<PAGE>
As filed with the Securities and Exchange Commission on April 26, 2000
Registration No. 33-13954
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ________ [ ]
Post-Effective Amendment No. 28 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 29 [X]
(Check appropriate box or boxes)
Pacific Select Fund
(Exact Name of Registrant as Specified in Charter)
700 Newport Center Drive, P.O. Box 7500, Newport Beach, CA 92660
(Address of Principal Executive Offices ) (Zip Code)
Registrant's Telephone Number, including Area Code: (949) 219-6767
Robin Yonis Sandlaufer
Assistant Vice President and Investment Counsel of
Pacific Life Insurance Company
700 Newport Center Drive
Post Office Box 9000
Newport Beach, CA 92660
(Name and Address of Agent for Service)
Copies to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Approximate Date of Proposed Public Offering ___________________________________
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 2000 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on May 1, 2000 pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
<PAGE>
PACIFIC SELECT FUND PROSPECTUS MAY 1, 2000
This prospectus tells you about the Pacific Select
Fund's 21 portfolios. It's designed to help you choose
among the investment options available under your
variable annuity contract or variable life insurance
policy issued or administered by Pacific Life Insurance
Company or its subsidiaries.
You'll find details about how your annuity contract or
life insurance policy works in the accompanying product
prospectus or offering memorandum. Please read these
documents carefully, and keep them for future
reference.
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<S> <C>
You should be aware THE PACIFIC SELECT FUND PORTFOLIOS AND PORTFOLIO
that the Securities MANAGERS
and Exchange (listed alphabetically by portfolio manager)
Commission has not
reviewed any of Aggressive Equity Portfolio Alliance Capital Management L.P.
these portfolios
for their Emerging Markets Portfolio Alliance Capital Management L.P.
investment merit,
and does not Diversified Research Portfolio Capital Guardian Trust Company
guarantee that the
information in this Small-Cap Equity Portfolio Capital Guardian Trust Company
prospectus is (formerly called Growth
accurate or Portfolio)
complete. It is a
criminal offense International Large-Cap Portfolio Capital Guardian Trust Company
to say otherwise.
Bond and Income Portfolio Goldman Sachs Asset Management
Equity Portfolio Goldman Sachs Asset Management
I-Net Tollkeeper Portfolio(SM) Goldman Sachs Asset Management
Multi-Strategy Portfolio J.P. Morgan Investment Management Inc.
Equity Income Portfolio J.P. Morgan Investment Management Inc.
Growth LT Portfolio Janus Capital Corporation
Mid-Cap Value Portfolio Lazard Asset Management
Equity Index Portfolio Mercury Asset Management US
Small-Cap Index Portfolio Mercury Asset Management US
REIT Portfolio Morgan Stanley Asset Management
International Value Portfolio Morgan Stanley Asset Management
(formerly called International
Portfolio)
Government Securities Portfolio Pacific Investment Management Company
Managed Bond Portfolio Pacific Investment Management Company
Money Market Portfolio Pacific Life Insurance Company
High Yield Bond Portfolio Pacific Life Insurance Company
Large-Cap Value Portfolio Salomon Brothers Asset Management Inc
</TABLE>
<PAGE>
YOUR GUIDE TO THIS PROSPECTUS
This prospectus is designed to help you make informed
decisions about the investments available under your
Pacific Life variable annuity contract or variable life
insurance policy.
We've divided the prospectus into six sections to make
it easy for you to find what you're looking for.
Please contact The first section, An overview of the Pacific Select
Pacific Life if you Fund, contains a summary of the objectives, holdings
have any questions and risks of each of the Pacific Select Fund's 21
about any of the portfolios. It will help you understand the differences
Pacific Select Fund between the portfolios, the risks associated with each,
portfolios. and how risk and investment objectives relate.
Call toll-free: About the portfolios tells you the following important
Annuities: things about each portfolio:
1-800-722-2333
Life insurance: . The portfolio's investment goal - what the portfolio
1-800-800-7681 is trying to achieve.
. What the portfolio invests in - how the portfolio
tries to meet its investment goal. It tells you the
portfolio's principal investments and strategies, and
any special focus, such as an emphasis on certain
countries or industry sectors. Some portfolios have
policies on the amount they can invest in certain
kinds of securities. These policies apply at the time
the investment is made.
. Risks you should be aware of - the principal risks
associated with each portfolio. Risk is the chance
that you'll lose money on an investment, or that it
will not earn as much as you expect. Every portfolio
has some degree of risk depending on what it invests
in and what strategies it uses. One of the most
important investment decisions you'll need to make is
how much risk you're willing to accept in exchange
for potential return on an investment.
. How the portfolio has performed - lets you compare
portfolio performance. The bar chart and performance
table show the portfolio's annual returns and year to
year performance. Performance tables include a
relevant index to allow you to measure the
portfolio's performance against a benchmark. Unlike
the portfolios, the indexes are unmanaged and do not
incur any transaction costs.
. Who manages the portfolio - the people who manage
each portfolio. Pacific Life is the fund's adviser
and manages two of the portfolios directly. To manage
the other portfolios, Pacific Life and the fund have
retained other portfolio managers. You'll find
information about Pacific Life and the other managers
starting on page 48.
Performance of comparable accounts shows you how a
substantially similar account (or composite of
accounts), managed by the companies that now manage the
portfolios have performed in the past. It does not show
you how the fund's portfolios have performed or will
perform. Three portfolios (Diversified Research,
International Large-Cap and I-Net Tollkeeper) are so
new that they have no past performance to help you with
your investment decision. Four portfolios (Mid-Cap
Value, Small-Cap Index, REIT and Large-Cap Value) have
only one year of performance, and one portfolio
(Emerging Markets) has had a new manager since January
1, 2000. For two of the new portfolios, Performance of
comparable accounts may be found immediately following
each portfolio's description in About the portfolios.
For three of the other portfolios, this information may
be found following the section Managing the Pacific
Select Fund.
When showing comparable performance, the portfolio
manager generally includes all accounts with
substantially similar goals and policies. The manager
may, however, not include accounts that are too small
or have too short an investment time horizon to
accurately reflect the manager's performance, or that
do not meet other established criteria to be included
in a published composite.
Turn to the other three sections of the prospectus -
Managing the Pacific Select Fund, Information for
investors and Financial highlights - for information
about the portfolio management firms, fees and expenses
the fund pays, how shares are priced, and fund
performance and financial information.
