.500% November 25, 2021
908,167 Fannie Mae ++ 906,245
Series 2005-86 Class FC
4.679% October 25, 2035
42,338 Fannie Mae ++ 42,341
Series 2004-W8 Class 1AF
4.629% June 25, 2044
1,224,311 Freddie Mac 1,218,477
Series 2974 Class VM
5.000% May 15, 2016
2,000,000 Freddie Mac 1,952,220
Series 2843 Class VB
5.500% August 15, 2023
968,336 Freddie Mac ++ 968,868
Series 2637 Class FA
4.769% June 15, 2018
1,938,787 Freddie Mac ^^ 1,924,913
Series R003 Class AG
5.125% October 15, 2015
9,000,000 US Department of Veterans Affairs 8,990,859
Series 2003-2 Class D
5.000% November 15, 2023
17,618 US Department of Veterans Affairs 17,618
Series 2001-1 Class 2E
7.000% January 15, 2028
2,500,000 US Department of Veterans Affairs 2,514,063
Series 2003-1 Class E
5.750% April 15, 2027
1,433,080 US Department of Veterans Affairs 1,468,011
Series 2002-1 Class 1A
6.000% October 15, 2031
2,463,467 US Department of Veterans Affairs 2,489,506
Series 1993-3 Class 1
5.846% September 15, 2023
416,719 US Department of Veterans Affairs 416,605
Series 1993-3 Class 2K
6.250% November 15, 2012
$25,869,004
COMMERCIAL MORTGAGED BACKED --- 5.01%
4,504,313 ABN AMRO Mortgage Corp 4,494,233
Series 2003-13 Class A2
5.500% February 25, 2018
1,000,000 Banc of America Commercial Mortgage Inc 992,400
Series 2005-1 Class A3
4.877% November 10, 2042
1,000,000 GS Mortgage Securities Corp II 974,038
Series 2005-GG4 Class AABA
4.680% July 10, 2039
2,038,090 JP Morgan Chase Commercial Mortgage Securities Co 2,002,787
Series 2004-C2 Class A1
4.278% May 15, 2041
1,680,000 JP Morgan Chase Commercial Mortgage Securities Co 1,668,147
Series 2002-C3 Class A2
4.994% July 12, 2035
1,313,352 LB-UBS Commercial Mortgage Trust 1,271,424
Series 2003-C1 Class A1
2.720% March 15, 2027
1,000,000 Morgan Stanley Capital I 1,001,841
Series 2005-IQ10 Class AAB
5.178% September 15, 2042
$12,404,870
SUPRANATIONALS --- 1.22%
5,000,000 International Bank for Reconstruction & Development ~ 3,015,495
Zero Coupon
4.830% February 15, 2016
$3,015,495
U.S. GOVERNMENTS --- 6.66%
1,000,000 United States of America ^^ 1,090,703
5.250% November 15, 2028
1,500,000 United States of America ^^ 1,486,583
4.250% August 15, 2013
6,900,000 United States of America ^^ 6,689,764
4.000% February 15, 2015
4,400,000 United States of America ^^ 4,270,235
3.625% June 15, 2010
800,000 United States of America ^^ 773,282
3.375% September 15, 2009
2,000,000 United States of America ^^ 2,182,422
5.250% February 15, 2029
$16,492,989
TOTAL BONDS --- 98.53% $244,159,347
(Cost $248,359,836)
SHORT-TERM INVESTMENTS
Par Value ($) Value ($)
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS
3,655,000 Undivided interest of 15.9% in joint repurchase 3,655,000
agreement(Principal Amount/Value $23,020,000 with a maturity
value of $23,030,615) with Merrill Lynch, 4.15%, dated 12/30/05,
to be repurchased at $3,656,685 on 01/03/06, collateralized by
U.S. Agency Mortgages, 5%-7%, 2/1/13-11/1/35, with a value of
$23,482,819.
TOTAL SHORT-TERM INVESTMENTS --- 1.47% $3,655,000
(Cost $3,655,000)
TOTAL MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO --- 100% $247,814,347
(Cost $252,014,836)
Legend
** Security is an agency note with maturity date and interest rate indicated. ++
Represents the current interest rate for variable rate security. ^^ A portion or
all of the security is on loan at December 31, 2005. ~ For zero coupon bond, the
interest rate shown is the effective yield on date of purchase. See Notes to
Financial Statements.
Maxim Series Fund, Inc.
Summary of Investments by Maturity Date
Maxim U.S. Government Mortgage Securities Portfolio
December 31, 2005
Unaudited
% of Portfolio
Maturity Value ($) Investments
- --------------------------- ------------------------- ------------------------
- --------------------------- ------------------------- ------------------------
1 - 3 Years 3,655,021 1.47%
3 - 5 Years 6,169,823 2.49%
5 - 10 Years 18,975,377 7.66%
10 - 20 Years 67,649,659 27.30%
20 - 30 Years 146,351,060 59.06%
Over 30 Years 5,013,407 2.02%
------------------------- ------------------------
------------------------- ------------------------
$ 247,814,347 100.00%
========================= ========================
========================= ========================
SHAREHOLDER EXPENSE EXAMPLE
Maxim U.S. Government Mortgage Securities Portfolio
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, and (2) ongoing costs, including management fees and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (
in dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (June 30, 2005 to December 31, 2005).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000.00 (for example, an $8,600
account value divided by $1,000.00 = 8.6) , then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Portfolio's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Portfolio's actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Portfolio and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds.
Beginning Ending Expenses Paid
Account Value Account Value During Period*
(6/30/2005) (12/31/2005) (6/30/05-12/31/05)
Actual $ 1,000.00 $ 997.04 $ 3.02
Hypothetical
(5% return before expenses) $ 1,000.00 $ 1,022.18 $ 3.06
*Expenses are equal to the Portfolio's annualized expense ratio of 0.60%,
multiplied by the average account value over the period, multiplied by 184/365
days to reflect the one-half year period.
FUND DIRECTORS AND OFFICERS
(UNAUDITED)
Maxim Series Fund is organized under Maryland law, and is governed by the Board
of Directors. The Board is responsible for overall management of the Fund's
business affairs. The Directors meet at least four times during the year to,
among other things, oversee the Fund's activities, review contractual
arrangements with companies that provide services to the Fund, and review
performance. The following table provides information about each of the
Directors and officers of the Fund.
- ------------------------------------------------------------------------------------------------------------------------
INDEPENDENT* DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------
- ------------------ -------------- ----------------- ------------------------------------
Name, address Position(s) Term of Office Principal Occupation(s) during Number of Other
and age Held with (Length of Time Past 5 Years Portfolios Directorships
Fund Served) in Fund Held by Director
Complex
Overseen
by Director
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
Rex Jennings (80) Director March 22, 1988 President Emeritus, Denver Metro 34
to present Chamber of Commerce
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
Richard P. Director April 30, 1987 Retired Educator 34
Koeppe (73) to present
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
Sanford Zisman Director March 19, 1982 Attorney, Firm of Zisman, Ingraham 34
(65) to present and Daniel, P.C.
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------------------------------------------------------------------------------------------------------------
INTERESTED* DIRECTORS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------
- ------------------ -------------- ------------------ -----------------------------------
Name, address Position(s) Term of Office Principal Occupation(s) during Number of Other
and age Held with (Length of Time Past 5 Years Portfolios Directorships
Fund Served) in Fund Held by Director
Complex
Overseen
by Director
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*William T. Director and June 1, 2000 to Beginning January 1, 2006: Vice 34 Director,
McCallum (63) President present Chairman, Great-West Life & Great-West
Annuity Insurance Company Lifeco Inc.,
;Through December 31, 2005: Great-West Life
President and Chief Executive & Annuity
Officer of Great-West Life & Insurance
Annuity Insurance Company, United Company, First
States Operations of The Great-West Life
Great-West Life Assurance & Annuity
Company, and the United States Insurance
Operations of The Canada Life Company, GWL&A
Assurance Company; Co-President Financial Inc.,
and Chief Executive Officer of The Great-West
Great-West Lifeco Inc.; Life Assurance
President and Chief Executive Company, The
Officer of GWL&A Financial Inc. Canada Life
and Canada Life Insurance Company Assurance
of America (through February 13, Company, Canada
2006); President and Chief Life Insurance
Executive Officer of First Company of
Great-West Life & Annuity America, and
Insurance Company and Alta Health Alta Health &
& Life Insurance Company Life Insurance
Company.
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*Mitchell T.G. Director June 1, 2000 to Executive Vice President and 34 Director, Alta
Graye (50) present Chief Financial Officer of Health & Life
Great-West Life & Annuity Insurance
Insurance Company, First Company, EMJAY
Great-West Life & Annuity Corporation,
Insurance Company, Canada Life EMJAY Retirement
Insurance Company of America, Plan Services,
GWL&A Financial, Inc., the United Inc., GWL
States Operations of The Properties,
Great-West Life Assurance Inc., Great-West
Company, and the United States Benefit
Operations for The Canada Life Services, Inc.;
Assurance Company; President, GW Manager, GW
Capital Management, LLC, Orchard Capital
Capital Management, LLC, and GWL Management, LLC,
Properties, Inc.; Executive Vice Orchard Capital
President, Orchard Trust Company, Management, LLC,
LLC Orchard Trust
Company, LLC and
FASCore, LLC
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*Graham McDonald Treasurer November 29, Senior Vice President, Corporate 34 Manager,
(59) 2001 to present Administration of Great-West Life Greenwood
& Annuity Insurance Company, Investments,
GWL&A Financial, Inc., the United LLC; Director,
States Operations of The Great-West
Great-West Life Assurance Benefit
Company, the United States Services, Inc.,
Operations of The Canada Life GWL Properties,
Assurance Company; Senior Vice Inc.
President, Corporate Finance and
Investment Operations of Canada
Life Insurance Company of
America, EMJAY Corporation, EMJAY
Retirement Plan Services, Inc.,
FASCore, LLC and Orchard Trust
Company, LLC. Senior Vice
President and Treasurer, GW
Capital Management, LLC, and
Orchard Capital Management, LLC;
President, Greenwood Investments,
LLC
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*Beverly A. Secretary April 10, 1997 Vice President, Counsel and 34 None
Byrne (50) to present Associate Secretary, Great-West
Life & Annuity Insurance
Company, GWL&A Financial
Inc., First Great-West Life
& Annuity Insurance
Company, Canada Life
Insurance Company of
America, the United States
Operations of The
Great-West Life Assurance
Company, the United States
Operations of The Canada
Life Assurance Company;
Vice President, Counsel and
Secretary, FASCore, LLC;
Vice President and Counsel,
Orchard Trust Company, LLC;
Secretary and Chief
Compliance Officer, GW
Capital Management, LLC,
Orchard Capital Management,
LLC, GWFS Equities, Inc.,
and Advised Assets Group,
LLC; Secretary and
Compliance Officer, EMJAY
Corporation, EMJAY
Retirement Plan Services,
Inc., BenefitsCorp, Inc.,
BenefitsCorp, Inc. of
Wyoming, Secretary,
Greenwood Investments, LLC
and One Orchard Equities,
Inc.
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
* Refers to a Director or officer who is an "interested person" of Maxim
Series Fund (as defined in the Investment Company Act of 1940, as amended)
by virtue of their affiliation with either the Fund or MCM. A Director who
is not an "interested person" of the Fund is referred to as an "Independent
Director."
The Fund pays no salaries or compensation to any of its officers or Directors
affiliated with the Fund or Maxim Capital Management, LLC, its investment
adviser. The chart below sets forth the annual compensation paid to the
Independent Directors and certain other information.
- ------------------------- ------------------- -------------------- --------------------- --------------------
Name of Independent Aggregate Pension or Estimated Annual Total Compensation
Director Compensation from Retirement Benefits Upon from Fund and Fund
Fund Benefits Accrued Retirement Complex Paid to
as Part of Fund Directors**
Expenses
- ------------------------- ------------------- -------------------- --------------------- --------------------
- ------------------------- ------------------- -------------------- --------------------- --------------------
Rex Jennings $32,250 0 0 $32,250
- ------------------------- ------------------- -------------------- --------------------- --------------------
- ------------------------- ------------------- -------------------- --------------------- --------------------
Richard P. Koeppe $32,250 0 0 $32,250
- ------------------------- ------------------- -------------------- --------------------- --------------------
- ------------------------- ------------------- -------------------- --------------------- --------------------
Sanford Zisman $32,250 0 0 $32,250
- ------------------------- ------------------- -------------------- --------------------- --------------------
** As of December 31, 2005, there were 34 funds for which the Directors serve as
directors, all of which were Portfolios of Maxim Series Fund. The total
compensation paid is comprised of the amount paid during the Fund's most
recently completed fiscal year by the Fund and its affiliated investment
companies.
Additional information about Maxim Series Fund and its Directors is available in
the Fund's Statement of Additional Information, which can be obtained free of
charge upon request to: Ms. Mary Maiers, 8515 East Orchard Road, Greenwood
Village, Colorado 80111; (800) 537-2033, ext. 74743.
Availability of Quarterly Portfolio Schedule.
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov, and may be reviewed and copied at the Commission's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
Availability of Proxy Voting Policies and Procedures.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by calling 1-800-537-2033, ext. 74743, and on the Securities and
Exchange Commission's website at http://www.sec.gov.
Availability of Proxy Voting Record.
Information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is available
without charge, upon request, by calling 1-800-537-2033, ext. 74743, and on the
Securities and Exchange Commission's website at http://www.sec.gov.
EXHIBIT C
ANNUAL REPORT TO SHAREHOLDERS OF
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31, 2005
MAXIM SERIES FUND, INC.
Maxim U.S. Government Securities Portfolio
Annual Report
December 31, 2005
This report and the financial statements attached are submitted for general
information and are not authorized for distribution to prospective investors
unless preceded or accompanied by an effective prospectus. Nothing herein is to
be considered an offer of the sale of any Portfolio of Maxim Series Fund, Inc.
Such offering is made only by the prospectus(es) of Maxim Series Fund, Inc.,
which include details as to offering price and other information.
Maxim U.S. Government Securities Portfolio
The Maxim U.S. Government Securities Portfolio was positioned early in 2005 for
ongoing solid economic growth, modestly higher interest rates and solid
performance from the MBS sector. The Portfolio characteristics lent themselves
exceptionally well to a neutral outlook and we maintained this profile
throughout most of the year. Based on our view that the economic expansion will
continue, though at a slower rate of growth, and that wage inflation is picking
up, we are managing the duration of the Maxim U.S. Government Securities
Portfolio more closely to the duration of the competitive Morningstar Benchmark
and maximizing the MBS sector allocation within the policy dictated
diversification constraints. In 2005 the Maxim U.S. Government Securities
Portfolio performance was favorable relative to the Morningstar Intermediate
Government Fund competitive Benchmark and favorable, on a gross basis, to the
proxy benchmark, the Lehman Aggregate Balance Index. The Maxim U.S. Government
Securities Portfolio generated excess returns of +.22% (22 basis points) versus
its competitive Morningstar Benchmark, ranking in the 77th percentile on a
risk/return basis and maintaining its 4 star Morningstar rating as a result. The
Maxim U.S. Government Securities Portfolio performance was solid versus a peer
group of funds, with specified mortgage pass-through pools and long duration
Treasury holdings generating most of the excess return.
Maxim U.S. Government Securities Lehman Aggregate Balance
Portfolio Index
04/08/1985 10,000.00 10,000.00
12/31/1996 10,392.00 10,363.10
12/31/1997 11,276.36 11,363.55
12/31/1998 12,092.77 12,350.59
12/31/1999 12,129.05 12,249.32
12/31/2000 13,412.30 13,673.91
12/31/2001 14,360.55 14,827.99
12/31/2002 15,769.32 16,349.34
12/31/2003 16,174.59 17,019.67
12/31/2004 16,805.40 17,758.15
12/31/2005 17,173.44 18,189.49
Maxim U.S. Government Securities Portfolio
Total Return -
One Year: 2.19%
Five Year: 5.07%
Ten Year: 5.56%
Portfolio Inception: 04/08/1985
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Maxim U.S. Government Securities Portfolio, made at its
inception, with the performance of the Lehman Aggregate Balance Index. Results
include the reinvestment of all dividends and capital gains distributions. Past
performance is no guarantee of future results. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. The graph and table do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Maxim Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of U.S. Government Securities Portfolio of the
Maxim Series Fund, Inc. (the "Fund") as of December 31, 2005, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Funds' internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2005, by correspondence with the
custodian. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of U.S.
Government Securities Portfolio of the Maxim Series Fund, Inc. as of December
31, 2005, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
February 23, 2006
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2005
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, market value (1) $ 65,499,318
Cash 69,494
Collateral for securities loaned 4,708,379
Interest receivable 339,782
Subscriptions receivable 61,698
---------------------
---------------------
Total assets 70,678,671
---------------------
---------------------
LIABILITIES:
Due to investment adviser 33,593
Payable upon return of securities loaned 4,708,379
Redemptions payable 77,208
---------------------
---------------------
Total liabilities 4,819,180
---------------------
---------------------
NET ASSETS $ 65,859,491
=====================
=====================
NET ASSETS REPRESENTED BY:
Capital stock, $.10 par value $ 609,952
Additional paid-in capital 65,976,453
Net unrealized depreciation on investments (761,623)
Undistributed net investment income 17,064
Accumulated net realized gain on investments 17,645
---------------------
---------------------
NET ASSETS $ 65,859,491
=====================
=====================
NET ASSET VALUE PER OUTSTANDING SHARE $ 10.80
=====================
=====================
(Offering and Redemption Price)
SHARES OF CAPITAL STOCK:
Authorized 200,000,000
Outstanding 6,099,518
(1) Cost of investments in securities: $ 66,260,941
See notes to financial statements.
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 3,341,762
Income from securities lending 10,393
---------------------
---------------------
Total income 3,352,155
---------------------
---------------------
EXPENSES:
Management fees 412,826
---------------------
---------------------
NET INVESTMENT INCOME 2,939,329
---------------------
---------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 142,750
Change in net unrealized depreciation on investments (1,595,356)
---------------------
---------------------
Net realized and unrealized loss on investments (1,452,606)
---------------------
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,486,723
=====================
=====================
See notes to financial statements.
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 2005 AND 2004
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
2005 2004
----------------- -----------------
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 2,939,329 $ 3,065,592
Net realized gain on investments 142,750 170,558
Change in net unrealized appreciation (depreciation) on investments (1,595,356) (496,200)
----------------- -----------------
----------------- -----------------
Net increase in net assets resulting from operations 1,486,723 2,739,950
----------------- -----------------
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (2,944,949) (3,000,677)
From net realized gains (391,405) (94,504)
----------------- -----------------
----------------- -----------------
Total distributions (3,336,354) (3,095,181)
----------------- -----------------
----------------- -----------------
SHARE TRANSACTIONS:
Net proceeds from sales of shares 18,470,155 13,493,917
Reinvestment of distributions 3,336,354 3,095,181
Redemptions of shares (24,447,103) (24,317,700)
----------------- -----------------
----------------- -----------------
Net decrease in net assets resulting from share transactions (2,640,594) (7,728,602)
----------------- -----------------
----------------- -----------------
Total decrease in net assets (4,490,225) (8,083,833)
NET ASSETS:
Beginning of period 70,349,716 78,433,549
----------------- -----------------
----------------- -----------------
End of period (1) $ 65,859,491 $ 70,349,716
================= =================
================= =================
OTHER INFORMATION:
SHARES:
Sold 1,672,940 1,207,655
Issued in reinvestment of distributions 305,381 279,069
Redeemed (2,216,469) (2,180,321)
----------------- -----------------
----------------- -----------------
Net decrease (238,148) (693,597)
================= =================
================= =================
(1) Including undistributed net investment income $ 17,064 $ 43,285
See notes to financial statements.
