B-1 STATEMENT OF ADDITIONAL INFORMATION Dated May 1 ...

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Compensation of Portfolio ManagersMason Street Advisors. Mason Street Advisors has adopted a system of compensation for portfoliomanagers that seeks to attract, motivate and retain high quality investment personnel and align thefinancial interests of the portfolio managers with the performance of Mason Street Advisors and itsclients. A portfolio manager’s compensation consists primarily of the following three components: a basesalary, annual variable compensation and, for certain portfolio managers, long-term variablecompensation. Eligibility and participation in the annual and long-term variable compensation programsis determined on a year-to-year basis. Each portfolio manager is also eligible to participate in benefitplans and programs available generally to all employees of Mason Street Advisors.A portfolio manager’s total compensation is determined through a process that combines both objectiveand subjective criteria. Initially, at the beginning of each year, compensation targets are determined foreach portfolio manager based on market factors and the skill, experience and tenure of the portfoliomanager. The compensation target is then allocated among base salary, annual variable compensation andlong-term variable compensation based on a formula for each portfolio manager.At the end of the year, the portfolio manager’s performance is evaluated using both objective andsubjective criteria. Primary consideration is given to the historic investment performance of accountsmanaged by the portfolio manager over both a one-year and a four-year period, with more weighttypically being given to the longer-term performance. The performance of each account managed by theportfolio manager is measured against a relevant peer group and/or an applicable benchmark, as deemedappropriate. If a portfolio manager manages more than one account, performance is weighted based on acombination of factors, including the number and type of accounts managed, and the assets in eachaccount.The evaluation process also includes a subjective evaluation of competencies or behaviors deemedimportant to achieving Mason Street Advisors’ overall business objectives. Subjective criteria mayinclude considerations such as management and supervisory responsibilities, market factors, complexityof investment strategies, length of service, team building efforts and successes, risk managementinitiatives and leadership contributions. A portfolio manager’s compensation is then determined byapplying a multiplier (which can be greater or less than 1.0) based on the annual evaluation of theobjective and subjective criteria to the targeted compensation. Long-term variable pay grants are made onan annual basis and are credited to a deferred account that accrues interest on the balances. Awardedgrants vest over a three to five-year vesting period and are paid upon vesting.Templeton. Templeton seeks to maintain a compensation program that is competitively positioned toattract, retain and motivate top quality investment professionals. Portfolio managers receive a basesalary, a cash incentive bonus opportunity, an equity compensation opportunity, and a benefits package.Portfolio manager compensation is reviewed annually and the level of compensation is based onindividual performance, the salary range for a portfolio manager’s level of responsibility and FranklinTempleton guidelines. Portfolio managers are provided no financial incentive to favor one fund or accountover another. Each portfolio manager’s compensation consists of the following three elements:Base salary Each portfolio manager is paid a base salary.Annual bonus Annual bonuses are structured to align the interests of the portfolio manager withthose of the Fund's shareholders. Each portfolio manager is eligible to receive an annual bonus.Bonuses generally are split between cash (50% to 65%) and restricted shares of FranklinResources stock (17.5% to 25%) and mutual fund shares (17.5% to 25%). The deferred equitybased compensation is intended to build a vested interest of the portfolio manager in the financialperformance of both Franklin Resources and mutual funds advised by the manager. The bonusplan is intended to provide a competitive level of annual bonus compensation that is tied to theportfolio manager achieving consistently strong investment performance, which aligns thefinancial incentives of the portfolio manager and Fund shareholders. The Chief InvestmentOfficer of the manager and/or other officers of the manager, with responsibility for the Fund,B-86
have discretion in the granting of annual bonuses to portfolio managers in accordance withFranklin Templeton guidelines. The following factors are generally used in determining bonusesunder the plan:• Investment performance. Primary consideration is given to the historic investmentperformance over the 1, 3 and 5 preceding years of all accounts managed by the portfoliomanager. The pre-tax performance of each fund managed is measured relative to a relevantpeer group and/or applicable benchmark as appropriate.• Research. Where the portfolio management team also has research responsibilities, eachportfolio manager is evaluated on the number and performance of recommendations overtime, productivity and quality of recommendations, and peer evaluation.• Non-investment performance. For senior portfolio managers, there is a qualitative evaluationbased on leadership and the mentoring of staff.