2
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An overview of the Pacific Select Fund 4
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About the portfolios
Aggressive Equity Portfolio 6
Emerging Markets Portfolio 8
Diversified Research Portfolio 10
Small-Cap Equity Portfolio (formerly called
Growth Portfolio) 12
International Large-Cap Portfolio 14
Bond and Income Portfolio 16
Equity Portfolio 18
I-Net Tollkeeper Portfolio 20
Multi-Strategy Portfolio 22
Equity Income Portfolio 24
Growth LT Portfolio 26
Mid-Cap Value Portfolio 28
Equity Index Portfolio 30
Small-Cap Index Portfolio 32
REIT Portfolio 34
International Value Portfolio (formerly called
International Portfolio) 36
Government Securities Portfolio 38
Managed Bond Portfolio 40
Money Market Portfolio 42
High Yield Bond Portfolio 44
Large-Cap Value Portfolio 46
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Managing the Pacific Select Fund
About the portfolio managers 48
Fees and expenses paid by the fund 51
How the fund is organized 52
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Performance of comparable accounts 53
----------------------------------------------------------
Information for investors 56
----------------------------------------------------------
Financial highlights 57
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Where to go for more information back cover
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</TABLE>
3
<PAGE>
<TABLE>
AN OVERVIEW OF THE PACIFIC SELECT FUND
<S> <C> <C>
This table is a summary of PORTFOLIO AND MANAGER THE PORTFOLIO'S INVESTMENT GOAL
the goals, investments and
risks of each of the Pacific Aggressive Equity Portfolio Capital appreciation.
Select Fund's 21 portfolios. Alliance Capital Management L.P.
It's designed to help you
understand the differences Emerging Markets Portfolio Long-term growth of capital.
between the portfolios, the Alliance Capital Management L.P.
risks associated with each,
and how risk and investment Diversified Research Portfolio Long-term growth of capital.
goals relate. Capital Guardian Trust Company
The performance of all of Small-Cap Equity Portfolio Growth of capital.
the Pacific Select Fund (formerly called Growth Portfolio)
portfolios is affected by Capital Guardian Trust Company
changes in the economy and
financial markets. The International Large-Cap Portfolio Long-term growth of capital.
portfolios are also affected Capital Guardian Trust Company
by other kinds of risks,
depending on the types of Bond and Income Portfolio Total return and
securities they invest in. Goldman Sachs Asset Management income consistent
There's also the possibility with prudent investment
that investment decisions management.
portfolio managers make will
not accomplish what they were Equity Portfolio Capital appreciation.
designed to achieve, or that Goldman Sachs Asset Management Current income is of
the portfolio will not secondary importance.
achieve its investment goal.
I-Net Tollkeeper Portfolio Long-term growth of capital.
Equity securities historically Goldman Sachs Asset Management
have offered the potential for
greater long-term growth than Multi-Strategy Portfolio High total return.
most fixed income securities, J.P. Morgan Investment Management Inc.
but they also tend to have
larger and more frequent Equity Income Portfolio Long-term growth of capital
changes in price, which means J.P. Morgan Investment Management Inc. and income.
there's a greater risk you
could lose money over the Growth LT Portfolio Long-term growth of capital
short term. Fixed income Janus Capital Corporation consistent with the
securities are affected preservation of capital.
primarily by the financial
condition of the companies Mid-Cap Value Portfolio Capital appreciation.
that have issued them, and by Lazard Asset Management
changes in interest rates.
Equity Index Portfolio Investment results that
Most of the portfolios engage Mercury Asset Management US correspond to the total
in securities lending to seek return of common stocks
additional income. In publicly traded in the U.S.
connection with such lending
there is a risk of delay in Small-Cap Index Portfolio Investment results that
return of the securities Mercury Asset Management US correspond to the total
loaned or possible loss of return of an index of small
rights in collateral should capitalization companies.
the borrower become
insolvent. REIT Portfolio Current income and long-term
Morgan Stanley Asset Management capital appreciation.
You'll find more information
about each portfolio's recent International Value Portfolio Long-term capital appreciation
strategies and holdings in (formerly called International Portfolio) primarily through investment in
the most recent report to Morgan Stanley Asset Management equity securities of
shareholders, and a more corporations domiciled in
detailed discussion of each countries other than the U.S.
portfolio's investments,
strategies and risks in the Government Securities Portfolio Maximize total return
Statement of Additional Pacific Investment Management Company consistent with prudent
Information (SAI). Please turn investment management.
to the back cover for
information about how to get Managed Bond Portfolio Maximize total return
copies of these documents. Pacific Investment Management Company consistent with prudent
investment management.
Many of the investment
techniques and strategies Money Market Portfolio Current income consistent
discussed in this prospectus Pacific Life Insurance Company with preservation
and in the SAI are of capital.
discretionary, which means
that portfolio managers can High Yield Bond Portfolio High level of current income.
decide if they want to use Pacific Life Insurance Company
them or not. Portfolio managers
may also use investment Large-Cap Value Portfolio Long-term growth of capital.
techniques or make investments Salomon Brothers Asset Management Inc Current income is of secondary
in securities that are not part importance.
of a portfolio's principal
investment strategy. A
portfolio's stated investment
goal, (as shown in the second
column to the right), cannot be
changed without the approval of
shareholders. Investment
policies may be changed from
time to time by the fund's
board of trustees.
</TABLE>
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<TABLE>
<CAPTION>
THE PORTFOLIO'S MAIN INVESTMENTS THE PORTFOLIO'S MAIN RISKS
<C> <S>
Equity securities of small emerging-growth companies Price volatility and other risks that accompany an
and medium-sized companies. investment in small emerging-growth companies and medium-
sized companies. Particularly sensitive to price swings
during periods of economic uncertainty.
Equity securities of companies that are located Price volatility and other risks that accompany an
in countries generally regarded as "emerging market" investment in emerging markets. Sensitive to currency
countries. exchange rates, international political and economic
conditions and other risks that affect foreign securities.
May have greater price swings than most of the portfolios.
Equity securities of U.S. companies and securities Price volatility and other risks that accompany an
whose principal markets are in the U.S. investment in equity securities.
Equity securities of smaller and medium-sized Price volatility and other risks that accompany an
companies. investment in growth-oriented and smaller and
medium-sized companies. Particularly sensitive to price
swings during periods of economic uncertainty.
Equity securities of non-U.S. companies and Price volatility and other risks that accompany an
securities whose principal markets are outside of investment in foreign equities. Sensitive to currency
the U.S. exchange rates, international political and economic
conditions and other risks that affect foreign securities.