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Selected data for a share of capital stock of the portfolio for the periods
indicated are as follows:
Year Ended December 31,
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 11.10 $ 11.15 $ 11.43 $ 11.00 $ 10.87
Income from Investment Operations
Net investment income 0.47 0.47 0.48 0.19 0.60
Net realized and unrealized gain (loss) (0.23) (0.05) (0.19) 0.43 0.15
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Total Income From Investment Operations 0.24 0.42 0.29 0.62 0.75
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Less Distributions
From net investment income (0.48) (0.46) (0.48) (0.19) (0.62)
From net realized gains (0.06) (0.01) (0.09)
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Total Distributions (0.54) (0.47) (0.57) (0.19) (0.62)
------------- -------------- ------------ ------------ ------------
------------- -------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 10.80 $ 11.10 $ 11.15 $ 11.43 $ 11.00
============= ============== ============ ============ ============
============= ============== ============ ============ ============
Total Return 2.19% 3.90% 2.57% 9.81% 7.07%
Net Assets, End of Period ($000) $ 65,859 $ 70,350 $ 78,434 $ 82,835 $ 93,613
Ratio of Expenses to Average Net Assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of Net Investment Income to
Average Net Assets 4.27% 4.17% 4.28% 5.25% 5.65%
Portfolio Turnover Rate 46.48% 62.58% 71.74% 91.64% 66.47%
See notes to financial statements.
MAXIM SERIES FUND, INC.
Financial Statements and Financial Highlights for the Years Ended December 31,
2005 and 2004
Maxim U.S. Government Securities Portfolio
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION & SIGNIFICANT ACCOUNTING POLICIES
Maxim Series Fund, Inc. (the Fund) is a Maryland corporation organized
on December 7, 1981 and is registered under the Investment Company Act
of 1940 (the 1940 Act) as an open-end management investment company. The
Fund presently consists of thirty-four portfolios. Interests in the
Maxim U.S. Government Securities Portfolio (the Portfolio) are included
herein and are represented by a separate class of beneficial interest of
the Fund. The investment objective of the Portfolio is to seek the
highest level of return consistent with the preservation of capital and
substantial credit protection. The Portfolio is diversified as defined
in the 1940 Act. The Portfolio is available only as an investment option
for certain variable annuity contracts and variable life policies issued
by Great-West Life & Annuity Insurance Company (GWL&A), First Great-West
Life & Annuity Insurance Company and New England Financial, and certain
qualified retirement plans for which GWL&A, First Great-West Life &
Annuity Insurance Company and New England Financial provide
administrative services and for the Maxim Profile Portfolios.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
the significant accounting policies of the Fund.
Security Valuation
Short-term securities with a maturity of 60 days or less are valued on
the basis of amortized cost.
For securities that are traded on an exchange, the last sale price as of
the close of business of the principal exchange will be used. If the
closing price is not available, the current bid will be used. For
securities that principally trade on the NASDAQ National Market System,
the NASDAQ official closing price will be used. In the event that
trading on a security is halted prior to the end of the trading day due
to a significant event, portfolio management will determine whether
further pricing adjustment is necessary.
Fixed income and other securities are valued by independent pricing
services approved by the Board of Directors.
While fair value determinations involve judgments that are inherently
subjective, these determinations are made in good faith in accordance
with procedures adopted by the Board of Directors. Factors used in the
determination of fair value may include monitoring news to identify
significant market or security specific events such as changes in the
value of U.S. securities market, reviewing developments in foreign
markets and evaluating the performance of ADRs, futures contracts and
exchange-traded funds. The effect of fair value pricing as described
above is that securities may not be priced on the basis of quotations
from the primary market in which they are traded, but rather may be
priced by another method that the board believes reflects fair value.
This policy is intended to assure that the Portfolio's net asset value
fairly reflects security values at the time of pricing. Developments
that might be considered significant events to trigger fair value
pricing could be a natural disaster, government actions or significant
fluctuations in domestic or foreign markets.
Investments in securities of governmental agencies may only be
guaranteed by the respective agency's limited authority to borrow from
the U.S. Government and may not be guaranteed by the full faith and
credit of the U.S. Government.
Dividends
Dividends from net investment income of the Portfolio are declared and
paid quarterly. Income dividends are reinvested in additional shares at
net asset value. Dividends from capital gains of the Portfolio, if any,
are declared and reinvested at least annually in additional shares at
net asset value.
Security Transactions
Security transactions are accounted for on the date the security is
purchased or sold (trade date). The cost of investments sold is
determined on a specific lot selection.
Interest income, including amortization of discounts and premiums, is
recorded daily.
Financing Transactions
To earn additional income, the Portfolio may employ a trading strategy
known as mortgage dollar rolls, which involves the sale by the Portfolio
of mortgage securities with a simultaneous agreement to repurchase
similar securities at a future date at an agreed-upon price. Proceeds of
the sale are reinvested in other securities and may enhance the
Portfolio's current yield and total return. The difference between the
sales price and the future repurchase price is recorded as an adjustment
to interest income. During the period between the sale and repurchase,
the Portfolio will not be entitled to receive interest and principal
payments on the securities sold. Losses may arise from changes in the
value of the securities or if the counterparty does not perform under
the terms of the agreement. If the counterparty to whom the Portfolio
sells the security files for bankruptcy or becomes insolvent, the
Portfolio's right to repurchase the security may be restricted. Amounts
owing to brokers under these agreements are included in the "Payable for
investments purchased" on the Statement of Assets and Liabilities. At
December 31, 2005, there were no mortgage dollar rolls held.
Federal Income Taxes
For federal income tax purposes, the Portfolio currently qualifies, and
intends to remain qualified, as a regulated investment company under the
provisions of the Internal Revenue Code by distributing substantially
all of its taxable net income (both ordinary and capital gain) to its
shareholders and complying with other requirements for regulated
investment companies. Accordingly, no provision for federal income taxes
has been made.
Classification of Distributions to Shareholders
The character of distributions made during the year from net investment
income or net realized gains are determined in accordance with income
tax regulations that may differ from accounting principles generally
accepted in the United States of America.
2. INVESTMENT ADVISORY AGREEMENT & OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment advisory agreement with GW
Capital Management, LLC, doing business as Maxim Capital Management,
LLC, a wholly-owned subsidiary of GWL&A. As compensation for its
services to the Fund, the investment adviser receives monthly
compensation at the annual rate of 0.60% of the average daily net assets
of the Portfolio. The management fee encompasses fund operation
expenses.
Greenwood Investments, LLC, a wholly-owned subsidiary of GWL&A, is the
principal underwriter to distribute and market the Portfolio. FASCore,
LLC, a wholly-owned subsidiary of GWL&A, performs transfer agent
servicing functions for the Portfolio.
As of December 31, 2005, there were thirty-four Portfolios of the Fund
for which the Directors served as Directors. The total compensation paid
to the independent directors with respect to all funds for which they
serve as Directors was $96,750 for the year ended December 31, 2005.
Certain officers of the Fund are also directors and/or officers of GWL&A
or its subsidiaries. No officer or interested director of the Fund
receives any compensation directly from the Fund.
3. PURCHASES & SALES OF INVESTMENT SECURITIES
For the year ended December 31, 2005, the aggregate cost of purchases
and proceeds from sales of investment securities (excluding all U.S.
Government securities and short-term securities) were $4,428,662 and
$348,262, respectively. For the same period, the aggregate cost of
purchases and proceeds from sales of long-term U.S. Government
securities were $27,040,475 and $33,855,908, respectively.
4. UNREALIZED APPRECIATION (DEPRECIATION)
At December 31, 2005, the U.S. Federal income tax cost basis was
$66,237,667. The Portfolio had gross appreciation of securities in which
there was an excess of value over tax cost of $444,856 and gross
depreciation of securities in which there was an excess of tax cost over
value of $1,183,205 resulting in net depreciation of $738,349.
5. SECURITIES LOANED
The Portfolio has entered into a securities lending agreement with its
custodian. Under the terms of the agreement the Portfolio receives annual
income, recorded monthly, after deductions of other amounts payable to
the custodian or to the borrower from lending transactions. In exchange
for such fees, the custodian is authorized to loan securities on behalf
of the Portfolio against receipt of cash collateral at least equal in
value at all times to the value of the securities loaned plus accrued
interest. Cash collateral is invested by the custodian in securities
approved by the Board of Directors and is disclosed as "Collateral for
securities loaned" in the Statement of Assets and Liabilities. The
Portfolio also continues to receive interest or dividends on the
securities loaned. As of December 31, 2005, the Portfolio had securities
on loan valued at $4,704,602 and received collateral of $4,708,379 for
such loan. The Portfolio bears the risk of any deficiency in the amount
of collateral available for return to a borrower due to a loss in an
approved investment.
6. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December
31, 2005 and 2004 were as follows:
2005 2004
---------------- ---------------
Distributions paid from:
Ordinary income 2,968,338 3,000,677
Long-term capital gain 368,016 94,504
---------------- ---------------
---------------- ---------------
3,336,354 3,095,181
================ ===============
As of December 31, 2005, the components of distributable earnings on a
tax basis were as follows:
Undistributed ordinary income 17,064
Undistributed capital gains 0
---------------
---------------
Net accumulated earnings 17,064
---------------
---------------
Net unrealized depreciation on investments (738,349)
Capital loss carryforwards 0
Post-October losses (5,629)
---------------
---------------
Total accumulated loss on investments (726,914)
===============
Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting
purposes. The differences between book basis and tax basis are primarily
due to differing treatments regarding recognition of market discount and
original issue discount. For the year ended December 31, 2005 the
Portfolio reclassified $20,601 from undistributed net investment income
to accumulated net realized gain on investments. This adjustment has no
impact on net assets or the results of operations. Also, due to the
timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or
realized gain was recorded by the Portfolio.
The Portfolio had current year deferred post-October capital losses of
$5,629.
MAXIM SERIES FUND, INC.
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
BONDS
Par Value ($) Value ($)
- --------------------------------------------------------------------------------
AGENCY --- 79.57%
750,322 Fannie Mae 746,931
5.027% September 1, 2034
503,510 Fannie Mae 509,332
6.000% March 1, 2033
1,054,675 Fannie Mae 1,043,305
5.000% May 1, 2018
542,184 Fannie Mae 536,254
5.000% June 1, 2018
60,649 Fannie Mae 65,811
8.950% December 1, 2016
25,004 Fannie Mae 25,642
8.500% July 1, 2022
384,760 Fannie Mae 387,420
5.500% January 1, 2018
5,226,091 Fannie Mae 5,063,858
5.000% September 1, 2035
135,871 Fannie Mae 146,350
8.500% April 1, 2025
83,730 Fannie Mae 92,687
9.500% September 1, 2020
1,115,827 Fannie Mae 1,107,644
5.500% July 1, 2033
1,239,951 Fannie Mae 1,226,583
5.000% August 1, 2018
185,094 Fannie Mae 194,522
7.000% September 1, 2031
2,260,403 Fannie Mae 2,334,573
6.500% January 1, 2032
436,370 Fannie Mae 458,598
7.000% December 1, 2031
626,351 Fannie Mae 646,903
6.500% December 1, 2031
243,065 Fannie Mae 250,775
6.500% February 1, 2017
569,612 Fannie Mae 574,419
6.000% February 1, 2032
441,757 Fannie Mae 446,865
6.000% October 1, 2032
982,327 Fannie Mae 1,005,964
6.000% November 1, 2017
1,200,457 Fannie Mae 1,199,685
5.000% March 1, 2015
1,467,816 Fannie Mae 1,454,055
5.500% April 1, 2035
1,701,996 Fannie Mae 1,685,685
5.500% August 1, 2035
299,348 Fannie Mae 296,480
5.500% November 1, 2035
970,672 Fannie Mae 980,379
6.000% September 1, 2035
579,418 Fannie Mae 587,657
6.000% June 1, 2033
1,376,706 Fannie Mae 1,363,800
5.500% January 1, 2035
925,868 Fannie Mae 917,688
5.500% April 1, 2034
2,600,000 Federal Home Loan Bank ** ^^ 2,679,646
5.250% June 18, 2014
647,942 Freddie Mac 665,870
6.500% February 1, 2017
55,439 Freddie Mac 56,500
6.000% April 1, 2009
517,779 Freddie Mac 523,281
6.000% December 1, 2032
25,855 Freddie Mac 26,375
6.000% July 1, 2009
252,940 Freddie Mac 264,401
7.000% September 1, 2032
620,959 Freddie Mac 620,062
5.000% July 1, 2009
164,443 Freddie Mac 183,181
11.000% July 1, 2020
43,830 Freddie Mac 44,711
6.000% May 1, 2009
819,643 Freddie Mac 812,922
5.500% October 1, 2034
1,256,250 Freddie Mac 1,247,796
5.500% June 1, 2033
1,254,586 Freddie Mac 1,223,954
4.500% March 1, 2018
676,793 Freddie Mac 660,233
4.500% May 1, 2018
747,350 Freddie Mac 712,085
4.000% June 1, 2018
1,002,034 Freddie Mac 995,290
5.500% August 1, 2033
743,960 Freddie Mac 737,915
5.500% October 1, 2033
433,654 Freddie Mac 430,130
5.500% July 1, 2034
2,587,250 Freddie Mac 2,504,781
5.000% August 1, 2035
1,205,840 Freddie Mac 1,197,725
5.500% May 1, 2033
894,914 Freddie Mac 872,168
4.500% December 1, 2019
444,127 Freddie Mac 447,181
5.500% March 1, 2017
5,402 Freddie Mac 5,490
6.000% October 1, 2008
843,517 Freddie Mac 884,375
7.000% June 1, 2031
31,343 Freddie Mac 33,315
10.250% October 1, 2010
4,293 Freddie Mac 4,363
6.000% January 1, 2009
802,516 Freddie Mac 795,494
5.500% September 1, 2033
1,112,793 Freddie Mac 1,103,562
5.000% December 1, 2017
26,071 Freddie Mac 26,780
6.500% September 1, 2012
52,914 Freddie Mac 53,977
6.000% March 1, 2009
23,175 Freddie Mac 25,565
9.500% April 1, 2025
99,774 Freddie Mac 101,405
6.000% September 1, 2009
657,324 Freddie Mac 665,335
6.000% April 1, 2033
475,947 Freddie Mac 461,073
5.000% May 1, 2035
268,953 Ginnie Mae 283,126
7.000% February 15, 2026
37,982 Ginnie Mae 41,281
9.000% July 15, 2018
125,919 Ginnie Mae 132,518
7.500% October 15, 2013
156,318 Ginnie Mae 165,548
7.500% December 15, 2024
326,448 Ginnie Mae 328,691
5.500% January 15, 2034
105,554 Ginnie Mae 110,821
7.000% September 15, 2031
847,825 Ginnie Mae II 851,531
5.500% November 20, 2034
1,340,911 Ginnie Mae II 1,346,778
5.500% February 20, 2035
2,378,549 Ginnie Mae II 2,341,051
5.000% October 20, 2033
13,614 Ginnie Mae II 14,951
9.500% May 20, 2022
32,673 Ginnie Mae II 34,235
7.500% December 20, 2028
49,216 Ginnie Mae II 51,570
7.500% October 20, 2028
$52,118,907
AGENCY MORTGAGE BACKED --- 8.95%
1,000,000 Fannie Mae 986,426
Series 2003-24 Class VM
5.500% November 25, 2021
908,167 Fannie Mae ++ 906,245
Series 2005-86 Class FC
4.679% October 25, 2035
2,000,000 US Department of Veterans Affairs 1,997,969
Series 2003-2 Class D
5.000% November 15, 2023
416,719 US Department of Veterans Affairs 416,605
Series 1993-3 Class 2K
6.250% November 15, 2012
1,000,000 US Department of Veterans Affairs 1,014,180
Series 2003-1 Class G
5.750% March 15, 2030
530,770 US Department of Veterans Affairs 543,708
Series 2002-1 Class 1A
6.000% October 15, 2031
$5,865,133
COMMERCIAL MORTGAGED BACKED --- 6.06%
1,000,000 GS Mortgage Securities Corp II 974,038
Series 2005-GG4 Class AABA
4.680% July 10, 2039
1,000,000 JP Morgan Chase Commercial Mortgage Securities Co 992,945
Series 2002-C3 Class A2
4.994% July 12, 2035
2,038,090 JP Morgan Chase Commercial Mortgage Securities Co 2,002,787
Series 2004-C2 Class A1
4.278% May 15, 2041
$3,969,770
U.S. GOVERNMENTS --- 3.89%
1,000,000 United States of America ^^ 1,091,211
5.250% February 15, 2029
1,500,000 United States of America ^^ 1,454,297
4.000% February 15, 2015
$2,545,508
TOTAL BONDS --- 98.47% $64,499,318
(Cost $65,260,941)
SHORT-TERM INVESTMENTS
Par Value ($) Value ($)
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS
1,000,000 Undivided interest of 4.3% in joint repurchase 1,000,000
agreement(Principal Amount/Value $23,020,000 with a maturity
value of $23,030,615) with Merrill Lynch, 4.15%, dated 12/30/05,
to be repurchased at $1,000,461 on 01/03/06, collateralized by
U.S. Agency Mortgages, 5%-7%, 2/1/13-11/1/35, with a value of
$23,482,819.
TOTAL SHORT-TERM INVESTMENTS --- 1.53% $1,000,000
(Cost $1,000,000)
TOTAL MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO --- 100% $65,499,318
(Cost $66,260,941)
Legend
** Security is an agency note with maturity date and interest rate indicated.
++ Represents the current interest rate for variable rate security.
^^ A portion or all of the security is on loan at December 31, 2005.
See Notes to Financial Statements.
Maxim Series Fund, Inc.
Summary of Investments by Maturity Date
Maxim U.S. Government Securities Portfolio
December 31, 2005
Unaudited
% of Portfolio
Maturity Value ($) Investments
- ---------------------------------- ------------------------ -----------------------
- ---------------------------------- ------------------------ -----------------------
1 - 3 Years 1,005,490 1.54%
3 - 5 Years 940,707 1.44%
5 - 10 Years 5,909,530 9.02%
10 - 20 Years 13,880,763 21.19%
20 - 30 Years 40,786,003 62.27%
Over 30 Years 2,976,825 4.54%
------------------------ -----------------------
------------------------ -----------------------
$ 65,499,318 100.00%
======================== =======================
======================== =======================
SHAREHOLDER EXPENSE EXAMPLE
Maxim U.S. Government Securities Portfolio
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, and (2) ongoing costs, including management fees and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (
in dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (June 30, 2005 to December 31, 2005).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000.00 (for example, an $8,600
account value divided by $1,000.00 = 8.6) , then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Portfolio's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Portfolio's actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Portfolio and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds.