• Responsibilities. The characteristics and complexity of funds managed by the portfoliomanager are factored in the manager’s appraisal.Additional long-term equity based compensation Portfolio managers may also be awardedrestricted shares or units of Franklin Resources stock or restricted shares or units of one or moremutual funds and options to purchase common shares of Franklin Resources stock. Awards ofsuch deferred equity based compensation typically vest over time, so as to create incentives toretain key talent.Portfolio managers also participate in benefit plans and programs available generally to all employees ofthe manager.Capital Guardian. At Capital Guardian, portfolio managers and investment analysts are paid competitivesalaries. In addition, they may receive bonuses based on their individual portfolio results and also mayparticipate in profit-sharing plans. The relative mix of compensation represented by bonuses, salary andprofit sharing will vary depending on the individual’s portfolio results, contributions to the organizationand other factors. In order to encourage a long-term focus, bonuses based on investment results arecalculated by comparing pretax total returns to relevant benchmarks over both the most recent year, afour-year rolling average and an eight-year rolling average with much greater weight placed on the fouryearand eight-year rolling averages. For portfolio managers, benchmarks may include both measures ofthe marketplaces in which the relevant fund invests and measures of the results of comparable mutualfunds or consultant universe measures of comparable institutional accounts. For investment analysts,benchmarks include both relevant market measures and appropriate industry indexes reflecting their areasof expertise. Analysts are also subjectively compensated for their contributions to the research process.The benchmarks used to measure performance of the portfolio managers for the Domestic EquityPortfolio include the Russell 1000 ® Value Index and a customized Growth and Income index based on theLipper Growth and Income Index.T. Rowe Price. Portfolio manager compensation consists primarily of a base salary, a cash bonus, and anequity incentive that usually comes in the form of a stock option grant. Occasionally, portfolio managerswill also have the opportunity to participate in other investment partnerships. Compensation is variableand is determined based on the following factors:Investment performance over one-, three-, five-, and 10-year periods is the most important input. T. RowePrice evaluates performance in absolute, relative, and risk adjusted terms. Relative performance and riskadjusted performance are determined with reference to the broad based index (ex. S&P 500 ® ) and anapplicable Lipper index (ex. Large-Cap Growth), though other benchmarks may be used as well.Investment results are also measured against comparably managed funds of competitive investmentB-87
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APPENDIX F - Proxy Voting Policies
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stocks that make up that index. Str
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Interest rate swaps do not involve
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the Adviser or Sub-Adviser will not
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Forward Contracts. The Portfolios m
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principal amount as the call writte
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Options on Foreign Currencies. The
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securities. The issuers of the unde
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the former pools. However, timely p
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CMO residuals are generally purchas
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utilize the underlying assets may r
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include range floaters which are a
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par unless the price of the underly
Page 36 and 37: to changes in interest rates genera
Page 38 and 39: corresponding floaters. The underly
Page 40 and 41: A Portfolio will not enter into suc
Page 42 and 43: egulations. The presence of an issu
Page 44 and 45: Portfolio TurnoverPortfolio turnove
Page 46 and 47: The ability of the Portfolio to ach
Page 48 and 49: Advisors, LLC, in accordance with t
Page 50 and 51: OWNERSHIP OF SHARES OF THE FUNDAll
Page 52 and 53: on the next $50 million, 0.50% on t
Page 54 and 55: Independent Registered Public Accou
Page 56 and 57: Name of Portfolio 2008 2007 2006Int
Page 58 and 59: Broker High Yield Bond BalancedAsse
Page 60 and 61: and cost of trade execution of Port
Page 62 and 63: Effective April 30, 2008, the Fund
Page 64 and 65: TAXES AND DIVIDENDSEach Portfolio i
Page 66 and 67: APPENDIX A - Credit RatingsDescript
Page 68 and 69: F2Good credit quality. A satisfacto
Page 70 and 71: . Moody’s Commercial Paper (short
Page 72 and 73: Plus (+) or minus (-)The ratings fr
Page 74 and 75: APPENDIX B - Directors and Officers
Page 76 and 77: Name, Address, andYear of BirthDavi
Page 78 and 79: APPENDIX C - Ownership of Shares of
Page 80 and 81: SMALL CAP VALUE PORTFOLIOGeneral Ac
Page 82 and 83: APPENDIX D - Portfolio ManagersOthe
Page 84 and 85: PortfolioManager(s)FundRegisteredIn
Page 88 and 89: management firms. Performance is pr
Page 90 and 91: Portfolio managers are eligible for
Page 92 and 93: PortfolioPortfolio Manager(s)Dollar
Page 94 and 95: On August 25, 2005, the Court enter
Page 96 and 97: MSA’s Equity Trading Department s
Page 98 and 99: ERISA ClientsIn the case of client
Page 100 and 101: Shareholder Ability to Call Special
Page 102 and 103: • Exercise price• Participation
Page 104 and 105: Amend Quorum RequirementsVote propo
Page 106 and 107: Vote proposals to increase blank ch
Page 108 and 109: employees of Investment Manager and
Page 110 and 111: will not support the position of a
Page 112 and 113: company specifies the voting, divid
Page 114 and 115: egarding whether Investment Manager
Page 116 and 117: 3. The issuer is an entity particip
Page 118 and 119: manager(s) are responsible for maki
Page 120 and 121: Global Corporate Governance: Invest
Page 122 and 123: 13. The Proxy Group will review the
Page 124 and 125: determined by those investment comm
Page 126 and 127: T. Rowe Price has adopted these Pro
Page 128 and 129: shareholders and the effect on shar
Page 130 and 131: portfolio company could have influe
Page 132 and 133: The Proxy Voting Service will refer
Page 134 and 135: that substantially differs from dom
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15. Janus will generally vote in fa
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46. For shareholder proposals outsi
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2. Staggered BoardIf a company has
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proposed for a legitimate business
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APPENDIX G - Portfolio Holdings Dis
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ICP Securities LLCIntermonte Securi
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B-1 STATEMENT OF ADDITIONAL INFORMATION Dated May 1 ...

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