A wide range of fixed income securities with varying Credit, interest rate, liquidity and other risks that
terms to maturity, with an emphasis on long-term accompany an investment in fixed income securities and
bonds. in mortgage related investments. Particularly sensitive to
credit risk during economic downturns. Generally
has the most interest rate risk of the bond portfolios.
Equity securities of large U.S. growth-oriented Price volatility and other risks that accompany an equity
companies. investment in large, growth-oriented companies.
Equity securities of companies which use, support, Price volatility and other risks that accompany an
or relate directly or indirectly to use of the investment in equity securities in technology companies.
Internet. Such companies include those in the media, Particularly sensitive to price swings because of
telecommunications, and technology sectors. concentration of investments in a narrow industry sector and
significant participation in the initial public offering
market.
A mix of equity and fixed income securities. Price volatility and other risks that accompany an
investment in equity securities. Credit, interest rate and
other risks that accompany an investment in fixed income
securities.
Equity securities of large and medium-sized Price volatility and other risks that accompany an
dividend-paying U.S. companies. investment in equity securities.
Equity securities of a large number of companies of Price volatility and other risks that accompany an
any size. investment in equity securities.
Equity securities of medium-sized U.S. companies Price volatility and other risks that accompany an equity
believed to be undervalued. investment in medium-sized companies.
Equity securities of companies that are included in Price volatility and other risks that accompany an
the Standard & Poor's 500 Composite Stock Price investment in equity securities. May be particularly
Index. susceptible to a general decline in the U.S. stock market
because it cannot change its investment strategy,
even temporarily to protect it from loss during poor
economic conditions.
Equity securities of companies that are included in Price volatility and other risks that accompany an
the Russell 2000 Small Stock Index. investment in smaller companies. May be particularly
susceptible to a general decline in the U.S. stock market
because it cannot change its investment strategy,
even temporarily to protect it from loss during poor
economic conditions.
Equity securities of real estate investment trusts. Price volatility and the risks associated with the real
estate market. Particularly sensitive to price swings
because the portfolio is classified as "non-diversified" -
it may hold securities from a fewer number of
issuers than a diversified portfolio.
Equity securities of companies of any size located Price volatility and other risks that accompany an
in developed countries outside of the U.S. investment in foreign equities. Sensitive to currency
exchange rates, international political and economic
conditions and other risks that affect foreign securities.
Fixed income securities that are issued or Credit, interest rate and other risks that accompany an
guaranteed by the U.S. government, its agencies or investment in government bonds and in mortgage related
government-sponsored enterprises. investments. Generally has the least credit risk of the bond
portfolios.
Medium and high-quality fixed income securities with Credit, interest rate and other risks that accompany an
varying terms to maturity. investment in medium and high-quality fixed income
securities and in mortgage related investments.
Highest quality money market instruments believed to Credit and interest rate risks that accompany an investment
have limited credit risk. in high quality short-term instruments. Intended to have the
least investment risk of all of the portfolios.
Fixed income securities with lower and medium- Credit, interest rate, liquidity and other risks that
quality credit ratings and intermediate to long accompany an investment in lower-quality fixed income
terms to maturity. securities. Particularly sensitive to credit risk during
economic downturns.
Equity securities of large U.S. companies. Price volatility and other risks that accompany an equity
investment in large companies.
</TABLE>
5
<PAGE>
ABOUT THE PORTFOLIOS AGGRESSIVE EQUITY PORTFOLIO
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts.
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks capital appreciation. No
investment goal consideration is given to income.
[SYMBOL] ----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in small emerging-growth companies and medium-
sized companies, but it may also invest in larger, more
A company's well-established companies. It tends to emphasize
"capitalization" is companies that have a total market capitalization of up
a measure of its to $5 billion. The portfolio focuses primarily on U.S.
size. companies, but may invest in companies located outside
Capitalization is of the U.S.
calculated by
multiplying the Investments principally include common stock, as well
current share price as preferred stocks, fixed income securities, some of
by the number of which can be converted to equity securities, and
shares held by warrants.
investors.
The portfolio management team looks for companies that
Price to earnings are expected to meet growth targets set by the team,
ratio (P/E) is one and that have a price to earnings ratio that is lower
way of measuring than its expected growth rate. Within these guidelines,
the value of a the team looks for three kinds of companies:
company. It's
simply the price of . undervalued companies, whose shares are being sold at
a stock divided by a discount relative to the shares of similar
its estimated or companies, and that the team believes are likely to
actual earnings per exceed growth expectations
share. A high P/E
ratio could . companies in cyclical industries, like technology or
indicate a high financial services, that the team believes are likely
level of investor to experience rapid growth in the current economy
confidence in the
company. . companies that are experiencing changes, like a
change in corporate structure, that the team believes
are likely to result in growth.
Before investing in a company, the team usually meets
with the company's management team, customers,
competitors and suppliers, and may consult with
external industry analysts. The team also analyzes the
company's cash flow trends to try to determine its
financial stability and the reliability of its
projected earnings. The portfolio management team may
buy index options to try to increase returns, and use
options and other derivatives to offset changes in
currency exchange rates. The portfolio may also lend
some of its assets, as long as the loans it makes are
secured.
The team may temporarily change these strategies if it
believes economic conditions make it necessary to try
to protect the portfolio from potential loss. In this
case, the portfolio may invest in U.S. government
securities, higher-quality corporate fixed income
securities, mortgage-related and asset backed
securities, or money market instruments, which may
prevent the portfolio from achieving its investment
goal.
[SYMBOL] ----------------------------------------------
Risks you should be The Aggressive Equity Portfolio principally invests in
aware of equity securities, which may go up or down in value,
sometimes rapidly and unpredictably. While equities may
offer the potential for greater long-term growth than
most fixed income securities, they generally have
higher volatility. The portfolio may be affected by the
following risks, among others:
Companies that have . price volatility - the value of the portfolio changes
recently undergone as the prices of its investments go up or down. This
a change in portfolio invests in companies that the team thinks
corporate structure have the potential for above average growth, which
may have a greater may give the portfolio a higher risk of price
degree of price volatility than a portfolio that invests principally
volatility than in equities that are "undervalued."
more established
companies because Small emerging growth companies may be more
there's no susceptible to larger price swings than larger
guarantee that the companies because they may have fewer financial
new management resources, limited product and market diversification
structure will and many are dependent on a few key managers. Emerging
result in growth. growth companies and companies in cyclical industries
may be particularly susceptible to rapid price swings
during periods of economic uncertainty.