Beginning Ending Expenses Paid
Account Value Account Value During Period*
(6/30/2005) (12/31/2005) (6/30/05-12/31/05)
Actual $ 1,000.00 $ 997.55 $ 3.02
Hypothetical
(5% return before expenses) $ 1,000.00 $ 1,022.18 $ 3.06
*Expenses are equal to the Portfolio's annualized expense ratio of 0.60%,
multiplied by the average account value over the period, multiplied by 184/365
days to reflect the one-half year period.
FUND DIRECTORS AND OFFICERS
(UNAUDITED)
Maxim Series Fund is organized under Maryland law, and is governed by the Board
of Directors. The Board is responsible for overall management of the Fund's
business affairs. The Directors meet at least four times during the year to,
among other things, oversee the Fund's activities, review contractual
arrangements with companies that provide services to the Fund, and review
performance. The following table provides information about each of the
Directors and officers of the Fund.
- ------------------------------------------------------------------------------------------------------------------------
INDEPENDENT* DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------
- ------------------ -------------- ----------------- ------------------------------------
Name, address Position(s) Term of Office Principal Occupation(s) during Number of Other
and age Held with (Length of Time Past 5 Years Portfolios Directorships
Fund Served) in Fund Held by Director
Complex
Overseen
by Director
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
Rex Jennings (80) Director March 22, 1988 President Emeritus, Denver Metro 34
to present Chamber of Commerce
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
Richard P. Director April 30, 1987 Retired Educator 34
Koeppe (73) to present
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
Sanford Zisman Director March 19, 1982 Attorney, Firm of Zisman, Ingraham 34
(65) to present and Daniel, P.C.
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------------------------------------------------------------------------------------------------------------
INTERESTED* DIRECTORS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------
- ------------------ -------------- ------------------ -----------------------------------
Name, address Position(s) Term of Office Principal Occupation(s) during Number of Other
and age Held with (Length of Time Past 5 Years Portfolios Directorships
Fund Served) in Fund Held by Director
Complex
Overseen
by Director
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*William T. Director and June 1, 2000 to Beginning January 1, 2006: Vice 34 Director,
McCallum (63) President present Chairman, Great-West Life & Great-West
Annuity Insurance Company Lifeco Inc.,
;Through December 31, 2005: Great-West Life
President and Chief Executive & Annuity
Officer of Great-West Life & Insurance
Annuity Insurance Company, United Company, First
States Operations of The Great-West Life
Great-West Life Assurance & Annuity
Company, and the United States Insurance
Operations of The Canada Life Company, GWL&A
Assurance Company; Co-President Financial Inc.,
and Chief Executive Officer of The Great-West
Great-West Lifeco Inc.; Life Assurance
President and Chief Executive Company, The
Officer of GWL&A Financial Inc. Canada Life
and Canada Life Insurance Company Assurance
of America (through February 13, Company, Canada
2006); President and Chief Life Insurance
Executive Officer of First Company of
Great-West Life & Annuity America, and
Insurance Company and Alta Health Alta Health &
& Life Insurance Company Life Insurance
Company.
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*Mitchell T.G. Director June 1, 2000 to Executive Vice President and 34 Director, Alta
Graye (50) present Chief Financial Officer of Health & Life
Great-West Life & Annuity Insurance
Insurance Company, First Company, EMJAY
Great-West Life & Annuity Corporation,
Insurance Company, Canada Life EMJAY Retirement
Insurance Company of America, Plan Services,
GWL&A Financial, Inc., the United Inc., GWL
States Operations of The Properties,
Great-West Life Assurance Inc., Great-West
Company, and the United States Benefit
Operations for The Canada Life Services, Inc.;
Assurance Company; President, GW Manager, GW
Capital Management, LLC, Orchard Capital
Capital Management, LLC, and GWL Management, LLC,
Properties, Inc.; Executive Vice Orchard Capital
President, Orchard Trust Company, Management, LLC,
LLC Orchard Trust
Company, LLC and
FASCore, LLC
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*Graham McDonald Treasurer November 29, Senior Vice President, Corporate 34 Manager,
(59) 2001 to present Administration of Great-West Life Greenwood
& Annuity Insurance Company, Investments,
GWL&A Financial, Inc., the United LLC; Director,
States Operations of The Great-West
Great-West Life Assurance Benefit
Company, the United States Services, Inc.,
Operations of The Canada Life GWL Properties,
Assurance Company; Senior Vice Inc.
President, Corporate Finance and
Investment Operations of Canada
Life Insurance Company of
America, EMJAY Corporation, EMJAY
Retirement Plan Services, Inc.,
FASCore, LLC and Orchard Trust
Company, LLC. Senior Vice
President and Treasurer, GW
Capital Management, LLC, and
Orchard Capital Management, LLC;
President, Greenwood Investments,
LLC
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*Beverly A. Secretary April 10, 1997 Vice President, Counsel and 34 None
Byrne (50) to present Associate Secretary, Great-West
Life & Annuity Insurance
Company, GWL&A Financial
Inc., First Great-West Life
& Annuity Insurance
Company, Canada Life
Insurance Company of
America, the United States
Operations of The
Great-West Life Assurance
Company, the United States
Operations of The Canada
Life Assurance Company;
Vice President, Counsel and
Secretary, FASCore, LLC;
Vice President and Counsel,
Orchard Trust Company, LLC;
Secretary and Chief
Compliance Officer, GW
Capital Management, LLC,
Orchard Capital Management,
LLC, GWFS Equities, Inc.,
and Advised Assets Group,
LLC; Secretary and
Compliance Officer, EMJAY
Corporation, EMJAY
Retirement Plan Services,
Inc., BenefitsCorp, Inc.,
BenefitsCorp, Inc. of
Wyoming, Secretary,
Greenwood Investments, LLC
and One Orchard Equities,
Inc.
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
* Refers to a Director or officer who is an "interested person" of Maxim
Series Fund (as defined in the Investment Company Act of 1940, as amended)
by virtue of their affiliation with either the Fund or MCM. A Director who
is not an "interested person" of the Fund is referred to as an "Independent
Director."
The Fund pays no salaries or compensation to any of its officers or Directors
affiliated with the Fund or Maxim Capital Management, LLC, its investment
adviser. The chart below sets forth the annual compensation paid to the
Independent Directors and certain other information.
- ------------------------- ------------------- -------------------- --------------------- --------------------
Name of Independent Aggregate Pension or Estimated Annual Total Compensation
Director Compensation from Retirement Benefits Upon from Fund and Fund
Fund Benefits Accrued Retirement Complex Paid to
as Part of Fund Directors**
Expenses
- ------------------------- ------------------- -------------------- --------------------- --------------------
- ------------------------- ------------------- -------------------- --------------------- --------------------
Rex Jennings $32,250 0 0 $32,250
- ------------------------- ------------------- -------------------- --------------------- --------------------
- ------------------------- ------------------- -------------------- --------------------- --------------------
Richard P. Koeppe $32,250 0 0 $32,250
- ------------------------- ------------------- -------------------- --------------------- --------------------
- ------------------------- ------------------- -------------------- --------------------- --------------------
Sanford Zisman $32,250 0 0 $32,250
- ------------------------- ------------------- -------------------- --------------------- --------------------
** As of December 31, 2005, there were 34 funds for which the Directors serve as
directors, all of which were Portfolios of Maxim Series Fund. The total
compensation paid is comprised of the amount paid during the Fund's most
recently completed fiscal year by the Fund and its affiliated investment
companies.
Additional information about Maxim Series Fund and its Directors is available in
the Fund's Statement of Additional Information, which can be obtained free of
charge upon request to: Ms. Mary Maiers, 8515 East Orchard Road, Greenwood
Village, Colorado 80111; (800) 537-2033, ext. 74743.
Availability of Quarterly Portfolio Schedule.
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov, and may be reviewed and copied at the Commission's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
Availability of Proxy Voting Policies and Procedures.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by calling 1-800-537-2033, ext. 74743, and on the Securities and
Exchange Commission's website at http://www.sec.gov.
Availability of Proxy Voting Record.
Information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is available
without charge, upon request, by calling 1-800-537-2033, ext. 74743, and on the
Securities and Exchange Commission's website at http://www.sec.gov.
PART B:
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF ADDITIONAL INFORMATION
OF
MAXIM SERIES FUND, INC. ("MAXIM")
Dated May XX, 2006
Acquisition of the Assets of
MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO
a series of Maxim (the "Acquired Portfolio")
By and in Exchange for the Shares of
MAXIM U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
a series of Maxim
(the "Acquiring Portfolio")
This Statement of Additional Information (SAI) is not a prospectus and should be
read in conjunction with the Prospectus/Proxy Statement dated May XX, 2006 for
the special meeting of the shareholders as of the Record Date for Maxim U.S.
Government Securities Portfolio. (Capitalized terms not defined herein shall
have the meaning given to them in the Prospectus/Proxy Statement.) The Meeting
is to be held on June 26, 2006. 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 Portfolio's proposed acquisition of the Acquired Portfolio
pursuant to the terms of the Plan of Reorganization ("Plan"). Under the Plan,
the Maxim U.S. Government Mortgage Securities Portfolio ("Acquiring Portfolio")
will acquire substantially all of the property, assets and goodwill of the Maxim
U.S. Government Securities Portfolio ("Acquired Portfolio").
Under the Plan, the assets of the Acquired Portfolio will be acquired by, and in
exchange for, the shares of the Acquiring Portfolio and the liabilities of the
Acquired Portfolio will be assumed by the Acquiring Portfolio. The Acquired
Portfolio will then be terminated by Maxim and the shares of the Acquiring
Portfolio distributed to shareholders of the Acquired Portfolio in the
redemption of the Acquired Portfolio shares. Immediately after completion of the
Reorganization, the number of shares of the Acquiring Portfolio then held by
former shareholders of the Acquired Portfolio may be different than the number
of shares of the Acquired Portfolio 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 Portfolio 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 May XX, 2006. This SAI consists of
this document and the following described documents:
1
(1) The Annual Report to Shareholders of the Acquired Portfolio
for the fiscal year ended December 31, 2005 (from which
information is incorporated by reference into the
Prospectus/Proxy Statement, and which is included as an
Exhibit to the Prospectus/Proxy Statement of Maxim Series
Fund, dated May XX, 2006), filed on February 28, 2006; and
(2) The Annual Report to Shareholders of the Acquiring Portfolio
for the fiscal year ended December 31, 2005 (from which
information is incorporated by reference into the
Prospectus/Proxy Statement and Statement of Additional
Information, and which is included as an Exhibit to the
Prospectus/Proxy Statement of Maxim Series Fund, dated May
XX, 2006), filed on February 28, 2006.
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
May XX, 2006
STATEMENT OF ADDITIONAL INFORMATION
OF
MAXIM SERIES FUND, INC. ("MAXIM")
May XX, 2006
TABLE OF CONTENTS
INTRODUCTION.....................................................................................................3
MAXIM............................................................................................................3
INVESTMENT OBJECTIVES AND POLICIES AND INVESTMENT RESTRICTIONS...................................................3
Fundamental Investment Restrictions.....................................................................4
Non-Fundamental Investment Restrictions.................................................................5
Securities and Investment Practices and Techniques......................................................5
Portfolio Holdings Disclosure..........................................................................18
MAXIM DIRECTORS AND OFFICERS....................................................................................19
Directors and Officers.................................................................................19
Standing Committees....................................................................................23
Ownership..............................................................................................23
Independent Directors and their Immediate Family Members...............................................24
Compensation...........................................................................................25
CODES OF ETHICS.................................................................................................25
PRINCIPAL SECURITY HOLDERS......................................................................................26
PROXY VOTING POLICIES...........................................................................................26
INVESTMENT ADVISORY AND OTHER SERVICES..........................................................................26
Investment Advisor.....................................................................................26
Investment Advisory Agreement..........................................................................27
Sub-Advisory Fees......................................................................................28
Advisory Fees..........................................................................................28
Payment of Expenses....................................................................................28
Portfolio Management...................................................................................28
DISTRIBUTION AGREEMENT..........................................................................................29
Principal Underwriter..................................................................................29
ADMINISTRATIVE SERVICES AGREEMENT...............................................................................30
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES......................................................................30
Qualification as a Regulated Investment Company........................................................30
Excise Tax on Regulated Investment Companies...........................................................32
Effect of Future Legislation; Local Tax Considerations.................................................32
i
PERFORMANCE DATA................................................................................................32
Maxim U.S. Government Mortgage Securities Portfolio....................................................32
Performance Comparisons................................................................................34
VOTING RIGHTS...................................................................................................35
PRICING, PURCHASE AND REDEMPTION OF SHARES......................................................................35
Pricing Shares.........................................................................................35
Purchasing and Redeeming Shares........................................................................36
Frequent Purchases and Redemptions of
Fund Shares ..................................................................................36
PORTFOLIO TRANSACTIONS AND BROKERAGE............................................................................37
Brokerage Commissions..................................................................................38
Portfolio Turnover.....................................................................................39
FINANCIAL STATEMENTS............................................................................................39
Maxim U.S. Government Mortgage Securities Portfolio....................................................39
Maxim U.S. Government Securities Portfolio.............................................................39
Pro Forma Financial Statements.........................................................................39
GENERAL INFORMATION.............................................................................................39
Custodian..............................................................................................39
Transfer and Dividend Paying Agent.....................................................................39
Independent Registered Public Accounting Firm..........................................................40
Registration Statement.................................................................................40
APPENDIX A CORPORATE BOND AND COMMERCIAL PAPER RATINGS
APPENDIX B GW CAPITAL MANAGEMENT, LLC
PROXY POLICIES & PROCEDURES
ii
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a Prospectus/Proxy Statement, dated May XX, 2006,
relating to the proposed reorganization of the Acquired Portfolio into the
Acquiring Portfolio in connection with the solicitation by the Maxim Board of
Directors ("Maxim Board") of proxies to be voted at the Meeting of Shareholders
of Maxim to be held on June 26, 2006.
MAXIM
Maxim is registered with the Securities and Exchange Commission ("SEC") as an
open-end management investment company. Maxim offers thirty-four investment
portfolios, including the Acquiring Portfolio. Maxim is a Maryland corporation
that was organized on December 7, 1981 and commenced business as an investment
company in 1982. The Acquiring Portfolio is "no-load," meaning you pay no sales
charges or distribution fees. The Acquiring Portfolio is 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 Advisor"), a wholly owned
subsidiary of GWL&A, serves as Maxim's investment advisor.
Diversified Portfolio
The Acquiring Portfolio is a diversified portfolio, and it will operate as a
diversified investment portfolio of the Fund once the Reorganization has taken
place. This means that at least 75% of the value of its total assets will be
represented by cash and cash items (including receivables), U.S. government
securities, securities of other investment companies, and other securities, the
value of which with respect to any one issuer is neither more than 5% of the
Portfolio's total assets nor more than 10% of the outstanding voting securities
of such issuer.
INVESTMENT OBJECTIVES AND POLICIES AND INVESTMENT RESTRICTIONS
Except as described below and except as otherwise specifically stated in the
Prospectus or this Statement of Additional Information, the Acquiring
Portfolio's investment policies set forth in the Prospectus and in this
Statement of Additional Information are not fundamental and may be changed
without shareholder approval.
Investment Restrictions
Maxim has adopted limitations on the investment activity of its
Portfolios, including the Acquiring Portfolio, 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.
3
Fundamental Investment Restrictions
1. Borrowing. Maxim (i.e., each Maxim Portfolio, including the
Acquiring Portfolio) 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 Portfolio) 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 Portfolio) 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.
4. Loans. Maxim (i.e., each Maxim Portfolio, including the Acquiring
Portfolio) 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 Portfolio, but excluding certain other Maxim 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).
6. Real Estate. Maxim (i.e., each Maxim Portfolio, including the
Acquiring Portfolio) 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 Portfolio) will not issue senior securities except in compliance with
the 1940 Act.
8. Underwriting. Maxim (i.e., each Maxim Portfolio, including the
Acquiring Portfolio) 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.
4
Non-fundamental Investment Restrictions
In accordance with the requirements of Rule 35d-1 under the 1940 Act,
it is a non-fundamental policy of the Acquiring Portfolio 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. As part of the Reorganization, the name of the Acquiring
Portfolio will be changed to the Maxim U.S. Government Securities Portfolio,
which is the name of the Acquired Portfolio.
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 Portfolio) 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.
Securities and Investment Practices and Techniques
The following pages contain more detailed information about types of securities
in which the Acquiring Portfolio may invest, investment practices and techniques
that MCM or any sub-advisor may employ in pursuit of the Portfolios' investment
objectives, subject to their respective investment objectives, strategies and
restrictions, and a discussion of related risks. MCM and/or any sub-advisors 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 applicable
Portfolio's investment objectives and policies and that doing so will help the
Portfolio achieve its objectives. Unless otherwise indicated, the Acquiring
Portfolio may invest in all these securities or use all of these techniques. In
addition, due to unavailability, economic unfeasibility or other factors, the
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.
5
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 Portfolios generally will not invest in
acceptances with maturities exceeding seven days where doing so would tend to
create liquidity problems.
Borrowing. The 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.
6
Each Portfolio will invest in Brady Bonds only if it is consistent with quality
specifications established from time to time by MCM for 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 that 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.
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.
7
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 a 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 a 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.
Distressed Debt Obligations. Distressed debt securities are debt securities that
are purchased in the secondary market and are the subject of bankruptcy
proceedings or otherwise in default as to the repayment of principal and/or
interest at the time of acquisition by a Portfolio or are rated in the lower
rating categories (Ca or lower by Moody's and CC or lower by S&P) or which, if
unrated, are in the judgment of the adviser or sub-adviser of equivalent
quality. Investment in distressed debt securities is speculative and involves
significant risk. The risks associated with high yield securities are heightened
by investing in distressed debt securities.
A Portfolio will generally make such investments only when the adviser believes
it is reasonably likely that the issuer of the distressed debt securities will
make an exchange offer or will be the subject of a plan of reorganization
pursuant to which the Portfolio will receive new securities (e.g., equity
securities). However, there can be no assurance that such an exchange offer will
be made or that such a plan of reorganization will be adopted. In addition, a
significant period of time may pass between the time at which a Portfolio makes
its investment in distressed debt securities and the time that any such exchange
offer or plan of reorganization is completed. During this period, it is unlikely
that the Portfolio will receive any interest payments on the distressed debt
securities, the Portfolio will be subject to significant uncertainty as to
whether or not the exchange offer or plan will be completed and the Portfolio
may be required to bear certain extraordinary expenses to protect or recover its
investment. Even if an exchange offer is made or plan of reorganization is
adopted with respect to the distressed debt securities held by the Portfolio,
there can be no assurance that the securities or other assets received by a
Portfolio in connection with such exchange offer or plan of reorganization will
not have a lower value or income potential than may have been anticipated when
the investment was made. Moreover, any securities received by a Portfolio upon
completion of an exchange offer or plan of reorganization may be restricted as
to resale. As a result of a Portfolio's participation in negotiations with
respect to any exchange offer or plan of reorganization with respect to an
issuer of distressed debt securities, the Portfolio may be restricted from
disposing of such securities. None of the Portfolios will generally purchase
securities that are in default or subject to bankruptcy proceedings in amounts
greater than 5% of such Portfolio's assets. Securities that have been downgraded
to Ca/CC or lower subsequent to purchase shall not be included in this
limitation.