6
<PAGE>
[SYMBOL] -----------------------------------------------
Risks you should be . risks of foreign investing - foreign investments may
aware of be riskier than U.S. investments for many reasons,
(continued) including changes in currency exchange rates,
unstable political and economic conditions, a lack of
adequate company information, differences in the way
securities markets operate, less secure foreign banks
This portfolio may or securities depositories than those in the U.S.,
not invest more and foreign controls on investment.
than 20% of its
assets in foreign . risks of using derivatives - this portfolio may use
investments that index options and other investment techniques to help
are principally it achieve its investment goal. There's always a risk
traded outside the that these techniques could reduce returns or
U.S. increase the portfolio's volatility.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/,/2/
The bar chart shows [GRAPH OF AGGRESSIVE EQUITY PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 96 97 98 99
varied since its ---- ---- ----- -----
inception. 7.86 3.78 13.22 27.35
The table below the
bar chart compares Best and worst quarterly performance during this
the portfolio's period:
performance with
the Russell 2500 4th quarter 1999: 24.91%; 3rd quarter 1998: (15.27)%
Index, an index of
the stocks of Average annual total return Since inception
approximately 2,500 as of December 31, 1999 1 year 3 years (April 1, 1996)
mid-capitalization ----------------------------------------------------------
U.S. companies. Aggressive Equity
Portfolio/2/ 27.35% 14.38% 13.60%
Russell 2500 Index 24.15% 15.72% 15.95%
Returns do not /1/ Total return for 1996 is for the period from April
reflect fees and 1, 1996 (commencement of operations) to December
expenses associated 31, 1996.
with any variable /2/ Alliance Capital Management L.P. began managing the
annuity contract or portfolio on May 1, 1998 and some investment
variable life policies changed at that time. Another firm managed
insurance policy, the portfolio before that date.
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ------------------------------------------------
Who manages the Alden Stewart is executive vice president of Alliance
portfolio Capital. He joined Alliance Capital in 1971 as an
analyst following various industry groups, and has been
[LOGO OF ALLIANCE a portfolio manager since 1977. He began managing the
CAPITAL APPEARS Aggressive Equity Portfolio in 1998. Alden has 28 years
HERE] of investment experience, a BA from the University of
Oregon and an MBA from the University of Chicago.
The Aggressive
Equity Portfolio is Randall Haase is senior vice president of Alliance
managed by a team Capital. He joined Alliance Capital in 1993. Before
of portfolio joining Alliance Capital he was an analyst with
managers at Equitable Capital. Randall has 13 years of investment
Alliance Capital experience, a BA from Lehigh University and an MBA from
Management L.P. New York University.
You'll find more
about Alliance Aryeh Glatter is vice president of Alliance Capital. He
Capital on page 48. joined Alliance Capital in 1993. Before joining
Alliance Capital he was an analyst with Equitable
Capital. Aryeh has 10 years of investment experience, a
BA from Brooklyn College and an MBA from New York
University.
7
<PAGE>
ABOUT THE PORTFOLIOS EMERGING MARKETS PORTFOLIO
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts.
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital.
investment goal
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in companies that are located in countries that
are generally regarded as "emerging market" countries.
It principally invests in common stock.
The portfolio manager seeks securities that meet its
selection criteria and allocates assets geographically.
Emerging market The portfolio manager uses a two-step process to manage
countries are the portfolio:
typically less
developed . looks for companies that it believes will provide
economically than superior growth at attractive prices - the portfolio
industrialized manager uses fundamental company analysis to identify
countries and may opportunities for increasing earnings growth and good
offer high growth return on equity, and favors companies whose stocks
potential as well trade at attractive valuations relative to their
as considerable global or regional peers. The portfolio manager pays
investment risk. attention to corporate governance, and prefers
These countries are management teams that have a track record for
generally located increasing shareholder value.
in Latin America,
Asia, the Middle . allocates assets among three broad regions - the
East, Eastern portfolio manager allocates assets among Asia, Latin
Europe and Africa. America, and Eastern Europe/Middle East/Africa. The
portfolio manager normally allocates assets among
these regions in amounts that approximate the
weightings of the Morgan Stanley Capital
International (MSCI) Emerging Markets Free Index,
although the portfolio manager may deviate from the
index if it believes there is an investment
opportunity or for defensive reasons.
The team may use options, futures contracts and other
techniques to try to increase returns. The portfolio
may also lend some of its assets, as long as the loans
it makes are secured.
The portfolio's policy is to have almost all portfolio
assets in common stock at all times. The portfolio may,
however, invest in U.S. government securities, high-
quality corporate fixed income securities, or money
market instruments, to meet cash flow needs or if the
U.S. government ever imposes restrictions on foreign
investing.
[SYMBOL] ------------------------------------------------
Risks you should be The Emerging Markets Portfolio principally invests in
aware of equity securities, which may go up or down in value,
sometimes rapidly and unpredictably. While equities may
offer the potential for greater long-term growth than
most fixed income securities, they generally have
higher volatility. The portfolio may be affected by the
following risks, among others:
Companies in . price volatility - the value of the portfolio changes
emerging markets as the prices of its investments go up or down. This
may be especially portfolio invests in companies in emerging markets,
volatile. The value which may be particularly volatile. It also invests
of this portfolio in smaller companies, which tend to have higher price
may have greater swings than larger companies because they have fewer
price swings than financial resources, limited product and market
most of the Pacific diversification and many are dependent on a few key
Select Fund managers.
portfolios.
. risks of foreign investing - foreign investments may
be riskier than U.S. investments for many reasons,
including changes in currency exchange rates,
unstable political and economic conditions, a lack of
adequate company information, differences in the way
securities markets operate, less secure foreign banks
or securities depositories than those in the U.S.,
and foreign controls on investment.
8
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . risks of using derivatives - this portfolio may
aware of invest in options, futures, and use other investment
(continued) techniques to help it achieve its investment goals.
There's always a risk that these techniques could
reduce returns or increase the portfolio's
volatility.
. emerging countries risk - compared to developed
foreign markets, emerging market countries (such as
many in Latin America, Asia, Middle East, Eastern
Europe and Africa):
. often have smaller market capitalizations and are
generally subject to greater price volatility
. may have a higher degree of political and economic
instability
. have less governmental regulation of the financial
industry and markets, and companies are not subject
to as extensive and frequent accounting, financial
and other reporting requirements.