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.
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
8
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 Portfolios defaults, the 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 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 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 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.
9
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 a 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 Portfolios and carefully evaluate whether to
dispose of or retain high yield securities whose credit ratings have changed.
The 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 Portfolios' net asset values.
A 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 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 a
Portfolio's net asset value. Under the supervision of the Board of Directors,
MCM determines the liquidity of portfolio securities and, through reports from
MCM, the Board of Directors 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 Board of
Directors.
10
A 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 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 Portfolio's holdings. These transactions may also be used to
attempt to protect against possible declines in the market value of the
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 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
Portfolio manager's ability to predict correctly the direction and degree of
movements in interest rates. If the Portfolio manager's judgment about the
direction or extent of movement in interest rates is incorrect, the Portfolio's
overall performance would be worse than if it had not entered into such
transactions. For example, if the 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 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 Securities and Exchange Commission to
be illiquid securities and, therefore, the Portfolio may not invest more than
15% of its assets in such instruments. Finally, there can be no assurance that
the Portfolio will be able to enter into interest rate swaps or to purchase
interest rate caps or floors at prices or on terms the Portfolio manager
believes are advantageous to the Portfolio. In addition, although the terms of
interest rate swaps, caps and floors may provide for termination, there can be
no assurance that the 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 Portfolio may invest in shares of mutual funds within
the limitations of the Investment Company Act of 1940 (the "1940 Act") and any
orders issued by the SEC. The following discussion of mutual funds may be of
particular relevance to those who invest in the Profile Portfolios. These
Portfolios are known as "funds of funds" because they seek to achieve their
investment objectives by investing in other mutual funds (the "Underlying
Portfolios"). Except for these funds of funds, the 1940 Act generally prohibits
a 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
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 a
11
Portfolio from acquiring in the aggregate more than 10% of the outstanding
voting shares of any registered closed-end investment company.
Loan Participations and Assignments. Loan Participations and Assignments are
interests in loans and therefore are considered to be investments in debt
securities. If a Portfolio purchases a Loan Participation, the Portfolio
typically will have a contractual relationship only with the lender that sold
the Participation, and not with the borrower. A Portfolio will have the right to
receive payments of principal, interest and any fees to which it is entitled
only from the lender selling the Participation and only upon receipt by the
lender of the payments from the borrower. In connection with purchasing Loan
Participations, a Portfolio generally will have no right to enforce compliance
by the borrower with the terms of the Loan agreement relating to the Loan, nor
any rights of set-off against the borrower, and the Portfolio may not benefit
directly from any collateral supporting the Loan in which it has purchased the
Participation. As a result, a Portfolio will assume the credit risk of both the
borrower and the lender that is selling the Participation. In the event of the
insolvency of the lender selling a Participation, a Portfolio may be treated as
a general creditor of the lender and may not benefit from any set-off between
the lender and the borrower. A Portfolio will acquire Loan Participations only
if the lender interpositioned between the Portfolio and the borrower is
determined by the Adviser or sub-adviser to be creditworthy. When a Portfolio
purchases Assignments from lenders, the Portfolio will acquire direct rights
against the borrower on the Loan, except that under certain circumstances such
rights may be more limited than those held by the assigning lender.
A Portfolio may have difficulty disposing of Assignments and Loan
Participations. In certain cases, the market for such instruments is not highly
liquid, and therefore the Portfolios anticipate that in such cases such
instruments could be sold only to a limited number of institutional investors.
The lack of a highly liquid secondary market may have an adverse impact on the
value of such instruments and will have an adverse impact on a Portfolio's
ability to dispose of particular Assignments or Loan Participations in response
to a specific economic event, such as deterioration in the creditworthiness of
the borrower.
Each Portfolio's Board has adopted policies and procedures for the purpose of
determining whether holdings are liquid or illiquid. The determination as to
whether a particular Loan Participation or Assignment is liquid or illiquid,
depends upon the frequency of trades and quotes, the number of dealers willing
to purchase or sell, the number of other potential buyers, dealer undertakings
to make a market in the security, the nature of the Loan Participation or
Assignment and its market place including such considerations as the time needed
to dispose of it, the method of soliciting offers and the mechanics of transfer.
To the extent that liquid Assignments and Loan Participation that a Portfolio
holds become illiquid, due to the lack of sufficient buyers or market or other
conditions, the percentage of a Portfolio's assets invested in illiquid assets
would increase.
In valuing a Loan Participation or Assignment held by a Portfolio for which a
secondary trading market exists, the Portfolio will rely upon prices or
quotations provided by banks, dealers or pricing services. To the extent a
secondary trading market does not exist, a Portfolio's Loan Participations and
Assignments will be valued in accordance with procedures adopted by the
Portfolio's Board.
Lending of Portfolio Securities. Subject to Investment Limitations described
above for all Portfolios, each Portfolio of the Fund 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
12
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 a Fund may
engage in loan transactions only under the following conditions: (1) the fund
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 fund must be able to terminate the loan at any time; (4) the fund 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 fund may pay only
reasonable custodian fees in connection with the loan; and (6) the Board of
Directors 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 a 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 Portfolios
and carefully evaluate whether to dispose of or retain lower quality securities
whose credit ratings have changed. The Portfolios may retain a security whose
credit rating has changed.
A 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 Portfolio's shareholders.
13
Money Market Instruments and Temporary Defensive and Other Short-Term Positions.
Each Portfolio 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 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,
including agency discount notes; (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 (including
certificates of deposit and time deposits); (5) asset-backed securities; (6)
repurchase agreements; and (7) shares of money market mutual funds (see
"Investment Companies" under the Investment Policies and Practices section,
above).
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.
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 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. A 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
14
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 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 Portfolio's holdings may be disadvantageous from an
investment standpoint. A 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 a Portfolio owns or has the right to obtain (equivalent in kind
or amount to the securities sold short). If a 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 Portfolio will incur transaction costs,
including interest expenses, in connection with opening, maintaining, and
closing short sales against the box.
A 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 Portfolio or a security convertible into or exchangeable for such
security. In such case, any future losses in the 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 Portfolio
owns, either directly or indirectly, and in the case where the Portfolio owns
convertible securities, changes in the investment values or conversion premiums
of such securities.
Stripped Treasury Securities. Certain 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, a
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.
15
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 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.
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
a Portfolio holds TIPS, the Portfolio may earn less on the TIPS than on a
conventional bond. If interest rates rise due to reasons other
16
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 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 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.
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 Portfolios generally purchase securities on a when-issued basis with
the intention of acquiring the securities, the Portfolios may sell the
securities before the settlement date if MCM or the applicable sub-adviser deems
it advisable. At the time a Portfolio makes the commitment to purchase
securities on a when-issued basis, the Portfolio will record the transaction and
thereafter reflect the value, each day, of such security in determining the net
asset value of the Portfolio. At the time of delivery of the securities, the
value may be more or less than the purchase price. A Portfolio will maintain, in
a segregated account, liquid assets having a value equal to or greater than the
Portfolio's purchase commitments; likewise a Portfolio will segregate securities
sold on a delayed-delivery basis.
Zero Coupon Securities, PIK Bonds and Deferred Payment Securities. Certain of
the Portfolios may invest in zero coupon securities, PIK (Payment In Kind) bonds
and deferred payment securities. Zero coupon securities are debt securities that
pay no cash income but are sold at substantial discounts from their value at
maturity. When a zero coupon security is held to maturity, its entire return,
which consists of the amortization of discount, comes from the difference
between its purchase price and its maturity value. This difference is known at
the time of purchase, so that investors holding zero coupon securities until
maturity know at the time of their investment what the expected return on their
investment will be. Certain zero coupon securities also are sold at substantial
discounts from their maturity value and provide for the commencement of regular
interest payments at a deferred date. Zero coupon securities may have conversion
features. A Portfolio also may purchase PIK bonds. PIK bonds pay all or a
portion of their interest in the form of debt or equity securities.
Zero coupon securities, PIK bonds and deferred payment securities tend to be
subject to greater price fluctuations in response to changes in interest rates
than are ordinary interest-paying debt securities with similar maturities. The
value of zero coupon securities appreciates more during periods of declining
interest rates and depreciates more during periods of rising interest rates than
ordinary interest-paying debt securities with similar maturities. Zero coupon
securities, PIK bonds and deferred payment securities may be issued by a wide
variety of corporate and governmental issuers. Although these instruments are
generally not traded on a national securities exchange, they are widely traded
by brokers and dealers and, to such extent, will not be considered illiquid for
the purposes of a Portfolio's limitation on investments in illiquid securities.
17
Deferred interest bonds are debt obligations that are issued or purchased at a
significant discount from face value and provide for a period of delay before
the regular payment of interest begins. The characteristics and related risks of
these bonds are similar to those of zero coupon bonds.
To avoid liability for federal income and excise taxes, a Portfolio may be
required to distribute income accrued with respect to these securities and may
have to dispose of portfolio securities under disadvantageous circumstances in
order to generate cash to satisfy these distribution requirements.
Portfolio Holdings Disclosure
The Fund has adopted policies and procedures governing the disclosure of
information regarding its portfolio holdings. As a general matter, it is the
Fund's policy that the public disclosure of information concerning the Fund's
portfolio holdings should be made at times and in circumstances under which it
may promptly become generally available to the brokerage community and the
investing public. The policies and procedures provide that: (i) information
about the Fund's portfolio holdings may not be disclosed until it is either
filed with the SEC or mailed out to shareholders, which filing or mailing will
not be made sooner than 30 days after the quarter's end, (ii) portfolio holding
information that is solely available in other regulatory reports or filings may
not be disclosed, unless as expressly authorized by the Fund's President or
Chief Compliance Officer ("CCO"), or where applicable, at least three days after
mailing, or one day after EDGAR filing, and (iii) portfolio holding information
that is more current than that in reports or other filings filed electronically
with the SEC or posted on the Fund's website may be disclosed 30 days after the
relevant reporting period.
Public Disclosures. Information regarding each Portfolio's portfolio holdings
will be disclosed to the public as required or permitted by applicable laws,
rules or regulations, such as in annual and semi-annual shareholder reports and
other reports or filings with the SEC. Such reports shall be released not sooner
than 30 days after the end of the relevant reporting period, or after such
period required under applicable law.
The Fund and GWFS Equities, Inc. may disclose a Portfolio's ten largest
portfolio holdings in monthly performance updates provided to broker-dealers in
connection with the distribution of Fund shares. The monthly performance updates
may not be released earlier than five days after the end of the relevant month
and shall not be provided to any broker-dealer on a preferential basis.
The Fund may disclose its portfolio holdings to mutual fund databases and rating
services such as Lipper and Morningstar, at such time as they request, for the
purpose of obtaining ratings for the Fund and enabling such services to provide
such portfolio holding information to the public as they typically provide for
rated funds. Any disclosure to mutual fund databases and rating services shall
be made subject to a confidentiality agreement limiting the use of such
information to the approved purposes.
Other Disclosures. The Fund periodically provides information concerning its
portfolio holdings to the Fund's service providers and the Fund's disinterested
directors in connection with its provision of services to or on behalf of the
Fund. In addition to MCM, these service providers include the following: (a) all
Fund portfolio sub-advisers; (b) the Bank of New York and its sub-custodians, in
their capacity as custodians for the Fund; (c) The Bank of New York, in its
capacity as securities lending agent for the Fund; (d) Deloitte & Touche LLP, in
its capacity as the Independent Registered Public Accounting Firm for the Fund;
(e) Jordan Burt, LLP, as a provider of legal counsel for the Fund; (f) FASCore,
LLC, in its capacity as transfer and dividend paying agent for the Fund; (g) FT
Interactive Data, as a provider of pricing services for the Fund; and (h) BNY
Brokerage Inc., as a provider of brokerage services for the Fund.
Portfolio holding information may not be disclosed to the media, brokers or
other members of the public if that information has not previously been made
publicly available. Information in reports or other documents that are mailed to
shareholders may be discussed three days (or later) after mailing. Information
that is filed on the SEC's EDGAR system may be discussed one day (or later)
after filing. Information available in other regulatory reports or filings may
not be discussed without authorization by the Fund's President or Chief
Compliance Officer. The Fund may also disclose portfolio holding
18
information to any regulator in response to any regulatory requirement not
involving public disclosure, or any regulatory inquiry or proceeding and to any
person, to the extent required by order or other judicial process.
The Fund may also disclose portfolio holding information to any person who
expressly agrees in writing to keep the disclosed information in confidence, and
to use it only for purposes expressly authorized by the Fund. Furthermore, as
authorized by the President or CCO of the Fund in writing and upon his
determination that such disclosure would be in the interests of the relevant
Fund and its shareholders, a Portfolio may disclose portfolio holding
information.
Any exceptions authorized by the President or CCO are reported to the Board of
Directors. The Board also receives reports at least annually concerning the
operation of these policies and procedures. The Board may amend these policies
and procedures from time to time, as it may deem appropriate in the interests of
the Fund and its shareholders.
As authorized by the Board of Directors, the CCO has established and administers
guidelines found by the Board to be in the best interests of shareholders
concerning the dissemination of Fund portfolio holdings information, and
resolution of conflicts of interest in connection with such disclosure, if any.
The CCO reviews and decides on each information request and, if granted, how and
by whom that information will be disseminated. The CCO reports to the Board of
Directors periodically. Any modifications to the guidelines require prior Board
approval.
At this time, the Fund has not entered into any ongoing arrangements to make
available public and/or non-public information about the Fund's portfolio
holdings. If, in the future, the Fund desired to make such an arrangement, it
would seek prior Board approval and any such arrangements would be disclosed in
the Fund's SAI. The Fund's portfolio holdings information may not be
disseminated for compensation. There is no assurance that the Fund's policies on
holdings information will protect the Portfolios from the potential misuse of
holdings by individuals or firms in possession of that information.
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 the Fund's activities, review contractual arrangements with
companies that provide services to the Fund, and review performance.
Directors and Officers
Information regarding the Directors and executive officers of the Fund including
their ages, position(s) with the Fund, and their principal occupations during
the last five years (or as otherwise indicated) are set forth below. 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.
19
FUND DIRECTORS AND OFFICERS
INDEPENDENT DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------
- ------------------ -------------- ----------------- ------------------------------------ ----------- -------------------
Name, address Position(s) Term of Office Principal Occupation(s) during Number of Other
and age Held with (Length of Time Past 5 Years Portfolios Directorships
Fund Served) in Fund Held by Director
Complex
Overseen
by Director
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
Rex Jennings (80) Director March 22, 1988 President Emeritus, Denver Metro 34
to present Chamber of Commerce
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
Richard P. Director April 30, 1987 Retired Educator 34
Koeppe (73) to present
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
Sanford Zisman Director March 19, 1982 Attorney, Firm of Zisman, Ingraham 34
(65) to present and Daniel, P.C.
- ------------------ -------------- ----------------- ------------------------------------ ------------ ------------------
- ------------------------------------------------------------------------------------------------------------------------
INTERESTED* DIRECTORS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------
- ------------------ -------------- ------------------ -----------------------------------
Name, address Position(s) Term of Office Principal Occupation(s) during Number of Other
and age Held with (Length of Time Past 5 Years Portfolios Directorships
Fund Served) in Fund Held by Director
Complex
Overseen
by Director
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
40
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*William T. Director and June 1, 2000 to Beginning January 1, 2006: Vice 34 Director,
McCallum (63) President present Chairman, Great-West Life & Great-West
Annuity Insurance Company Lifeco Inc.,
;Through December 31, 2005: Great-West Life
President and Chief Executive & Annuity
Officer of Great-West Life & Insurance
Annuity Insurance Company, United Company, First
States Operations of The Great-West Life
Great-West Life Assurance & Annuity
Company, and the United States Insurance
Operations of The Canada Life Company, GWL&A
Assurance Company; Co-President Financial Inc.,
and Chief Executive Officer of The Great-West
Great-West Lifeco Inc.; Life Assurance
President and Chief Executive Company, The
Officer of GWL&A Financial Inc. Canada Life
and Canada Life Insurance Company Assurance
of America (through February 13, Company, Canada
2006); President and Chief Life Insurance
Executive Officer of First Company of
Great-West Life & Annuity America, and
Insurance Company and Alta Health Alta Health &
& Life Insurance Company Life Insurance
Company.
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*Mitchell T.G. Director June 1, 2000 to Executive Vice President and 34 Director, Alta
Graye (50) present Chief Financial Officer of Health & Life
Great-West Life & Annuity Insurance
Insurance Company, First Company, EMJAY
Great-West Life & Annuity Corporation,
Insurance Company, Canada Life EMJAY Retirement
Insurance Company of America, Plan Services,
GWL&A Financial, Inc., the United Inc., GWL
States Operations of The Properties,
Great-West Life Assurance Inc., Great-West
Company, and the United States Benefit
Operations for The Canada Life Services, Inc.;
Assurance Company; President, GW Manager, GW
Capital Management, LLC, Orchard Capital
Capital Management, LLC, and GWL Management, LLC,
Properties, Inc.; Executive Vice Orchard Capital
President, Orchard Trust Company, Management, LLC,
LLC Orchard Trust
Company, LLC and
FASCore, LLC
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*Graham McDonald Treasurer November 29, Senior Vice President, Corporate 34 Manager,
(59) 2001 to present Administration of Great-West Life Greenwood
& Annuity Insurance Company, Investments,
GWL&A Financial, Inc., the United LLC; Director,
States Operations of The Great-West
Great-West Life Assurance Benefit
Company, the United States Services, Inc.,
Operations of The Canada Life GWL Properties,
Assurance Company; Senior Vice Inc.
President, Corporate Finance and
Investment Operations of Canada
Life Insurance Company of
America, EMJAY Corporation, EMJAY
Retirement Plan Services, Inc.,
FASCore, LLC and Orchard Trust
Company, LLC. Senior Vice
President and Treasurer, GW
Capital Management, LLC, and
Orchard Capital Management, LLC;
President, Greenwood Investments,
LLC
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
*Beverly A. Secretary April 10, 1997 Vice President, Counsel and 34 None
Byrne (50) to present Associate Secretary, Great-West
Life & Annuity Insurance
Company, GWL&A Financial
Inc., First Great-West Life
& Annuity Insurance
Company, Canada Life
Insurance Company of
America, the United States
Operations of The
Great-West Life Assurance
Company, the United States
Operations of The Canada
Life Assurance Company;
Vice President, Counsel and
Secretary, FASCore, LLC;
Vice President and Counsel,
Orchard Trust Company, LLC;
Secretary and Chief
Compliance Officer, GW
Capital Management, LLC,
Orchard Capital Management,
LLC, GWFS Equities, Inc.,
and Advised Assets Group,
LLC; Secretary and
Compliance Officer, EMJAY
Corporation, EMJAY
Retirement Plan Services,
Inc., BenefitsCorp, Inc.,
BenefitsCorp, Inc. of
Wyoming, Secretary,
Greenwood Investments, LLC
and One Orchard Equities,
Inc.
- ------------------ -------------- ------------------ ----------------------------------- ------------ ------------------
* Refers to a Director or officer who is an "interested person" of Maxim
Series Fund (as defined in the Investment Company Act of 1940, as amended)
by virtue of their affiliation with either the Fund or MCM. A Director who
is not an "interested person" of the Fund is referred to as an "Independent
Director."
Standing Committees
22
The Fund 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 the Fund. Messrs. McCallum and Graye are
the members of the Executive Committee. Two meetings of the Executive Committee
were held in 2005.
As set out in the Fund's Audit Committee Charter, the basic purpose of the Audit
Committee is to enhance the quality of the Fund's financial accountability and
financial reporting by providing a means for the Fund's disinterested Directors
to be directly informed as to, and participate in the review of, the Fund's
audit functions. Another objective is to ensure the independence and
accountability of the Fund's outside auditors and provide an added level of
independent evaluation of the Fund'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 2005.
Ownership
As of December 31, 2005, the following members of the Board of Directors had
beneficial ownership in the Fund and/or any other investment companies overseen
by the Director:
- --------------------- --------------------------------------- --------------------- -------------------------
Aggregate Dollar Range
of Equity Securities in
Director Portfolio Dollar Range of all Registered
Equity Securities Investment Companies
in the Portfolio Overseen by Director in
Family of Investment
Companies
- --------------------- --------------------------------------- --------------------- -------------------------
- -------------------------------------------------------------------------------------------------------------
W.T. McCallum Maxim Stock Index Portfolio $50,001 - $100,000
- -------------------------------------------------------------------------------------------------------------
- --------------------- --------------------------------------- --------------------- -------------------------
W. T. McCallum Maxim Aggressive Profile II Portfolio $50,001- $100,000
- --------------------- --------------------------------------- --------------------- -------------------------
- --------------------- --------------------------------------- --------------------- -------------------------
W.T. McCallum Maxim Ariel Small-Cap Value Portfolio Over $100,000 Over $100,000
- --------------------- --------------------------------------- --------------------- -------------------------
- --------------------- --------------------------------------- --------------------- -------------------------
R.P. Koeppe Maxim Loomis Sayles Small-Cap Value $1 - $10,000
Portfolio
- --------------------- --------------------------------------- --------------------- -------------------------
- --------------------- --------------------------------------- --------------------- -------------------------
R. P. Koeppe Maxim Money Market Portfolio $1 - $10,000
- --------------------- --------------------------------------- --------------------- -------------------------
- --------------------- --------------------------------------- --------------------- -------------------------
R.P. Koeppe Maxim T. Rowe Price Equity/Income $10,001 - $50,000
Portfolio
- --------------------- --------------------------------------- --------------------- -------------------------
- --------------------- --------------------------------------- --------------------- -------------------------
R.P. Koeppe Maxim T. Rowe Price MidCap Growth $1 - $10,000
Portfolio
- --------------------- --------------------------------------- --------------------- -------------------------
- --------------------- --------------------------------------- --------------------- -------------------------
23
R.P. Koeppe Maxim Bernstein International Equity $1 - $10,000 $10,001 - $50,000
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, 2005, other than as described above under "Ownership," 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 the Fund, 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 the
Fund.
As of December 31, 2005, 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 the Fund;
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 the Fund
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 the Fund;
o an investment adviser, the principal underwriter or affiliated person of
the Fund; or
o any person directly or indirectly controlling, controlled by, or under
common control with an investment adviser or the principal underwriter of
the Fund.
As of December 31, 2005, 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 the Fund; 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 the Fund.
As of December 31, 2005, 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 the Fund, 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 the Fund
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 the Fund, or officer
thereof;
24
o an investment adviser or the principal underwriter of the Fund, 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
the Fund, or officer thereof.
As of December 31, 2005, 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 the Fund, 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 the Fund
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 the Fund, or officer
thereof;
o an investment adviser or the principal underwriter of the Fund, 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
the Fund, or officer thereof.
As of December 31, 2005, no officer of an investment adviser or the principal
underwriter of the Fund 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 the Fund, during the two most recently completed
calendar years, has served on the board of directors of a company where an
Independent Director of the Fund 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
The Fund pays no salaries or compensation to any of its officers or Directors
affiliated with the Fund or Maxim Capital Management, LLC, its investment
adviser. The chart below sets forth the annual compensation paid to the
Independent Directors and certain other information.
- ------------------------- ------------------- -------------------- --------------------- --------------------
Name of Independent Aggregate Pension or Estimated Annual Total Compensation
Director Compensation from Retirement Benefits Upon from Fund and Fund
Fund Benefits Accrued Retirement Complex Paid to
as Part of Fund Directors**
Expenses
- ------------------------- ------------------- -------------------- --------------------- --------------------
- ------------------------- ------------------- -------------------- --------------------- --------------------
Rex Jennings $32,250 0 0 $32,250
- ------------------------- ------------------- -------------------- --------------------- --------------------
- ------------------------- ------------------- -------------------- --------------------- --------------------
Richard P. Koeppe $32,250 0 0 $32,250
- ------------------------- ------------------- -------------------- --------------------- --------------------
- ------------------------- ------------------- -------------------- --------------------- --------------------
Sanford Zisman $32,250 0 0 $32,250
- ------------------------- ------------------- -------------------- --------------------- --------------------
** As of December 31, 2005, there were 34 funds for which the Directors serve as
directors, all of which were Portfolios of Maxim Series Fund. The total
compensation paid is comprised of the amount paid during the Fund's most
recently completed fiscal year by the Fund and its affiliated investment
companies.
CODES OF ETHICS
25
The Fund, MCM, and Greenwood Investments, LLC 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 the Fund under certain circumstances. Each Code places
appropriate restrictions on all such investments.
PRINCIPAL SECURITY HOLDERS
As of December 31, 2005, the outstanding shares of Maxim were presently held of
record by Maxim Series Account, Pinnacle Series Account, Retirement Plan Series
Account, FutureFunds Series Account, FutureFunds Series Account II and Qualified
Series Account of GWL&A, by TNE Series (k) Account of New England Life Insurance
Company, by FutureFunds Series Account II of First Great-West Life & Annuity
Insurance Company, by certain qualified retirement plans and by GWL&A, which
provided the initial capitalization for certain Portfolios.
The following table lists the name and percentage of ownership of each person
who owned of record 5% or more of the shares of the Acquiring Portfolio as of
December 31, 2005. The address of each Series Account owner, each Maxim Profile
Portfolio owner included herein and for GWL&A is: 8515 E. Orchard Road,
Greenwood Village, Colorado 80111. As a group, the officers and Directors of the
Fund owned less than 1% of the Fund's equity securities.
Maxim U.S. Government Mortgage Securities Portfolio
- ------------------------------------------------------------ ------------------
Record Owner Percentage
- ------------------------------------------------------------ ------------------
- ------------------------------------------------------------ ------------------
TNE Series Account 5.78%
- ------------------------------------------------------------ ------------------
- ------------------------------------------------------------ ------------------
Maxim Conservative Profile II Portfolio 8.74%
- ------------------------------------------------------------ ------------------
- ------------------------------------------------------------ ------------------
Maxim Moderate Profile II Portfolio 20.56%
- ------------------------------------------------------------ ------------------
- ------------------------------------------------------------ ------------------
FutureFunds II Series Account 51.90%
- ------------------------------------------------------------ ------------------
PROXY VOTING POLICIES
Proxies will be voted in accordance with the proxy policies and procedures
attached hereto as Appendix B. Proxy voting information for the Fund will be
provided upon request, without charge. A copy of the applicable proxy voting
record may be requested by calling 1-866-831-7129, or writing to: Secretary,
Maxim Series, Fund, Inc. at 8515 East Orchard Road, Greenwood Village, Colorado
80111. Information regarding how the Fund voted proxies relating to the
Portfolios is also available on the SEC's website at http://www.sec.gov.
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 the Fund
pursuant to an Investment Advisory Agreement dated December 5, 1997, as amended.
MCM is a wholly-owned subsidiary of GWL&A, which is
26
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 Maxim, MCM acts as
investment adviser and, subject to the supervision of the Board of Directors,
directs the investments of each 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 Board of Directors, 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 Fund 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, May 1, 2003, July 1, 2003, May 1,
2004, and May 1, 2005. As approved, the Agreement will remain in effect until
May 1, 2006, and will continue in effect from year to year if approved annually
by the Board of Directors 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 Board of
Directors 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
27
and track record, their ability 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 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 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 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.
Sub-Advisory Fees
Since the Acquiring Portfolio is managed internally, no sub-advisory fees are
paid.
Advisory Fees
The Acquiring Portfolio pays a management fee to MCM for managing its
investments and business affairs. MCM is paid monthly at an annual rate of the
Portfolio's average net assets as described in the Prospectus. The following
table sets forth the advisory fees paid to GWCM for the fiscal years ended
December 31, 2003, 2004 and 2005.
ADVISOR PORTFOLIO 2005 2004 2003
GWCM Maxim U.S. Government $1,562,562 $1,658,559 $1,937,179
Mortgage Securities 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 Advisor
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 Portfolio
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.
28
Portfolio Management
The Acquiring Portfolio is managed internally by Catherine Tocher and Bruce
Masters. Ms. Tocher has handled the day-to-day management responsibility for the
Acquiring Portfolio since 1993.
In addition to the Maxim portfolios managed or co-managed by her, as of December
31, 2005, Ms. Tocher manages five other pooled investment vehicles with assets
totaling $1.288 billion. None of these accounts have performance-based fees.
MCM is not aware of any material conflicts of interest that may arise in
connection with the Portfolio Manager's management of the Profile Portfolios'
investments and the investments of the other accounts included above. MCM has
adopted trading policies and procedures that address aggregation or blocking of
client transactions, brokerage and trade allocation which MCM believes address
potential conflicts associated with managing multiple accounts for multiple
clients.
Portfolio manager compensation is provided pursuant to an administrative
services agreement between MCM and MCM's parent, GWL&A. Compensation consists of
a base salary and a performance bonus. As well, the Portfolio manager may be
eligible for equity incentives in the form of stock options in Great-West Lifeco
Inc. Finally, the Portfolio manager may participate in employee benefits
programs sponsored by GWL&A that include a 401(k) plan as well as one or more
non-qualified deferred compensation plans. The Portfolio manager is also a
participant in the defined benefit plan sponsored by GWL&A.
Senior management conducts annual performance reviews prior to making
compensation decisions. Key criteria include the extent to which the manager has
worked effectively alone and within a team for services provided to Maxim as
well as to other MCM clients and to GWL&A. Factors include investment results,
tenure, level or responsibilities and client service and satisfaction are taken
into consideration.
The Portfolio managers have the following ownership in Portfolios of the Fund:
Cathe Tocher
Maxim Ariel Small Cap Value Portfolio - between $10,001 - $50,000 Maxim Bond
Index Portfolio - between $1 and $10,000 Maxim U.S. Government Securities
Portfolio - between $1 and $10,000
Bruce Masters
Maxim Index 600 Portfolio - between $10,001 - $50,000 Maxim Bond Index Portfolio
- - between $10,001 and $50,000
DISTRIBUTION AGREEMENT
Principal Underwriter
Effective March 31, 2006, Maxim Series Fund, Inc. entered into a principal
underwriting agreement with GWFS Equities, Inc. ("GWFS Equities"), 8515 East
Orchard Road, Greenwood Village, Colorado 80111. GWFS Equities replaced
Greenwood Investments, LLC as principal underwriter for the Fund. GWFS Equities
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 GWFS Equities to use all reasonable efforts, consistent with its other
business, to secure purchasers for shares of the Funds, which are continuously
offered at net asset value. Prior to March 31, 2006, Greenwood Investments, LLC
served as principal underwriter for the Fund.
29
Compensation received by principal underwriter during the Fund's last fiscal
year:
Name of Underwriting Compensation
Principal Discounts and on Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
GWFS Equities -0- -0- -0- -0-
Greenwood
Investments, LLC -0- -0- -0- -0-
ADMINISTRATIVE SERVICES AGREEMENT
Effective January 1, 2006, MCM entered into an Administrative Services Agreement
with its parent, GWLA, pursuant to which GWLA will provide recordkeeping and
administrative services to the qualified employee benefit or retirement plans
and insurance company separate accounts ("Account Holders") which invest their
assets in the Fund. The services provided by GWLA include (1) maintaining a
record of the number of Fund and Portfolio shares held by each Account Holder;
(2) performing the required sub-accounting necessary to record participant
interests in retirement plans; (3) investigating all inquiries from authorized
plan representatives or other Account Holders relating to the shares held; (4)
recording the ownership interest of Account Holders with respect to Fund and/or
Portfolio shares and maintaining a record of the total number of shares which
are so issued to the Account Holders; and (5) notifying MCM, or its agent, if
discrepancies arise between the records GWL&A maintains for the Account Holders
and the information GWL&A is provided by MCM or its designee. The Services
provided by GWLA are not in the capacity of a sub-transfer agent for MCM or the
Fund. For the services rendered by it pursuant to the Administrative Services
Agreement, GWLA will receive a fee equal to 0.35% of the average daily net asset
value of the shares of each of the Fund's Portfolios.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The following is only a summary of certain tax considerations generally
affecting the 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 the Fund 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, the Acquiring Portfolio will seek to be taxed
as a regulated investment company ("RIC") under Subchapter M of the Code. As a
RIC, the 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. The Acquiring Portfolio will be subject to tax at
regular corporate rates on any income or gains that it does not distribute.
Distributions by the 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.
30
In addition to satisfying the Distribution Requirement, the 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 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"). The Acquiring Portfolio is also subject
to certain investment diversification requirements.
Certain debt securities purchased by the 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 the
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
the 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, the 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 of 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
the Acquiring Portfolio elects for all its debt securities having a fixed
maturity date of 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 the 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 the Acquiring Portfolio held the security. The
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
the Portfolio makes the election to include market discount in income
currently).
If for any taxable year the 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 the Acquiring Portfolio. In such event, such distributions generally
will be eligible for the dividends-received deductions in the case of corporate
shareholders.
If the 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 Acquiring Portfolio had distributed to its
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. The 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 U.S. Treasury regulations, if the
Acquiring Portfolio should fail to qualify as an RIC and should thereafter seek
to requalify as an RIC, the 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 Acquiring Portfolio seeks to requalify as an RIC.
31
If the Acquiring Portfolio determines that it will not qualify as an RIC under
Subchapter M of the Code, the Acquiring 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 Portfolio intends 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 Portfolio 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 Portfolio 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 U.S. Government Mortgage Securities Portfolio
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%.
32
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
33
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 the Acquiring Portfolio's
inception date and the average annual total return for one, five and ten years
or the life of the Acquiring Portfolio for the period ended December 31, 2005.
Portfolio Since Inception One Year Five Years Ten Years
December 1, 1992
- ---------------------------------- ----------------------- ---------------- ------------------- ----------------------
- ---------------------------------- ----------------------- ---------------- ------------------- ----------------------
Maxim U.S. Government Mortgage N/A 2.17% 4.98% 5.58%
Securities Portfolio
- ---------------------------------- ----------------------- ---------------- ------------------- ----------------------
Performance Comparisons
The 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. The Portfolio may include in such advertisements the
ranking of those performance figures relative to such figures for
34
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 of the Acquiring Portfolio through December 31, 2005.
VOTING RIGHTS
The shares of the Maxim Portfolios have no preemptive or conversion rights.
Shares are fully paid and nonassessable. Maxim or any 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 Portfolios. If not so terminated, Maxim or the Portfolios (as defined
under the 1940 Act) will continue indefinitely.
Shareholders of a 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 a 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
Portfolio.
Dividends rights, the right of redemption, and exchange privileges are described
in the Prospectus.
PRICING, PURCHASE AND REDEMPTION OF SHARES
Pricing Shares
The transaction price for buying, selling, or exchanging a Portfolio's shares is
the net asset 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 the Fund is not open for
business. In addition, trading in some of a Portfolio's assets may not occur on
days when the Fund is open for business. Your share price will be the next net
asset value calculated after we receive your order in good form. Each Portfolio
values its assets at current market prices where current market prices are
readily available, or at fair value as determined in good faith in accordance
with procedures adopted by the Board of Directors when a determination is made
that current market prices are not readily available. In valuing securities that
trade principally on foreign markets, the most recent closing market prices of
these securities is used from the market on which they principally trade, unless
the most recent closing market prices, in the Fund's judgment, do not represent
current market values of these securities. Because developments that could
affect the values of foreign securities may occur between the close of the
foreign market where the security is principally traded and the valuation time,
current market prices may not be readily available when the Fund determines the
net asset value as of valuation time, and therefore, the Fund may adjust
previous closing market prices of foreign securities to reflect what it
35
believes to be the fair value of the securities as of the valuation time. While
fair value determinations involve judgments that are inherently subjective,
these determinations are made in good faith in accordance with procedures
adopted by the Board of Directors. The effect of fair value pricing as described
above is that securities may not be priced on the basis of quotations from the
primary market in which they are traded, but rather may be priced by another
method that the board believes reflects fair value. This policy is intended to
assure that a Portfolio's net asset value fairly reflects security values at the
time of pricing.
Net asset value for the other Portfolios is based on the market value of the
securities in the 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 Board of Directors of the Fund believes
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.
Net asset value is determined by dividing net assets of the Portfolio (the value
of its investments, cash, and other assets minus its liabilities) by the number
of the Portfolio's outstanding shares.
Purchasing and Redeeming Shares
Variable contract owners or Qualified Plan participants will not deal directly
with the Fund regarding the purchase or redemption of a Portfolio's shares.
Insurance company separate accounts place orders to purchase and redeem shares
of each 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 the Fund directly to purchase shares
of the Portfolios but may invest in shares of the Portfolios only through their
Qualified Plan. Participants should contact their Qualified Plan sponsor or
administrator for information concerning the appropriate procedure for investing
in the Fund.
The price to buy or sell shares of each Portfolio is the Portfolio's net asset
value next calculated after the Portfolio receives the order in proper form or
"good order." This means that the requests must be accompanied by proper payment
and sufficient information, documentation and detail before the close of regular
trading on the NYSE to enable a Portfolio to allocate assets properly.
Due to differences in tax treatment or other considerations, material
irreconcilable conflicts may arise between the interests of variable annuity
contract owners, variable life insurance policy owners and Qualified Plans that
invest in the Fund. The Board of Directors will monitor each Portfolio for any
material conflicts that may arise and will determine what action should be
taken.
Each Portfolio may stop offering shares completely or may offer shares only on a
limited basis, for a period of time or permanently.
Frequent Purchases and Redemptions of Fund Shares
The Portfolios of the Fund are not intended for the purpose of market timing or
excessive trading activity. Market timing activity may dilute the interests of
shareholders in the Portfolios. Market timing generally involves frequent or
unusually large trades that are intended to take advantage of short-term
fluctuations in the value of a Portfolio's securities and the reflection of that
change in the Portfolio's share price. In addition, frequent or unusually large
trades may harm performance by increasing Portfolio expenses and disrupting
Portfolio management strategies. For example, excessive trading may result in
forced liquidations of portfolio securities or cause the Portfolio to keep a
relatively higher cash position, resulting in increased brokerage costs and lost
investment opportunities.