Investment in securities of Eastern European countries,
including in particular, Russia, and other emerging
market countries, also involve risk of loss resulting
from problems in share registration and custody.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed
as of December 31 each year/1/,/2/
The bar chart shows
how the portfolio's
performance has [GRAPH OF EMERGING MARKETS PORTFOLIO APPEARS HERE]
varied since its
inception. 96 97 98 99
------ ------ ------- -----
The table below the (3.23) (1.69) (26.83) 53.56
bar chart compares
the portfolio's Best and worst quarterly performance during this
performance with period:
the Morgan Stanley
Capital 4th quarter 1999: 26.50%; 3rd quarter 1998: (25.07)%
International
(MSCI) Emerging Average annual total return Since inception
Markets Free Index, as of December 31, 1999 1 year 3 years (April 1, 1996)
an index typically -----------------------------------------------------------
made up of 800 to Emerging Markets
900 stocks from Portfolio/2/ 53.56% 3.37% 1.79%
approximately 26 MSCI Emerging Markets
emerging market Free Index 63.70% 0.91% 2.48%
countries.
/1/ Total return for 1996 is for the period from April
Returns do not 1, 1996 (commencement of operations) to December
reflect fees and 31, 1996.
expenses associated /2/ Alliance Capital Management L.P. began managing
with any variable this portfolio on January 1, 2000. Another firm
annuity contract or managed the portfolio before that date.
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
For information on
how Alliance
Capital has managed
substantially
similar accounts,
see page 53.
[SYMBOL] ------------------------------------------------
Who manages the Edward D. Baker III, senior vice president at Alliance
portfolio Capital, will be the primary portfolio manager. He is
the head of the emerging markets equity portfolio
[LOGO OF ALLIANCE management team and he coordinates the investment
CAPITAL APPEARS activities of Alliance Capital's non-U.S. joint
HERE] ventures. He is chairman of Alliance Capital Management
Australia, chairman and chief executive officer of
The Emerging Alliance Capital Management Canada and vice chairman of
Markets Portfolio Alliance Capital Investments Trust Management Co. in
is managed by a Japan. He is also a member of the board of directors of
team of portfolio New Alliance in Hong Kong. Prior to joining Alliance
managers at Capital in 1995, Mr. Baker worked for BARRA, Inc., an
Alliance Capital investment technology firm. Mr. Baker is supported by a
Management L.P. team of four other portfolio managers, each of whom has
You'll find more experience in investing in emerging market countries.
about Alliance
Capital on page 48.
9
<PAGE>
ABOUT THE PORTFOLIOS DIVERSIFIED RESEARCH PORTFOLIO
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital.
investment goal
[SYMBOL] -----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in common stocks of U.S. companies and common
stocks of foreign companies with significant markets in
A company's "market the U.S. The portfolio invests primarily in companies
capitalization" is with a total market capitalization of more than $1
a measure of its billion. Stocks of foreign companies with significant
size. Capitalization markets in the U.S. include American Depositary
is calculated by Receipts (ADRs) and foreign securities registered in
multiplying the the U.S. The portfolio principally invests in common
current share price stock, but it may also invest in securities convertible
by the number of into common stock, warrants, rights and non-convertible
shares held by preferred stock.
investors.
The portfolio is managed by a team of analysts. The
portfolio is divided into segments, and each has its
own analyst who makes independent decisions within
portfolio guidelines and objectives. Sector weightings
are the result of individual security selections,
although the portfolio manager expects major industry
sectors to typically be represented in the portfolio.
The portfolio may invest up to 15% of its total assets
in securities of companies domiciled outside the U.S.
that are not included in the Standard & Poor's 500
Composite Stock Price Index.
Although the research analysts do not intend to seek
short-term profits, they may sell securities whenever
they believe appropriate, without regard to the length
of time a security has been held. The portfolio may
also lend some of its assets, as long as the loans it
makes are secured.
The research analyst team may temporarily change these
strategies if it believes economic conditions make it
necessary to try to protect the portfolio from
potential loss. In this case, the portfolio may invest
a substantial portion of its assets in high-quality
debt securities, including short-term obligations,
which may prevent the portfolio from achieving its
investment goal.
[SYMBOL] -----------------------------------------------
Risks you should be The Diversified Research Portfolio principally invests
aware of in equity securities, which may go up or down in value,
sometimes rapidly and unpredictably. While equities may
offer the potential for greater long-term growth than
most fixed income securities, they generally have
higher volatility. The portfolio may be affected by the
following risks, among others:
. price volatility - the value of the portfolio changes
as the prices of its investments go up and down. The
portfolio invests in large to medium size companies,
which tend to have more stable prices than smaller
companies.
. risks of foreign investing - foreign investments may
be riskier than U.S. investments for many reasons,
including changes in currency exchange rates,
unstable political and economic conditions, a lack of
adequate company information, differences in the way
securities markets operate, less secure foreign banks
or securities depositories than those in the U.S.,
and foreign controls on investment.
10
<PAGE>
[SYMBOL] ------------------------------------------------
Who manages the
portfolio Andrew F. Barth, is president and research director-
U.S. of Capital International Research, Inc., the
[LOGO OF CAPITAL research arm and a subsidiary of Capital Guardian. He
GUARDIAN APPEARS is also a director of Capital Guardian and member of
HERE] its executive committee and global institution group
North American committee. As the research coordinator
for the portfolio, Mr. Barth facilitates the
The Diversified communication and comparison of investment ideas and
Research Portfolio allocates the portfolio's assets among the analysts.
is managed by a The analysts have an average of 15 years investment
team of analysts, experience and an average of 11 years with Capital
led by the research Guardian or its affiliates.
coordinator, at
Capital Guardian
Trust Company.
You'll find more
about Capital
Guardian on page
48.
- --------------------------------------------------------------------------------
PERFORMANCE OF COMPARABLE ACCOUNTS
- --------------------------------------------------------------------------------
This portfolio has This chart does not show you the performance of the
no historical Diversified Research Portfolio -- it shows the
performance to performance of similar accounts managed by Capital
report because it Guardian Trust Company.
started on January
1, 2000. Annual total returns, and average annual total returns
for the periods ending December 31, 1999.