The Fund maintains policies and procedures, approved by the board, which are
designed to discourage market timing and excessive trading activity by
shareholders. As part of the procedures, all transaction requests (received in
"good order," as described above) will be processed at the Portfolio's next
determined net asset value. In all cases, if the order is received from the
investor before the close of regular trading on the New York Stock Exchange,
generally 4 p.m. Eastern Time, it is processed with that day's trade date at
that day's net asset value.
The Portfolios have also adopted pricing procedures and guidelines, including
procedures for fair value pricing of portfolio securities to reflect significant
market events occurring after the close of a foreign exchange on which portfolio
securities are traded, or which otherwise may not be reflected in the market
price of a foreign or domestic security. The procedures serve to limit dilution
to the Portfolios that may be caused by market-timing activities following a
significant market event that occurs prior to the Portfolio's pricing time.
MCM has also implemented two additional processes to assist with the
identification of potential market-timing and/or excessive trading activity.
1. Daily subscription and redemption amounts are compared to daily net
assets. If the subscription or redemption amount is greater than one
percent of the daily net assets of a Portfolio, additional verification
of the subscription or redemption amount takes place. If market timing
or excessive trading is believed to be occurring, the plan
recordkeeper's resources will be utilized to assist with the
identification of such investors; and
2. Detailed exception reports are prepared monthly showing investors that
have made purchases and sales in the same Portfolio within 5 business
days of each other. Upon identification of such investors, the past 90
days of the investor's activity is obtained for further review.
Upon identification of investors that have participated in market timing and/or
excessive trading, MCM utilizes the resources of Great-West Retirement Services
to contact the investor and the Plan involved. The investor receives a written
request to discontinue market timing and/or excessive trading activity. If
market timing and/or excessive trading activity does not stop, trading
restrictions may be implemented. The Portfolios and their agents reserve the
right to restrict, reject or cancel purchase and exchange orders, as described
above, which the Portfolios believe represent market timing or excessive
trading.
Please note that the Fund's market timing procedures are such that the Fund does
not impose trading restrictions unless or until a Portfolio or its agent first
detects and notifies us of potential market timing or excessive trading
activity. Accordingly, we cannot prevent all market timing or excessive trading
activity, as it may not be possible to identify it unless and until a trading
pattern is established. Shareholders seeking to engage in market timing or
excessive trading practices may deploy a variety of strategies to avoid
detection, and there is no guarantee that the Portfolios or their agents will be
able to identify such shareholders or curtail their trading practices. The
ability of the Portfolios and their agents to detect and curtail market timing
or excessive trading practices may also be limited by operational systems and
technological limitations. As a result, the Portfolios and their agents may have
limited ability to monitor and discourage trading practices, which may
materially affect the Portfolio. To the extent the Portfolios do not detect
market timing and/or excessive trading, it is possible that a market timer may
be able to make market timing and/or excessive trading transactions with the
result that management of the Portfolios may be disrupted and shareholders may
suffer detrimental effects such as increased costs, reduced performance, and
dilution of their interests in the affected Portfolios.
The practices and policies described above are intended to deter and curtail
market timing in the Portfolios. However, there can be no assurance that these
policies, individually or collectively, will be totally effective in this regard
because of various factors. In particular, all Portfolio purchase, redemption
and exchange orders are received through omnibus accounts. Omnibus accounts, in
which shares are held in the name of an intermediary on behalf of multiple
beneficial owners, are a common form of holding shares among financial
intermediaries, retirement plans, and variable insurance products. The
Portfolios typically are not able to identify trading by a particular beneficial
owner through an omnibus account, which may make it difficult or impossible to
determine if a particular account is engaged in market timing prior to
completion of a specific Portfolio trade. Also, certain financial
intermediaries, retirement plans and variable insurance products have different
policies regarding monitoring and restricting market timing in the underlying
beneficial owner accounts maintained through an omnibus account, that may be
more or less restrictive than the Fund's practices discussed above.
We endeavor to ensure that our procedures are uniformly and consistently applied
to all shareholders, and we do not exempt any persons from these procedures. In
addition, we do not enter into agreements with shareholders whereby we permit
market timing or excessive trading. However, because of the discretionary nature
of the restrictions and given that the Fund reserves the right to reject orders,
the possibility exists that some shareholders may be permitted to engage in
market timing before restrictions are imposed. We may revise our market timing
and excessive trading policy and related procedures at our sole discretion, at
any time and without prior notice, as we deem necessary or appropriate to comply
with state or federal regulatory requirements or to impose additional or
alternative restrictions on shareholders engaging in market timing or excessive
trading.
36
PORTFOLIO TRANSACTIONS AND BROKERAGE
Brokerage Commissions
Subject to the direction of the Board of Directors, MCM, or a Sub-Adviser for
those Portfolios which are managed on a day-to-day basis by a Sub-Adviser, is
primarily responsible for placement of the Fund'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 the
Fund 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 the Fund
of seeking to obtain the most favorable net results means the 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 the Fund 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 the Fund, MCM and the Sub-Advisers may give consideration for investment
research information or services provided to them by brokers and dealers, and
cause the Fund 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 Fund portfolio transactions to
the broker or dealer providing the information or service.
37
MCM and the Sub-Advisers may use any investment research information or services
obtained through the direction of commissions on portfolio transactions of the
Fund 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 the Fund 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 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 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 the Acquiring Portfolio for the years
ended December 31, 2003 through December 31, 2005.
Portfolio Turnover
The turnover rate for each 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 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
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 Portfolio may be disposed
of when appropriate in MCM's judgment.
With respect to any 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 a Portfolio.
Based upon the formula for calculating the portfolio turnover rate, as stated
above, the portfolio turnover rate for the Acquiring Portfolio for 2004 and 2003
is as follows:
Portfolio 2005 Turnover Rate 2004 Turnover Rate
- --------- ------------------ ------------------
Maxim U.S. Government
Mortgage Securities Portfolio 46.40% 79.23%
38
FINANCIAL STATEMENTS
Maxim U.S. Government Mortgage Securities Portfolio
The financial statements of the Maxim U.S. Government Mortgage
Securities Portfolio are incorporated by reference herein from the Annual Report
to shareholders of the Acquiring Portfolio for the fiscal year ended December
31, 2005.
Maxim U.S. Government Securities Portfolio
The financial statements of the Maxim U.S. Government Securities
Portfolio are incorporated by reference herein from the Annual Report to
shareholders of the Acquired Fund for the fiscal year ended December 31, 2005.
Pro Forma Financial Statements
The pro forma financial statements of the Maxim U.S. Government
Securities Portfolio, as the surviving company subsequent to the Reorganization,
dated as of December 31, 2005, are setforth below.
MAXIM SERIES FUND, INC.
U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO PRO FORMA
SCHEDULE OF INVESTMENTS*
DECEMBER 31, 2005
UNAUDITED
U.S. Government Securities U.S. Government Mortgage Securities
Portfolio (Target Portfolio) Portfolio (Acquiring Portfolio)# Pro Forma Combined
-------------------------------- ------------------------------------ ------------------------
BONDS % of Par Value ($) Market Value ($) Par Value ($) Market Value ($) Par Value ($) Market Value ($)
Investments
- ---------------------------------------------------- ------------- ------------- ----------------------- - ------------------ ------
AGENCY 76.11%
Fannie Mae, 4.5%, 5/1/2019 2,386,120 2,325,436 2,386,120 2,325,436
Fannie Mae, 5%, 3/1/2015 1,200,457 1,199,685 1,200,457 1,199,685
Fannie Mae, 5%, 5/1/2018 1,054,675 1,043,305 5,517,583 5,458,097 6,572,258 6,501,402
Fannie Mae, 5%, 6/1/2018 542,184 536,254 542,184 536,254
Fannie Mae, 5%, 8/1/2018 1,239,951 1,226,583 6,935,430 6,860,658 8,175,381 8,087,241
Fannie Mae, 5%, 9/1/2035 5,226,091 5,063,864 13,903,295 13,471,714 19,129,386 18,535,578
Fannie Mae, 5.5%, 1/1/2018 384,760 387,420 384,760 387,420
Fannie Mae, 5.5%, 1/1/2035 1,376,706 1,363,800 1,835,609 1,818,400 3,212,315 3,182,200
Fannie Mae, 5.5%, 11/1/2033 3,721,937 3,689,370 3,721,937 3,689,370
Fannie Mae, 5.5%, 11/1/2035 299,348 296,480 3,593,262 3,558,827 3,892,610 3,855,307
Fannie Mae, 5.5%, 12/1/2033 3,050,311 3,024,665 3,050,311 3,024,665
Fannie Mae, 5.5%, 2/1/2034 2,799,193 2,774,700 2,799,193 2,774,700
Fannie Mae, 5.5%, 2/1/2035 3,411,254 3,383,197 3,411,254 3,383,197
Fannie Mae, 5.5%, 4/1/2018 4,856,567 4,890,082 4,856,567 4,890,082
Fannie Mae, 5.5%, 4/1/2033 1,456,122 1,442,471 1,456,122 1,442,471
Fannie Mae, 5.5%, 4/1/2034 925,868 917,688 925,868 917,688
Fannie Mae, 5.5%, 4/1/2035 1,467,816 1,454,055 1,591,099 1,576,182 3,058,915 3,030,237
Fannie Mae, 5.5%, 7/1/2033 1,115,827 1,107,644 7,035,470 6,983,875 8,151,297 8,091,519
Fannie Mae, 5.5%, 8/1/2035 1,701,996 1,685,685 374,157 370,571 2,076,153 2,056,256
Fannie Mae, 5.5%, 9/1/2033 3,143,982 3,120,927 3,143,982 3,120,927
Fannie Mae, 6%, 1/1/2033 1,590,727 1,608,062 1,590,727 1,608,062
Fannie Mae, 6%, 10/1/2032 441,757 446,865 441,757 446,865
Fannie Mae, 6%, 11/1/2017 982,327 1,005,964 982,327 1,005,964
Fannie Mae, 6%, 2/1/2029 457,582 463,398 457,582 463,398
Fannie Mae, 6%, 2/1/2032 569,612 574,419 1,294,574 1,305,497 1,864,186 1,879,916
Fannie Mae, 6%, 2/1/2033 1,174,715 1,185,850 1,174,715 1,185,850
Fannie Mae, 6%, 2/1/2035 1,580,221 1,595,530 1,580,221 1,595,530
Fannie Mae, 6%, 3/1/2017 1,760,729 1,803,097 1,760,729 1,803,097
Fannie Mae, 6%, 3/1/2033 503,510 509,332 503,510 509,332
Fannie Mae, 6%, 4/1/2033 1,660,554 1,677,892 1,660,554 1,677,892
Fannie Mae, 6%, 5/1/2013 463,963 474,094 463,963 474,094
Fannie Mae, 6%, 5/1/2033 8,565,652 8,682,593 8,565,652 8,682,593
Fannie Mae, 6%, 6/1/2013 368,971 377,028 368,971 377,028
Fannie Mae, 6%, 6/1/2033 579,418 587,657 579,418 587,657
Fannie Mae, 6%, 8/1/2033 1,730,767 1,748,838 1,730,767 1,748,838
Fannie Mae, 6%, 9/1/2032 1,429,488 1,449,813 1,429,488 1,449,813
Fannie Mae, 6%, 9/1/2033 1,292,959 1,311,343 1,292,959 1,311,343
Fannie Mae, 6%, 9/1/2034 750,322 746,931 3,032,982 3,039,641 3,783,304 3,786,572
Fannie Mae, 6%, 9/1/2035 970,672 980,379 970,672 980,379
Fannie Mae, 6.5%, 1/1/2032 2,260,403 2,334,573 3,169,411 3,273,408 5,429,814 5,607,981
Fannie Mae, 6.5%, 12/1/2031 626,351 646,903 1,931,783 1,995,170 2,558,134 2,642,073
Fannie Mae, 6.5%, 2/1/2017 243,065 250,775 2,312,439 2,385,787 2,555,504 2,636,562
Fannie Mae, 6.5%, 2/1/2019 296,395 307,016 296,395 307,016
Fannie Mae, 6.5%, 2/1/2032 1,311,226 2,387,064 1,311,226 2,387,064
Fannie Mae, 6.5%, 4/1/2032 642,348 663,425 642,348 663,425
Fannie Mae, 6.5%, 7/1/2014 303,009 311,758 303,009 311,758
Fannie Mae, 7%, 1/1/2032 959,250 1,008,112 959,250 1,008,112
Fannie Mae, 7%, 12/1/2031 436,370 458,598 991,944 1,042,471 1,428,314 1,501,069
Fannie Mae, 7%, 2/1/2031 602,779 633,483 602,779 633,483
Fannie Mae, 7%, 4/1/2017 408,902 422,447 408,902 422,447
Fannie Mae, 7%, 9/1/2031 185,094 194,522 388,697 408,496 573,791 603,018
Fannie Mae, 7.5%, 11/1/2024 8,441 8,946 8,441 8,946
Fannie Mae, 7.5%, 9/1/2031 212,557 223,947 212,557 223,947
Fannie Mae, 8.5%, 11/1/2026 114,228 123,815 114,228 123,815
Fannie Mae, 8.5%, 4/1/2025 135,871 146,350 100,908 108,691 236,779 255,041
Fannie Mae, 8.5%, 7/1/2022 25,004 25,642 25,004 25,642
Fannie Mae, 8.5%, 8/1/2021 81,256 88,082 81,256 88,082
Fannie Mae, 8.5%, 8/1/2024 59,875 64,921 59,875 64,921
Fannie Mae, 8.95%, 12/1/2016 60,649 65,811 60,649 65,811
Fannie Mae, 9.5%, 3/1/2020 15,932 17,578 15,932 17,578
Fannie Mae, 9.5%, 9/1/2020 83,730 92,687 133,956 148,286 217,686 240,973
Federal Home Loan Bank, 5.25%, 6/18/2014 ** 2,600,000 2,679,646 6,000,000 6,183,798 8,600,000 8,863,444
Federal Home Loan Bank, 4.5%, 11/15/2012 ** 1,000,000 984,366 1,000,000 984,366
Freddie Mac, 10.25%, 10/1/2010 31,343 33,315 31,343 33,315
Freddie Mac, 11%, 6/1/2020 35,651 39,622 35,651 39,622
Freddie Mac, 11%, 7/1/2020 164,443 183,181 164,443 183,181
Freddie Mac, 11%, 8/1/2020 122,839 136,836 122,839 136,836
Freddie Mac, 4%, 6/1/2018 747,350 712,085 747,350 712,085
Freddie Mac, 4.5%, 3/1/2018 1,254,586 1,223,954 1,254,586 1,223,954
Freddie Mac, 4.5%, 3/1/2019 4,823,660 4,703,787 4,823,660 4,703,787
Freddie Mac, 4.5%, 4/1/2018 1,613,282 1,573,851 1,613,282 1,573,851
Freddie Mac, 4.5%, 4/1/2019 2,454,261 2,391,637 2,454,261 2,391,637
Freddie Mac, 4.5%, 12/1/2019 894,914 872,168 894,914 872,168
Freddie Mac, 4.5%, 5/1/2018 676,793 660,233 1,353,586 1,320,466 2,030,379 1,980,699
Freddie Mac, 4.5%, 8/1/2033 904,141 854,031 904,141 854,031
Freddie Mac, 4.5%, 9/1/2020 975,078 949,330 975,078 949,330
Freddie Mac, 5%, 12/1/2017 1,112,793 1,103,562 1,112,793 1,103,562
Freddie Mac, 5%, 4/1/2023 1,372,132 1,345,368 1,372,132 1,345,368
Freddie Mac, 5%, 5/1/2035 475,947 461,073 475,947 461,073
Freddie Mac, 5%, 7/1/2009 620,959 620,062 931,439 930,093 1,552,398 1,550,155
Freddie Mac, 5%, 8/1/2035 2,587,250 2,504,781 12,808,481 12,490,226 15,395,731 14,995,007
Freddie Mac, 5.5%, 1/1/2034 1,425,570 1,415,976 1,425,570 1,415,976
Freddie Mac, 5.5%, 10/1/2033 743,960 737,915 743,960 737,915
Freddie Mac, 5.5%, 10/1/2034 819,643 812,922 3,278,572 3,251,688 4,098,215 4,064,610
Freddie Mac, 5.5%, 11/1/2033 1,374,081 1,362,916 1,374,081 1,362,916
Freddie Mac, 5.5%, 12/1/2033 1,489,471 1,479,447 1,489,471 1,479,447
Freddie Mac, 5.5%, 2/1/2035 1,889,001 1,876,605 1,889,001 1,876,605
Freddie Mac, 5.5%, 3/1/2017 444,127 447,181 444,127 447,181 888,254 894,362
Freddie Mac, 5.5%, 4/1/2019 1,882,327 1,894,386 1,882,327 1,894,386
Freddie Mac, 5.5%, 5/1/2033 1,205,840 1,197,725 2,411,680 2,395,450 3,617,520 3,593,175
Freddie Mac, 5.5%, 6/1/2033 1,256,250 1,247,796 1,256,250 1,247,796
Freddie Mac, 5.5%, 7/1/2034 433,654 430,130 433,654 430,130
Freddie Mac, 5.5%, 8/1/2033 1,002,034 995,290 8,449,571 8,392,706 9,451,605 9,387,996
Freddie Mac, 5.5%, 9/1/2033 802,516 795,494 2,006,291 1,988,736 2,808,807 2,784,230
Freddie Mac, 6%, 1/1/2009 4,293 4,363 4,293 4,363
Freddie Mac, 6%, 10/1/2008 5,402 5,490 5,402 5,490
Freddie Mac, 6%, 12/1/2032 517,779 523,281 1,853,589 1,873,284 2,371,368 2,396,565
Freddie Mac, 6%, 2/1/2009 194,503 196,213 194,503 196,213
Freddie Mac, 6%, 2/1/2035 1,802,375 1,825,468 1,802,375 1,825,468
Freddie Mac, 6%, 3/1/2009 52,914 53,977 52,914 53,977
Freddie Mac, 6%, 4/1/2009 55,439 56,500 55,439 56,500
Freddie Mac, 6%, 4/1/2017 796,461 814,382 796,461 814,382
Freddie Mac, 6%, 4/1/2033 657,324 665,335 657,324 665,335
Freddie Mac, 6%, 5/1/2009 43,830 44,711 43,830 44,711
Freddie Mac, 6%, 7/1/2009 25,855 26,375 25,855 26,375
Freddie Mac, 6%, 9/1/2009 99,774 101,405 99,774 101,405
Freddie Mac, 6.5%, 1/1/2032 967,060 997,885 967,060 997,885
Freddie Mac, 6.5%, 2/1/2017 647,942 665,870 647,942 665,870
Freddie Mac, 6.5%, 9/1/2012 26,071 26,780 26,071 26,780
Freddie Mac, 7%, 6/1/2031 843,518 884,375 843,518 884,375
Freddie Mac, 7%, 9/1/2032 252,940 264,401 758,819 793,203 1,011,759 1,057,604
Freddie Mac, 7.5%, 3/1/2032 593,742 628,068 593,742 628,068
Freddie Mac, 9%, 12/1/2014 115,297 126,469 115,297 126,469
Freddie Mac, 9.5%, 4/1/2025 23,175 25,565 106,460 117,440 129,635 143,005
Freddie Mac, 9.5%, 6/1/2020 39,858 43,713 39,858 43,713
Freddie Mac, 9.5%, 9/1/2020 21,647 23,404 21,647 23,404
Ginnie Mae, 5%, 6/15/2033 8,044,111 7,949,955 8,044,111 7,949,955
Ginnie Mae, 5.5%, 1/15/2034 326,448 328,691 326,448 328,691
Ginnie Mae, 6%, 5/15/2028 402,367 412,664 402,367 412,664
Ginnie Mae, 7%, 1/15/2024 308,487 234,836 308,487 234,836
Ginnie Mae, 7%, 11/15/2026 249,806 262,962 249,806 262,962
Ginnie Mae, 7%, 2/15/2026 268,953 283,126 268,953 283,126
Ginnie Mae, 7%, 9/15/2031 105,554 110,821 105,554 110,821
Ginnie Mae, 7.5%, 10/15/2013 125,919 132,518 125,919 132,518
Ginnie Mae, 7.5%, 12/15/2024 156,318 165,548 156,318 165,548
Ginnie Mae, 8%, 3/15/2025 320,544 343,148 320,544 343,148
Ginnie Mae, 8%, 5/15/2017 87,878 94,044 87,878 94,044
Ginnie Mae, 8%, 6/15/2025 74,524 79,877 74,524 79,877