The chart to the --------------------------------------------------------
right shows the Capital Guardian
historical U.S. Equity
performance of the Diversified
Capital Guardian Research Composite,
U.S. Equity Capital Guardian adjusted to reflect
Diversified U.S. Equity estimated fees and
Research Composite, Diversified expenses of the
calculated Research Diversified Research S&P 500
according to the Year Composite (%) Portfolio (%) Index (%)
standards set by ----------------------------------------------------------
the Association for 1999 23.57 23.28 21.04
Investment 1998 28.40 28.14 28.58
Management and 1997 30.91 30.66 33.36
Research (AIMR). 1996 21.92 21.63 22.96
Each account of the 1995 39.63 39.43 37.58
3 accounts in the 1994 4.41 4.04 1.27
composite has 1 year 23.57 23.28 21.04
investment 3 years 27.59 27.33 27.56
objectives, 5 years 28.73 28.48 28.55
policies and since
strategies that are inception
substantially 3/31/93 21.96 21.67 21.58
similar to those of ---------------------------------------------------------
the Diversified
Research Portfolio. The accounts in the composite were not subject to the
investment limitations, diversification requirements
The composite and other restrictions of the Investment Company Act of
performance shows 1940 or Subchapter M of the Internal Revenue Code,
the historical which, if imposed, could have adversely affected the
track record of the performance.
portfolio manager
and is not intended The first column (after "Year") shows performance of
to imply how the the Capital Guardian U.S. Equity Diversified Research
Diversified Composite after the highest advisory fees charged to
Research Portfolio accounts within the composite have been deducted.
has performed or Custody fees or other expenses normally paid by mutual
will perform. Total funds and which the Diversified Research Portfolio will
returns represent pay have not been deducted. If those expenses were
past performance of deducted, returns would be lower.
the Capital
Guardian U.S. The second column shows gross performance of the
Equity Diversified Capital Guardian composite, adjusted to reflect the
Research Composite estimated fees and expenses of the Diversified Research
and not the Portfolio.
Diversified
Research Portfolio. The third column shows performance of the S&P 500
Index, an index of the stocks of approximately
500 large-capitalization U.S. companies, for the same
Returns do not periods. Results include reinvested dividends.
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
11
<PAGE>
ABOUT THE PORTFOLIOS SMALL-CAP EQUITY PORTFOLIO
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts.
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks growth of capital over the long
investment goal term. The realization of current income will not be a
factor in considering portfolio securities.
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in small to medium-sized companies. It tends to
emphasize companies that have a total market
capitalization of between $50 million and $1.5 billion.
A company's It invests principally in common stocks. The portfolio
"capitalization" is may also invest in fixed income securities, including
a measure of its those that can be converted into equity securities, and
size. foreign securities that are listed on a U.S. stock
Capitalization is exchange or over the counter market.
calculated by
multiplying the The portfolio is managed by a team of portfolio
current share price managers. The portfolio is divided into segments, and
by the number of each has its own manager who makes independent
shares held by decisions within portfolio guidelines and objectives.
investors.
When assessing companies, the team uses a value-
A smaller company oriented approach in which it tries to identify the
with a promising difference between the underlying value of a company
product or and the market price of its security. Value is
operating in a identified in a number of ways, including the
dynamic field may relationship of the stock's current price to earnings,
have greater the strength of the company's balance sheet, and price-
potential for rapid to-book value. The team looks at a number of variables,
earnings growth including the fundamental long-term outlook for the
than a larger one. company, the extent to which shares may be considered
However, it may undervalued and the expectations of the market as a
have a harder time whole.
securing financing
and may be more The team considers strong company management important,
sensitive to a and investment decisions may be based on meetings with
setback in sales or the company's senior executives and its competitors, as
to economic well as on information from economists, government
downturns than officials and industry specialists.
larger, more
established The portfolio may lend some of its assets, as long as
companies. the loans it makes are secured.
The team may temporarily change these strategies if it
believes economic conditions make it necessary to try
to protect the portfolio from potential loss. In this
case, the portfolio may invest in money market
securities, short-term corporate debt, preferred stocks
and U.S. government securities, which may prevent the
portfolio from achieving its investment goal.
[SYMBOL] ------------------------------------------------
Risks you should be The Small-Cap Equity Portfolio principally invests in
aware of equity securities, which go up or down in value,
sometimes rapidly and unpredictably. While equities may
offer the potential for greater long-term growth than
most fixed income securities, they generally have
higher volatility. The portfolio may be affected by the
following risk, among others:
. price volatility - the value of the portfolio changes
as the prices of its investments go up or down. This
portfolio invests in companies with smaller
capitalizations, which may give the portfolio a
higher risk of price volatility than a portfolio that
invests in companies with larger capitalizations.
12
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be In addition, the securities of smaller companies
aware of generally have less liquidity and may be more
(continued) susceptible to greater price swings than larger
companies because they may have fewer financial
resources, limited product and market diversification,
and many are dependent on a few key managers.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year
The bar chart shows [GRAPH OF SMALL-CAP EQUITY PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94
varied over the ------- ----- ----- ----- -------
past 10 years. (17.30) 39.15 20.53 21.89 (10.49)
The table below the 95 96 97 98 99
bar chart compares ------- ----- ----- ----- -------
the portfolio's 25.75 23.62 30.27 2.69 47.52
performance with
the Russell 2000 Best and worst quarterly performance during this
Small Stock Index, period:
an index of the
stocks of 4th quarter 1998: 30.37%; 3rd quarter 1998: (25.65)%
approximately 2,000
U.S. small-
capitalization Average annual total return
companies. as of December 31, 1999 1 year 5 years 10 years
-------------------------------------------------------
Returns do not Small-Cap Equity Portfolio 47.52% 25.13% 16.59%
reflect fees and Russell 2000 Small Stock Index 21.26% 16.69% 13.40%
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ------------------------------------------------
Who manages the Michael Ericksen, senior vice president of Capital
portfolio Guardian, is the lead portfolio manager. He has 18
years of experience as an investment professional,
[LOGO OF CAPITAL including 12 years with the Capital Organization.
GUARDIAN APPEARS
HERE]
Robert Kirby, a senior partner of The Capital Group
Partners L.P., has 46 years of experience as an
The Small-Cap investment professional, including 33 years with the
Equity Portfolio is Capital Organization.
managed by a team
of portfolio
managers at Capital James Kang, vice president of Capital International
Guardian Trust Research Inc., has 12 years of experience as an
Company. You'll investment professional, including 11 years with the
find more about Capital Organization.
Capital Guardian on
page 48.
Karen A. Miller, vice president of Capital
International Research Inc., has 11 years of
research/investment experience, including 9 years with
the Capital Organization.