Ginnie Mae, 9%, 7/15/2018 37,982 41,281 37,982 41,281
Ginnie Mae II, 5%, 10/20/2033 2,378,549 2,341,051 2,378,549 2,341,051
Ginnie Mae II, 5%, 2/20/2034 2,295,894 2,259,146 2,295,894 2,259,146
Ginnie Mae II, 5.5%, 11/20/2034 847,825 851,531 1,695,651 1,703,062 2,543,476 2,554,593
Ginnie Mae II, 5.5%, 2/20/2035 1,340,911 1,346,773 1,340,911 1,346,773
Ginnie Mae II, 7.5%, 10/20/2028 49,216 51,570 49,216 51,570
Ginnie Mae II, 7.5%, 12/20/2028 32,673 34,235 32,673 34,235
Ginnie Mae II, 8%, 11/20/2023 16,357 17,429 16,357 17,429
Ginnie Mae II, 8%, 8/20/2025 6,742 7,193 6,742 7,193
Ginnie Mae II, 8.5%, 1/20/2026 8,693 9,366 8,693 9,366
Ginnie Mae II, 8.5%, 12/20/2025 3,373 3,669 3,373 3,669
Ginnie Mae II, 8.5%, 12/20/2026 36,609 39,446 36,609 39,446
Ginnie Mae II, 8.5%, 5/20/2026 4,583 4,938 4,583 4,938
Ginnie Mae II, 8.5%, 6/20/2026 2,609 2,812 2,609 2,812
Ginnie Mae II, 8.5%, 7/20/2026 8,965 9,660 8,965 9,660
Ginnie Mae II, 9.5%, 5/20/2022 13,614 14,950 13,614 14,950
---------------- ---------------- ---------------
---------------- ---------------- ---------------
$ 52,118,907 $ 186,376,989 $ 238,495,896
---------------- ---------------- ---------------
---------------- ---------------- ---------------
AGENCY MORTGAGE BACKED 10.13%
Fannie Mae, Series 2005-86 Class FC, 908,167 906,245 908,167 906,245 1,816,334 1,812,490
4.679%, 10/25/2035++
Fannie Mae, Series 2004-W8 Class 1AF, 42,338 42,341 42,338 42,341
4.629%, 6/25/2044 ++
Fannie Mae, Series 2003-24 Class VM, 1,000,000 986,426 3,000,000 2,959,278 4,000,000 3,945,704
5.5%, 11/25/2021
Freddie Mac, Series 2843 Class VB, 2,000,000 1,952,220 2,000,000 1,952,220
5.5%, 8/15/2023
Freddie Mac, Series R003 Class AG, 1,938,787 1,924,913 1,938,787 1,924,913
5.125%, 10/15/2015
Freddie Mac, Series 2637 Class FA, 968,336 968,868 968,336 968,868
4.769%, 6/15/2018 ++
Freddie Mac, Series 2974 Class VM, 1,224,311 1,218,477 1,224,311 1,218,477
5%, 5/15/2016
US Department of Veterans Affairs, Series 2003-2 2,000,000 1,997,969 9,000,000 8,990,859 11,000,000 10,988,828
Class D, 5%, 11/15/2023
US Department of Veterans Affairs, Series 2003-1 1,000,000 1,014,180 1,000,000 1,014,180
Class G, 5.75%, 3/15/2030
US Department of Veterans Affairs, Series 2003-1 2,500,000 2,514,063 2,500,000 2,514,063
Class E, 5.75%, 4/15/2027
US Department of Veterans Affairs, Series 2002-1 530,770 543,708 1,433,080 1,468,011 1,963,850 2,011,719
Class 1A, 6%, 10/15/2031
US Department of Veterans Affairs, Series 1993-3 416,719 416,605 416,719 416,605 833,438 833,210
Class 2K, 6.25%, 11/15/2012
US Department of Veterans Affairs, Series 2001-1 17,618 17,618 17,618 17,618
Class 2E, 7%, 1/15/2028
US Department of Veterans Affairs, Series 1993-3 2,463,467 2,489,506 2,463,467 2,489,506
Class 1, 5.846%, 9/15/2023
---------------- ---------------- ---------------
---------------- ---------------- ---------------
$ 5,865,133 $ 25,869,004 $ 31,734,137
---------------- ---------------- ---------------
---------------- ---------------- ---------------
COMMERCIAL MORTGAGE BACKED 5.23%
ABN AMRO Mortgage Corp, Series 2003-13 5,404,313 4,494,233 5,404,313 4,494,233
Class A2, 5.5%, 2/25/2018
Banc of America Commercial Mortgage Inc, Series 2005-1 1,000,000 992,400 1,000,000 992,400
Class A3, 4.877%, 11/10/2042
GS Mortgage Securities Corp II, Series 2005-GG4 1,000,000 974,038 1,000,000 974,038 2,000,000 1,948,076
Class AABA, 4.68%, 7/10/2039
JP Morgan Chase Commercial Mortgage Securities Co 2,038,090 2,002,787 2,038,090 2,002,787 4,076,180 4,005,574
Series 2004-C2 Class A1, 4.278%, 5/15/2041
JP Morgan Chase Commercial Mortgage Securities Co 1,000,000 992,945 1,680,000 1,668,147 2,680,000 2,661,092
Series 2002-C3 Class A2, 4.994%, 7/12/2035
LB-UBS Commercial Mortgage Trust, 1,313,352 1,271,424 1,313,352 1,271,424
Series 2003-C1 Class A1, 2.72%, 3/15/2027
Morgan Stanley Capital I, Series 2005-IQ10 1,000,000 1,001,841 1,000,000 1,001,841
Class AAB, 5.178%, 9/15/2042
------------- ---------------- --------------
------------- ---------------- --------------
$ 3,969,770 $ 12,404,870 $ 16,374,640
------------- ---------------- --------------
------------- ---------------- --------------
SUPRANATIONALS 0.96%
International Bank for Reconstruction & Development, 5,000,000 3,015,495 5,000,000 3,015,495
Zero Coupon, 4.83%, 2/15/2016
------------- ---------------- --------------
------------- ---------------- --------------
$ - $ 3,015,495 $ 3,015,495
------------- ---------------- --------------
------------- ---------------- --------------
U.S. GOVERNMENTS 6.08%
United States of America, 3.375%, 9/15/2009 800,000 773,282 800,000 773,282
United States of America, 3.625%, 6/15/2010 4,400,000 4,270,235 4,400,000 4,270,235
United States of America, 4%, 2/15/2015 1,500,000 1,454,297 6,900,000 6,689,764 8,400,000 8,144,061
United States of America, 4.25%, 8/15/2013 1,500,000 1,486,583 1,500,000 1,486,583
United States of America, 5.25%, 2/15/2029 1,000,000 1,091,211 2,000,000 2,182,422 3,000,000 3,273,633
United States of America, 5.25%, 11/15/2028 1,000,000 1,090,703 1,000,000 1,090,703
---------------- ---------------- ---------------
---------------- ---------------- ---------------
$ 2,545,508 $ 16,492,989 $ 19,038,497
---------------- ---------------- ---------------
---------------- ---------------- ---------------
---------------- ---------------- ---------------
---------------- ---------------- ---------------
TOTAL BONDS 98.51% $ 64,499,318 $ 244,159,347 $ 308,658,665
---------------- ---------------- ---------------
---------------- ---------------- ---------------
SHORT-TERM INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS 1.49%
Undivided interest of 4.3% in joint repurchase 1,000,000 1,000,000
agreement (Principal Amount/Value $23,020,000
with a maturity value of $23,030,615) with
Merrill Lynch, 4.15%, dated 12/31/2005,
to be repurchased at $1,000,461 on 1/3/2006,
collateralized by U.S. Agency Mortgages,
5%-7%, 2/1/13-11/1/35, with a value of
$23,482,819
Undivided interest of 15.9% in joint repurchase
agreement (Principal Amount/Value $23,020,000 3,655,000 3,655,000 4,655,000 4,655,000
Lynch, 4.15%, dated 12/31/2005, to be repurchased
at $3,656,685 on 1/3/2006,
collateralized by U.S. Agency Mortgages, 5%-7%,
2/1/13-11/1/35, with a value of
$23,482,819
-------------- -------------- ---------------
-------------- -------------- ---------------
TOTAL SHORT-TERM INVESTMENTS $ 1,000,000 $ 3,655,000 $ 4,655,000
-------------- -------------- ---------------
-------------- -------------- ---------------
-------------- -------------- ---------------
-------------- -------------- ---------------
TOTAL INVESTMENTS AT MARKET VALUE 100.00% $ 65,499,318 $ 247,814,347 $ 313,313,665
============== ============== ===============
============== ============== ===============
TOTAL INVESTMENTS AT COST $ 66,260,941 $ 252,014,836 $ 318,275,777
-------------- -------------- ---------------
-------------- -------------- ---------------
Legend
* No adjustments are shown to the unaudited pro forma combined portfolio of
investments due to the fact that upon consummation of the merger, securities
would need to be sold in order for the U.S. Government Mortgage Securities
Portfolio (Acquiring Fund) to comply with its prospectus restrictions. The
foregoing sentence shall not restrict in any way the ability of the investment
adviser of either of the funds from buying or selling securities in the normal
course of such fund's business and operations.
# Upon consummation of the merger, the U.S. Government Mortgage Securities
Portfolio will be the accounting survivor.
** Security is an agency note with maturity date and interest rate indicated.
++ Represents the current interest rate for variable rate security.
~ For zero coupon bond, the interest rate shown is the effective yield on date
of purchase.
MAXIM SERIES FUND, INC.
U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO PRO FORMA
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2005
UNAUDITED
U.S. Government
U.S. Government Mortgage Securities
Securities Portfolio Portfolio (Acquiring Pro Forma
(Target Portfolio) Portfolio) Adjustments Pro Forma Combined
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, market value$ (1) 65,499,318 $ 247,814,347 $ $ 313,313,665
Cash 69,494 11,060 80,554
Collateral for securities loaned 4,708,379 21,128,502 25,836,881
Interest receivable 339,782 1,287,142 1,626,924
Subscriptions receivable 61,698 441,736 503,434
------------------- -------------------- -------------------- ----------------
------------------- -------------------- -------------------- ----------------
Total assets 70,678,671 270,682,787 341,361,458
------------------- -------------------- -------------------- ----------------
------------------- -------------------- -------------------- ----------------
LIABILITIES:
Due to investment adviser 33,593 127,100 160,693
Payable upon return of securities loaned 4,708,379 21,128,502 25,836,881
Redemptions payable 77,208 2,308,480 2,385,688
------------------- -------------------- -------------------- ----------------
------------------- -------------------- -------------------- ----------------
Total liabilities 4,819,180 23,564,082 28,383,262
------------------- -------------------- -------------------- ----------------
------------------- -------------------- -------------------- ----------------
NET ASSETS $ 65,859,491 $ 247,118,705 $ $ 312,978,196
=================== ==================== ==================== ================
=================== ==================== ==================== ================
NET ASSETS REPRESENTED BY:
Capital stock, $.10 par value $ 609,952 $ 2,123,041 $ $ 2,688,816
Additional paid-in capital 65,976,453 249,428,143 315,448,773
Net unrealized depreciation on investments (761,623) (4,200,489) (4,962,112)
Undistributed net investment income 17,064 55,578 72,642
Accumulated net realized loss on investments 17,645 (287,568) (269,923)
------------------- -------------------- -------------------- ----------------
------------------- -------------------- -------------------- ----------------
NET ASSETS $ 65,859,491 $ 247,118,705 $ $ 312,978,196
=================== ==================== ==================== ================
=================== ==================== ==================== ================
NET ASSET VALUE PER OUTSTANDING SHARE $ 10.80 $ 11.64 $ $ 11.64
=================== ==================== ==================== ================
=================== ==================== ==================== ================
(Offering and Redemption Price)
SHARES OF CAPITAL STOCK:
Authorized 200,000,000 250,000,000 250,000,000
Outstanding 6,099,518 21,230,406 (441,763)# 26,888,161
(1) Cost of investments in securities: $ 66,260,941 $ 252,014,836 $ $ 318,275,777
# Adjustment to reflect the issuance of U.S. Government Mortgage Securities
Portfolio shares in exchange for U.S. Government Securities portfolio shares
in connection with the proposed reorganization.
MAXIM SERIES FUND, INC.
U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO PRO FORMA
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005
UNAUDITED
U.S. Government
U.S. Government Mortgage Securities
Securities Portfolio Portfolio (Acquiring Pro Forma
(Target Portfolio) Portfolio) Adjustments Pro Forma Combined
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 3,341,762 $ 12,432,993 $ $ 15,774,755
Income from securities lending 10,393 64,406 74,799
------------------- -------------------- --------------- ----------------
------------------- -------------------- --------------- ----------------
Total income 3,352,155 12,497,399 15,849,554
------------------- -------------------- --------------- ----------------
------------------- -------------------- --------------- ----------------
EXPENSES:
Management fees 412,826 1,562,562 1,975,388
------------------- -------------------- --------------- ----------------
------------------- -------------------- --------------- ----------------
NET INVESTMENT INCOME 2,939,329 10,934,837 13,874,166
------------------- -------------------- --------------- ----------------
------------------- -------------------- --------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 142,750 310,106 452,856
Change in net unrealized depreciation on investments (1,595,356) (5,749,620) (7,344,976)
------------------- -------------------- --------------- ----------------
------------------- -------------------- --------------- ----------------
Net realized and unrealized loss on investments (1,452,606) (5,439,514) (6,892,120)
------------------- -------------------- --------------- ----------------
------------------- -------------------- --------------- ----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATION$ 1,486,723 $ 5,495,323 $ $ 6,982,046
=================== ==================== =============== ================
=================== ==================== =============== ================
GENERAL INFORMATION
Custodian
The Bank of New York, One Wall Street, New York, New York 10286, is custodian of
the assets for all Portfolios, other than the Profile Portfolios. The Profile
Portfolios are self-custodied. Prior to April 1, 2003, Barclays Global
Investors, N.A., 45 Fremont Street, San Francisco, California 94105, was
custodian of the assets for the Maxim Stock Index, Maxim Growth Index, Maxim
Value Index and Maxim Index 600 Portfolios. Fees paid for custodial services by
MCM for the period 2003-2005 are as follows:
Year Bank of New York JPMorgan Chase Barclays Global Investors
2005 $1,073,184
2004 $1,040,023
2003 $803,253 $169,797 $52,150
The custodians are responsible for the safekeeping of a Portfolio's assets and
the appointment of the subcustodian banks and clearing agencies. The custodians
take no part in determining the investment policies of a portfolio or in
deciding which securities are purchased or sold by a Portfolio. However, a
Portfolio may invest in obligations of the custodian and may purchase securities
from or sell securities to the custodian.
Transfer and Dividend Paying Agent
FASCore, LLC ("FASCore"), 8515 East Orchard Road, Greenwood Village, Colorado
80111 serves as the Fund's transfer agent and dividend paying agent. FASCore is
an affiliate of the Fund and charges no fee for its services.
39
Independent Registered Public Accounting Firm
Deloitte & Touche LLP, 555 17th Street, Suite 3600, Denver, Colorado 80202,
serves as the Fund's independent registered public accounting firm. Deloitte &
Touche LLP audits financial statements for the Fund 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.
40
APPENDIX A
- --------------------------------------------------------------------------------
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.
A1
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.
A2
APPENDIX B
GW CAPITAL MANAGEMENT, LLC
PROXY POLICIES & PROCEDURES
PROXY VOTING POLICIES
Policy
GW Capital Management, LLC (GWCM) will vote proxies solely in the best interest
of its clients, GWCM managed fund shareholders, or where employee benefit plan
assets are involved, in the interest of plan participants and beneficiaries. As
a matter of policy, the officers, managers and employees of GWCM will not be
influenced by outside sources whose interests conflict with the interest of
clients, shareholders or participants and beneficiaries. Any conflict of
interest will be resolved in the best interest of the client, shareholders or
participants and beneficiaries.
Voting Guidelines
Proxy issues are considered on a case-by-case basis. The following are general
guidelines summarizing GWCM's position on various issues and giving a general
indication of how securities will be voted on proposals dealing with particular
issues. The guidelines are not exhaustive and do not include all potential
voting issues. There may be instances when GWCM may not vote in strict adherence
to these guidelines. The guidelines shall be reviewed regularly, and amended as
changes in the marketplace demand and as developments in corporate governance
occur.
1) COMMON MANAGEMENT PROPOSALS
Election of Directors - Case by Case
Although the election of directors is a routine issue, GWCM believes
that the structure and functioning of a company's board of directors
are critical to the economic success of every company. Board-related
issues are therefore treated in a separate section, below.
Appointment of Auditors - Approve
Proposals to ratify independent auditors will generally be voted for
unless there is a reason to believe the independent auditor has
rendered an opinion that is neither accurate nor indicative of the
company's financial position.
Corporation Name Change - Approve
Elimination of Preemptive Rights - Approve
Preemptive Rights give current shareholders the opportunity to maintain
their current percentage ownership through any subsequent equity
offerings. These provisions are no longer common in the U.S., and can
restrict management's ability to raise new capital.
GWCM will generally approve the elimination of Preemptive Rights, but
will oppose the elimination of Limited Preemptive Rights (e.g., on
proposed issues representing more than an acceptable level of
dilution).
B1
Establishment of 401(k) Plan - Approve
2) BOARD OF DIRECTORS
GWCM supports measures which encourage and enable boards to fulfill their
primary responsibility to represent the economic interests of shareholders.
While we take into consideration the specific needs of companies that are in
early rapid growth phases, closely held, or in severe financial difficulties,
GWCM views strong, independent boards as key in the protection of shareholder
value.
An "Independent Director" is a director who meets all requirements to serve as
an independent director of a company under the pending NYSE rule proposals
(i.e., no material business relationships with they company, no present or
recent employment relationship with the company (including employment of
immediate family members), and, in the case of audit committee members, no
compensation for non-board services).