Lawrence R. Solomon, senior vice president of Capital
International Research Inc., has 16 years of experience
as an investment professional, including 15 years with
the Capital Organization.
13
<PAGE>
ABOUT THE PORTFOLIOS INTERNATIONAL LARGE-CAP PORTFOLIO
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital.
investment goal
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest at least 80% of its assets in companies located
outside the U.S. The portfolio principally invests in
common stock, but it may also invest in securities
convertible into common stock, warrants, rights and
non-convertible preferred stock.
The portfolio is managed by a team of managers. The
portfolio management team normally emphasizes
investments in securities of companies located in
Europe, Canada, Australia, Asia and the Far East, but
may also invest in other countries and regions,
including developing countries. Regional and country
allocation decisions are based on a variety of factors,
including economic, social, and political developments,
currency risks and the liquidity of various national
markets.
Although the portfolio managers do not intend to seek
short-term profits, they may sell securities whenever
they believe appropriate, without regard to the length
of time a security has been held.
The portfolio managers may use currency hedging and
other investment management techniques, such as forward
foreign currency contracts. The portfolio may also
cross-hedge between two non-U.S. currencies.
The portfolio may lend some of its assets, as long as
the loans it makes are secured.
The team may temporarily change these strategies if it
believes that economic conditions make it necessary to
try to protect the portfolio from potential loss. In
this case, the portfolio may invest a substantial
portion of its assets in short-term obligations, which
may prevent the portfolio from achieving its investment
goal.
[SYMBOL] ------------------------------------------------
Risks you should be The International Large-Cap Portfolio invests in equity
aware of securities, which may go up or down in value, sometimes
rapidly and unpredictably. While equities may offer the
potential for greater long-term growth than most fixed
income securities, they generally have higher
volatility. The portfolio may be affected by the
following risks, among others:
. price volatility - the value of the portfolio changes
as the prices of the investments it holds go up or
down. The portfolio invests in large to medium size
companies, which tend to have more stable prices than
smaller companies.
. risks of foreign investing - foreign investments may
be riskier than U.S. investments for many reasons,
including changes in currency exchange rates,
unstable political and economic conditions, a lack of
adequate company information, differences in the way
securities markets operate, less secure foreign banks
or securities depositories than those in the U.S.,
and foreign controls on investment.
. risks of currency derivatives - this portfolio may
enter into foreign currency transactions, forward
foreign currency contracts and other investment
techniques to help it achieve its investment goals.
There's always a risk that these techniques could
reduce returns or increase the portfolio's
volatility.
. emerging countries risk - compared to developed
foreign markets, emerging market countries (such as
many in Latin America, Asia, Middle East, Eastern
Europe and Africa):
. often have smaller market capitalizations and are
generally subject to greater price volatility
14
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . may have a higher degree of political and economic
aware of instability
(continued)
. have less governmental regulation of the financial
industry and markets, and companies are not subject
to as extensive and frequent accounting, financial
and other reporting requirements.
Investment in securities of Eastern European countries,
including in particular, Russia, and other emerging
market countries, also involve risk of loss resulting
from problems in share registration and custody.
[SYMBOL] ------------------------------------------------
Who manages the The portfolio is managed by a team of managers with an
portfolio average of 22 years with Capital Guardian or its
affiliates and 26 years investment experience. Each
[LOGO OF CAPITAL portfolio manager is individually responsible for the
GUARDIAN APPEARS portion of the portfolio assigned to them. Each manager
HERE] then invests his or her portion of the portfolio in
accordance with their investment convictions within
The International portfolio guidelines and objectives. The portfolio
Large-Cap Portfolio management team is supported by over 28 research
is managed by a analysts who also manage a portion of the portfolio.
team of portfolio
managers at Capital
Guardian Trust
Company. You'll
find more about
Capital Guardian on
page 48.
- --------------------------------------------------------------------------------
PERFORMANCE OF COMPARABLE ACCOUNTS
- --------------------------------------------------------------------------------
This portfolio has This chart does not show you the performance of the
no historical International Large-Cap Portfolio -- it shows the
performance to performance of similar accounts managed by Capital
report because it Guardian Trust Company.
started on January
1, 2000. Annual total returns, and average annual total returns
for the periods ending December 31, 1999.
The chart to the ---------------------------------------------------------
right shows the Capital Guardian
historical Non-U.S. Equity
performance of the Composite,
Capital Guardian adjusted to
Non-U.S. Equity reflect estimated
Composite, fees and expenses
calculated Capital Guardian of the International
according to the Non-U.S. Equity Large-Cap MSCI EAFE
standards set by Year Composite (%) Portfolio (%) Index (%)
the Association for ---------------------------------------------------------
Investment 1999 69.54 69.57 27.30
Management and 1998 16.90 16.57 20.33
Research (AIMR). 1997 8.78 8.39 1.78
Each of the 98 1996 15.40 15.06 6.04
accounts in the 1995 13.49 13.14 11.21
composite has 1994 3.25 2.83 7.80
investment 1993 35.90 35.70 32.60
objectives, 1992 (3.59) (4.06) (12.20)
policies and 1991 16.97 16.64 12.50
strategies that are 1990 (13.63) (14.17) (23.20)
substantially 1 year 69.54 69.57 27.30
similar to those of 5 years 23.07 22.79 13.15
the International 10 years 14.46 14.11 7.33
Large-Cap Portfolio. ---------------------------------------------------------
The composite The accounts in the composite were not subject to the
performance shows investment limitations, diversification requirements
the historical and other restrictions of the Investment Company Act of
track record of the 1940 or Subchapter M of the Internal Revenue Code,
portfolio manager which, if imposed, could have adversely affected the
and is not intended performance.
to imply how the
International The first column (after "Year") shows performance of
Large-Cap Portfolio the Capital Guardian Non-U.S. Equity Composite after
has performed or the highest advisory fees charged to the accounts
will perform. Total within the composite have been deducted. Custody fees
returns represent or other expenses normally paid by mutual funds and
past performance of which the International Large-Cap Portfolio will pay
the Capital have not been deducted. If those expenses were
Guardian Non-U.S. included, returns would be lower.
Equity Composite
and not the The second column shows gross performance of the
International Capital Guardian composite, adjusted to reflect the
Large-Cap estimated fees and expenses of the International Large-
Portfolio. Cap Portfolio.