GWCM will examine a board's complete profile when questions of independence
arise. The above factors will be considered in the examination.
Election of Directors - Case by Case
GWCM supports management in most elections, however, it will withhold
this support if the board gives evidence of acting contrary to the best
economic interests of shareholders. GWCM will also withhold approval of
individual directors who attend less than 75% of board meetings without
providing a legitimate excuse, as GWCM believes that such failure to
attend is indicative of a general failure to safeguard shareholder
interests. Failure to implement shareholder proposals that have
received a majority vote and implementation of dead-hand or no-hand
poison pills are two situations which are considered failures to act in
the best economic interests of shareholders and may cause GWCM to
withhold votes for incumbent directors.
Classified Board of Directors/Staggered Terms - Oppose
A classified board of directors is one that is divided generally into
three classes, each of which is elected for a three-year term, but on a
staggered schedule. At each annual meeting therefore, one-third of the
directors would be subject to reelection.
GWCM's belief is that all directors should be subject to reelection on
an annual basis to discourage entrenchment, and we will generally vote
against classification and for management and shareholder proposals to
eliminate classification of the board.
Occasionally, proposals to classify a board of directors will contain a
clause stipulating that directors may be removed only for cause. These
proposals will be opposed.
Confidential Voting - Approve
Confidential voting is most often proposed by shareholders as a means
of eliminating undue management pressure on shareholders regarding
their vote on proxy issues. However, GWCM supports the suspension of
confidential voting during proxy contests since dissidents have access
to the information and GWCM does not wish to put management at an
unfair disadvantage.
Cumulative Voting for Directors - Case by Case
B2
Cumulative voting allocates one vote for each share of stock held times
the number of directors subject to election. A shareholder may cumulate
his/her votes and cast all of them in favor of a single candidate, or
split them among any combination of candidates. Cumulative voting
enables minority shareholders to secure board representation.
GWCM may support cumulative voting proposals at companies which have
classified board structures. However we may withhold approval of
proposals that further the candidacy of minority shareholders whose
interests do not coincide with our fiduciary responsibility.
Director Compensation - Case by Case
GWCM believes that compensation for independent directors should be
structured to align the interests of the directors with those of
shareholders, whom they have been elected to represent. To this end,
GWCM has a preference for compensation packages which are based on the
company's performance and which include stock and stock options.
Stock Ownership Requirements - Oppose
GWCM will generally vote against shareholder proposals requiring
directors to own a minimum amount of company stock in order to qualify
as a director, or to remain on the board.
Independent Board Committees - Approve
We believe that a board's nominating, compensation and audit committees
should consist entirely of independent directors in order to avoid
conflict of interests. We will therefore normally approve reasonable
shareholder proposals to that effect. An example of an unreasonable
request would be a case where a board consists of only two or three
directors.
Majority Independent Board Composition - Approve
GWCM will generally support shareholder proposals requesting that the
board consist of a majority of independent directors, as we believe
that an independent board faces fewer conflicts and is best prepared to
protect shareholder interests.
Separation of Chairman and CEO Positions - Case by Case
GWCM will support shareholder proposals requesting that the positions
of chairman and CEO be separated if the board is composed of less than
a majority independent directors.
Size of Board
GWCM will generally oppose proposals that give management the ability
to alter the size of the board.
3) CORPORATE GOVERNANCE MATTERS
When several measures, each of which might be approved by itself, are combined
in a single proposal the result may be so restrictive as to warrant opposition.
B3
Adjournment of Meeting to Solicit Additional Votes - Case-by-Case
Additional solicitation is costly and could result in coercive pressure
on shareholders, who usually have sufficient information in the proxy
materials to make an informed decision prior to the original meeting
date. GWCM will therefore generally oppose such proposals unless the
agenda contains proposals which we judge to be in the best interests of
clients.
Increases in Authorized Shares - Case by Case
GWCM will generally approve proposals for increases of up to 100%, but
will consider larger increases if a need is demonstrated. Industry
specific norms may also be considered in our vote, as well as company
history with respect to the use of shares for executive compensation.
Furthermore, GWCM may apply a stricter standard if the company has no
stated use for the additional shares and/or has previously authorized
shares still available for issue. Additionally, proposals which include
shares with unequal voting rights may warrant opposition.
Stock Splits - Case by Case
GWCM generally supports a stock split when it enhances the liquidity of
a company's stock and reduces the price to a more reasonable trading
range. A reverse stock split may be opposed if it is being used to make
the company more closely held, thereby jeopardizing liquidity for
existing shareholders.
Repurchases of Shares - Case by Case
GWCM generally supports the repurchase of shares when it is being done
because management believes the stock is undervalued. If the repurchase
is an attempt to thwart a takeover, we would generally be opposed.
Indemnification of Directors and Officers - Approve
GWCM supports the protection of directors and officers against
frivolous and potentially ruinous legal actions, in the belief that
failure to do so might severely limit a company's ability to attract
and retain competent leadership. We will support proposals to provide
indemnification which is limited to coverage of legal expenses.
Liability Insurance for Directors and Officers - Approve
Proposals regarding liability insurance for directors and officers
often appear separately from indemnification proposals. GWCM will
generally support insurance against liability for acts committed in an
individual's capacity as a director or officer of a company. However,
GWCM will withhold approval of proposals which cover breaches of the
duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, willful or
negligent conduct in connection with the payment of an unlawful
dividend, or any transaction from which the director derived an
improper personal benefit.
Reincorporation - Case by Case
B4
Proposals to reincorporate in another state are most frequently
motivated by considerations of anti-takeover protections or cost
savings. Where cost savings are the sole issue, GWCM will favor
reincorporation.
In cases where there are significant differences in anti-takeover
protections, GWCM will vote in favor of reincorporation only if
shareholder discretion is not diminished by the change. As state
corporation laws are continuously evolving, such a determination
requires case by case analysis.
Requirement for more than Simple Majority Vote to pass proposals - Oppose
Elimination of Shareholders' Right to Call Special Meeting - Oppose
Prohibition of Shareholder Action Outside Meetings - Oppose
4) ANTI-TAKEOVER MATTERS
Blank Check Preferred - Case by Case
These proposals are for the authorization of a class of preferred stock
in which voting rights are not established in advance, but are left to
the discretion of the board of directors on a when issued basis. The
authority is generally viewed as affording the board the ability to
place a block of stock with an investor sympathetic to management,
thereby foiling a takeover bid without reference to a shareholder vote.
However, in some cases it may be used to provide management with the
flexibility to consummate beneficial acquisitions, combinations or
financings.
GWCM will oppose these proposals as a transfer of authority from
shareholders to the board and a possible entrenchment device. However,
if there are few or no other anti-takeover measures on record and the
company appears to have a legitimate financing motive for requesting
the authority, or has used blank check preferred stock for past
financings, GWCM will approve the proposal, subject to dilution
considerations as described in the guideline regarding increases in
authorized shares.
Differential Voting Power - Oppose
This involves the authorization of a class of common stock having
superior voting rights over existing common stock or entitled to elect
a majority of the board.
Poison Pill Plans - Oppose
Also known as Shareholder Rights Plans, these involve call options to
purchase securities of a target firm on favorable terms. The options
are exercisable only under certain circumstances, usually hostile
tender offers. These plans are not subject to shareholder vote.
However, the shares required to fund the plan must be authorized. Since
these shares are generally blank check preferred, GWCM will oppose
them.
These proposals generally only appear as shareholder proposals
requesting that existing plans be put to a vote. The vote is
non-binding. GWCM will vote in favor of shareholder proposals to
rescind poison pills.
GWCM's policy is to examine these plans individually. Most plans are
opposed, however, GWCM may approve plans which include a 'permitted
bid' feature. Permitted
B5
bid features have appeared in some Canadian poison pill plans. They
require shareholder ratification of the pill, stipulate a sunset
provision whereby the pill expires unless it is renewed and specify
that an all cash bid for all shares that includes a fairness opinion
and evidence of financing does not trigger the pill, but forces a
special meeting at which the offer is put to a shareholder vote.
Stakeholder Provision - Oppose
Stakeholder provisions introduce the concept that the board may
consider the interests of constituencies other than shareholders in the
evaluation of takeover offers.
GWCM believes that this concept is inconsistent with public ownership
of corporations.
5) MANAGEMENT COMPENSATION MATTERS
Employee Stock Purchase Plans - Case-by-Case
Employee stock purchase plans (ESPPs) give the company's employees the
opportunity to purchase stock in the company. We believe these plans
can provide performance incentives and lead to employees'
identification with shareholder interests. The most common form of
ESPPs are those that qualify for favorable tax treatment under Section
423 of the Internal Revenue Code. Section 423 plans must permit all
full-time employees to participate, carry restrictions on the maximum
number of shares that can be purchased, carry an exercise price of at
least 85 percent of fair market value on grant date, and be approved by
shareholders. GWCM will approve ESPPs that include: (1) a purchase
price equal to or greater than 85 percent of fair market value, and (2)
voting power dilution of ten percent or less.
Golden Parachutes - Case-by-Case
Golden parachutes provide for compensation to management in the event
of a change in control. GWCM views this as encouragement to management
to consider proposals which might be beneficial to shareholders. We
will normally approve plans put to shareholder vote unless there is
clear evidence of excess or abuse.
GWCM will also approve shareholder proposals requesting that
implementation of such arrangements require shareholder approval. This
preserves the shareholder's right as owner of the company to oversee
compensation arrangements with substantial potential for transfer of
shareholder wealth.
Pay-for-Performance Plans - Approve
The Omnibus Budget Reconciliation Act requires companies to link
executive compensation exceeding $1 million to preset performance goals
and submit the plans for shareholder approval in order for such
compensation to qualify for federal tax deductions. The law further
requires that such plans be administered by a compensation committee
comprised solely of independent directors. Because the primary
objective of such proposals is to preserve the deductibility of such
compensation, GWCM is biased toward approval in order to preserve net
income. However, proposals which authorize excessive dilution may be
declined. When an objectionable plan is coupled with poor performance,
we will consider withholding votes from compensation committee members.
B6
Option Plans - Case-by-Case
GWCM supports option plans which provide incentive to directors,
managers and other employees by aligning their economic interests with
those of the shareholders while limiting the transfer of wealth from
the company. Because of their potential effect on shareholder value, we
believe that shareholders should be given the opportunity to vote to
the fullest extent possible prior to the adoption or amendment of an
option plan. In situations where a company has foregone shareholder
approval, we may consider applying a stricter standard in the approval
of increases in share authorization. GWCM may also consider withholding
votes for members of the compensation committee. Option plan
evaluations are therefore based on the total cost to shareholders and
give effect to the incentive aspects of the plan.
In principle, GWCM opposes the repricing and exchange of options, but
we will consider the impact of such features on high-tech, emerging and
growth companies and merger situations. Such consideration will focus
on the cost-benefit relationship. In cases where repricings that we
consider inappropriate have occurred without shareholder approval, we
will consider withholding votes for members of the compensation
committee.
6) MERGERS, ASSET SALES & CAPITAL RESTRUCTURINGS
In reviewing merger and asset sale proposals, GWCM's primary concern is the best
economic interest of shareholders. Voting on such proposals involves
considerations unique to each transaction. As a result, GWCM will vote on a
case-by-case basis on board-approved proposals to effect these types of
transactions.
7) SOCIAL ISSUES
From time to time, GWCM is asked to vote on shareholder proposals which address
a variety of social issues. We vote in all cases in the best economic interests
of shareholders, plan participants and beneficiaries. GWCM does not generally
support proposals that lack a demonstrable economic benefit for shareholders.
PROXY VOTING PROCEDURES
GENERAL PROCEDURES
The Operations Area of GWCM is responsible for administering the proxy voting
process as outlined below.
Each client's custodian is responsible for forwarding proxy solicitation
materials to GWCM. When proxy solicitation materials are obtained, the
Operations Area updates a database for notices of all new shareholder meetings,
indicating company name, meeting date, issues for voting, and vote status. The
CUSIP and ticker symbol will also be included if they are available through
reasonably practicable means. The database will also indicate whether issues are
shareholder or management proposals and, upon voting, if the vote has been made
with or against management.
B7
Proxy solicitation materials are then forwarded to the portfolio manager for
review of the issues and determination of GWCM's voting position in accordance
with the policies detailed above. The portfolio manager communicates the voting
position to the Operations Area.
The Operations Area logs the voting position and date of vote submission in the
proxy database. The Operations Area then submits votes electronically to the
soliciting company as directed in the proxy solicitation materials, if
electronic voting is available. If electronic voting is not available, phone or
mail voting may be utilized. If mail voting is used, a copy of the voting card
is retained.
Proxy solicitation materials, records of votes cast and any documents prepared
by GWCM that were material to making a decision regarding a vote, or that
memorialize the basis for the decision, are retained for at least five years in
an easily accessible place, the first two years on the premises of GWCM.
Voting summary information is provided annually to the Board of Managers for
review. In addition, summary information is posted to the Company's website and
made available to clients as requested.
The Operations Area provides voting information to the Legal area annually for
inclusion in Form N-PX. Information is to be included for the 12-month period
from July 1 to June 30.
SUB-ADVISER RESPONSIBILITIES
As designated in the applicable sub-advisory agreement, GWCM may assign proxy
voting responsibility to a sub-adviser. In this instance, proxy solicitation
materials will generally be sent from the applicable custodian directly to the
sub-adviser. Sub-advisers may utilize their own policies and procedures in
voting proxies.
Annually, GWCM will obtain each sub-adviser's proxy voting policies and
procedures and submit them to the GWCM Managers for review.
Annually, the Operations Area will obtain voting information from each
sub-adviser for client disclosure as may be required, and for inclusion in
investment company clients' Form N-PX.
CONFLICTS OF INTEREST
Occasions may arise where a person or organization involved in the proxy voting
process may have a conflict of interest. A conflict of interest may exist, for
example, if GWCM or an affiliate thereof has a business relationship with (or is
actively soliciting business from) either the company soliciting the proxy or a
third party that has a material interest in the outcome of a proxy vote or that
is actively lobbying for a particular outcome of a proxy vote. In the case of an
investment company, a conflict of interest may arise between the investment
company's shareholders and its investment adviser, principal underwriter, or an
affiliated person of the investment company, its investment adviser or principal
underwriter. Any individual with knowledge of a conflict of interest (for
example, a personal conflict of interest such as a familial relationship with
company management or a conflict involving a GWCM affiliate that has a business
relationship with the company soliciting the proxy) relating to a particular
referral item shall disclose that conflict to the Legal Department and otherwise
remove himself or herself from the proxy voting process. Any conflict of
interest will be resolved by disclosing the conflict to the client (in the case
of an investment company client, to its Board of Directors or an appropriate
Committee thereof) for consent or direction regarding the proxy at issue.
B8
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 Registrant's
Post-Effective Amendment No. 67 to its Registration Statement filed on February
28, 2000 (File No. 2-75503), Post-Effective Amendment No. 72 filed on April 27,
2001 (File No. 2-75503), Post-Effective Amendment No. 73 filed on December 31,
2001, (File No. 2-75503), Post-Effective Amendment No. 74 filed on March 1, 2002
(File No. 2-75503), Post-Effective Amendment No. 77 filed on February 14, 2003,
(File No. 2-75503), Post-Effective Amendment No. 78 filed on April 11, 2003,
(File No. 2-75503), Post-Effective Amendment No. 80 filed on June 30, 2003,
(File No. 2-75503), and Post-Effective Amendment No. 83 filed on August 4, 2004,
(File No. 2-75503).
(2) Bylaws are of Maxim Series Fund, Inc., as amended, are filed herewith.
(3) Inapplicable.
(4) Form of Agreement and Plan of Reorganization by and between two portfolios
of Maxim Series Fund, Inc., a Maryland corporation ("Maxim"): (i) Maxim U.S.
Government Mortgage Securities Portfolio (the "Acquiring Portfolio"); and (ii)
Maxim U.S. Government Securities Portfolio (the "Acquired Portfolio") is filed
herewith as Exhibit A to the Prospectus/Proxy Statement.
(5) Inapplicable.
(6) Investment Advisory Agreement and all amendments thereto are incorporated by
reference to Registrant's Post-Effective Amendment No. 64 to the Registration
Statement filed on July 22, 1999, (File No. 2-75503), Post-Effective Amendment
No. 76 filed on April 26, 2002, (File No. 2-75503), Post-Effective Amendment No.
78 filed on April 11, 2003, (File No. 2-75503) and Post-Effective Amendment No.
80 filed on June 30, 2003, (File No. 2-75503).
1
(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 is
filed herewith.
(12) Form of Opinion and Consent of Counsel regarding tax matters and
consequences to shareholders discussed in the Prospectus/Proxy Statement is
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 Registered Public Accounting
Firm, regarding the audited financial statements and highlights of the Acquired
Portfolio and the audited financial statements and highlights of the Acquiring
Portfolio is filed herewith.
(15) Inapplicable.
(16) Powers of Attorney are filed herewith.
(17) Form of Proxy Card is 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 who 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.
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SIGNATURES
As required by the Securities Act of 1933, as amended, this
Pre-Effective Amendment No. 1 to Registration Statement on Form N-14, SEC File
No. 333-132569 has been signed on behalf of the Registrant, in the City of
Greenwood Village, and State of Colorado, on the 12th of April, 2006.
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 April 12, 2006
/s/ William T. McCallum* (Principal Executive Officer)
- ------------------------
William T. McCallum
/s/ Mitchell T.G. Graye Director April 12, 2006
- -----------------------
Mitchell T.G. Graye
/s/ Richard P. Koeppe* Director April 12, 2006
- ---------------------
Richard P. Koeppe
/s/ Rex Jennings* Director April 12, 2006
- ----------------
Rex Jennings
/s/ Sanford Zisman* Director April 12, 2006
- ------------------
Sanford Zisman
/s/ Graham McDonald Treasurer (Principal Financial April 12, 2006
- ------------------- and Accounting Officer)
Graham McDonald
* By: /s/ Beverly A. Byrne
Beverly A. Byrne
Attorney-in-Fact
*Powers of Attorney are filed herewith as Exhibit 16.
INDEX TO EXHIBITS
Exhibit Number Exhibit Title
Exhibit A to Prospectus/Proxy Statement Form of Agreement and Plan of Reorganization,
Acquisition of the outstanding shares of Maxim U.S.
Government Securities Portfolio by Maxim U.S.
Government Mortgage Securities Portfolio
Exhibit B to Prospectus/Proxy Statement Annual Report to Shareholders of Maxim U.S. Government
Mortgage Securities Portfolio for the year ended
December 31, 2005
Exhibit C to Prospectus/Proxy Statement Annual Report to Shareholders of Maxim U.S. Government
Securities Portfolio for the year ended December 31,
2005
(2) Amended Bylaws of Maxim Series Fund, Inc.
(11) Form of Opinion
and Consent of
Counsel regarding
legality of shares
(12) Form of Opinion
and Consent of
Counsel regarding
tax matters and
consequences to
shareholders
(14) Consent of
Deloitte & Touche
LLP, Independent
Registered Public
Accounting Firm,
regarding the
audited financial
statements and
highlights of the
Acquired Portfolio
and the audited
financial
statements and
highlights of the
Acquiring
Portfolio
(16) Powers of Attorney
(17) Form of Proxy Card