Returns do not The third column shows performance of the Morgan
reflect fees and Stanley Capital International EAFE Index, an unmanaged
expenses associated market value-weighted average of the performance of
with any variable approximately 950 to 1,100 securities listed on the
annuity contract or stock exchanges of countries in Europe, Australia,
variable life Asia, and the Far East, for the same periods. Results
insurance policy, include reinvested dividends.
and would be lower
if they did.
15
<PAGE>
ABOUT THE PORTFOLIOS BOND AND INCOME PORTFOLIO
This portfolio is not available for:
. Pacific Life & Annuity Company variable annuity
contracts and variable life insurance policies
. Pacific Innovations variable annuity contracts
. purchase payments on any variable annuity contract
received after April 30, 2000.
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks to provide total return and income
investment goal consistent with prudent investment management.
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in a wide range of fixed income securities with
varying terms to maturity, with an emphasis on long-
term bonds. The portfolio normally invests at least 80%
Total return is of its assets in securities that are rated investment
made up of income grade at the time of investment by a credit rating
plus any gains in agency, or that have not been rated, but the portfolio
the value of the management team considers to be of comparable quality.
portfolio's
securities. These principally include:
. corporate bonds and notes of U.S. companies, some of
which may be high yield ("junk") bonds
. U.S. treasury bonds and notes, or options or futures
on them
Duration is a . fixed income securities issued by foreign companies
mathematical and governments that are denominated in U.S. dollars
measure of the or foreign currencies, some of which may be issued by
average life of a governments in emerging market countries
bond that includes
its yield, coupon, . municipal securities including private activity bonds
final maturity and or industrial development bonds
call features. It
is often used to . mortgage related securities, including stripped
measure the mortgage related securities and other asset-backed
potential securities
volatility of a
bond's price, and . fixed income securities with variable interest rates
is considered a
more accurate . fixed income securities that can be converted to
measure than equity securities.
maturity of a
security's
sensitivity to The portfolio management team chooses investments that
changes in interest have short, intermediate and long terms to maturity.
rates. The team uses duration management as a fundamental part
of the portfolio's strategy. The average duration of
the portfolio will usually be within one-half year of
the duration of the Lehman Brothers Long-Term
Government/Corporate Bond Index. The index had an
average duration of 10.08 years on March 31, 2000.
The team may also use options, futures contracts and
other hedging techniques when necessary to try to
offset the effects of changes in interest rates and
currency exchange rates. The portfolio may lend some of
its assets, as long as the loans it makes are secured.
[SYMBOL] ------------------------------------------------
Risks you should be Since the Bond and Income Portfolio principally invests
aware of in fixed income securities of both U.S. and foreign
issuers, it may be affected by the following risks,
The Bond and Income among others:
Portfolio tends to
have the most
interest rate risk . changes in interest rates - the value of the
of the Pacific portfolio may fall when interest rates rise. Changes
Select Fund bond in interest rates may have a significant effect on
portfolios because this portfolio, because it primarily invests in
it invests in bonds securities with medium or long terms to maturity and
with longer terms may use hedging techniques. Bonds with longer
to maturity, and durations tend to be more sensitive to changes in
maintains a longer interest rates, making them more volatile than bonds
average portfolio with shorter durations. The portfolio may also invest
duration. in mortgage related securities and fixed income
securities with variable interest rates. These can
reduce returns if interest rates go down. Stripped
mortgage related securities can be particularly
sensitive to changes in interest rates.
. credit risk - the portfolio could lose money if the
issuer of a fixed income security is unable to meet
its financial obligations or goes bankrupt. This
portfolio may invest in high yield bonds, which may
make it particularly subject to credit risk,
especially during periods of economic uncertainty or
during economic downturns.
. inability to sell investments - the portfolio could
lose money or not realize potential gains if it
cannot sell an investment at the time and price that
would be most beneficial to the portfolio. Securities
whose credit ratings have been lowered, or that have
been issued in emerging market countries, may be
particularly difficult to sell.
16
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . risks of foreign investing - foreign investments may
aware of be riskier than U.S. investments for many reasons,
(continued) including changes in currency exchange rates,
unstable political and economic conditions, a lack of
This portfolio may adequate company information, differences in the way
not invest more securities markets operate, less secure foreign banks
than: or securities depositories than those in the U.S.,
and foreign controls on investment.
. 20% of its assets
in lower-rated, . risks of using derivatives - this portfolio may use
high yield options, futures contracts and other investment
("junk") bonds, techniques to help it achieve its investment goal.
of which 15% may There's always a risk that these techniques could
be in emerging reduce returns or increase the portfolio's
markets volatility.
. 10% of its assets
in foreign
investments
denominated in
foreign
currencies
. 10% of its assets
in stripped
mortgage related
securities.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF BOND AND INCOME PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94
varied over the ---- ----- ---- ----- ------
past 10 years. 3.27 24.32 8.09 19.39 (8.36)
The table below the 95 96 97 98 99
bar chart compares ----- ------ ----- ---- ------
the portfolio's 33.71 (0.80) 16.32 8.97 (7.34)
performance with
the Lehman Brothers Best and worst quarterly performance during this period:
Long-Term
Government/Corporate 2nd quarter 1995: 11.96%; 1st quarter 1996: (7.22)%
Bond Index, an
index of bonds with
maturities of 10 Average annual total return
years or more. as of December 31, 1999 1 year 5 years 10 years
---------------------------------------------------------
Returns do not Bond and Income Portfolio/1/ (7.34)% 9.27% 8.99%
reflect fees and Lehman Brothers Long-Term
expenses associated Government/Corporate Bond Index (7.64)% 8.99% 8.65%
with any variable
annuity contract or /1/ Goldman Sachs Asset Management began managing the
variable life portfolio on May 1, 1998, and some investment
insurance policy, policies changed at that time. Another firm managed
and would be lower the portfolio before that date. Performance of the
if they did. Bond and Income Portfolio before 1995 is based on
the performance of the portfolio of the Pacific
Looking at how a Corinthian Variable Fund, which the Pacific Select
portfolio has Fund acquired on December 31, 1994.
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ------------------------------------------------
Who manages the Jonathan Beinner, managing director, is co-head of the
portfolio U.S. fixed income team, and heads the mortgage-backed
and asset-backed securities group. He has two BS
[LOGO OF GOLDMAN degrees from the University of Pennsylvania. He worked
SACHS APPEARS HERE] in the trading and arbitrage group of Franklin Savings
Associates before joining Goldman Sachs in 1990. He
The Bond and Income began managing the Bond and Income Portfolio in 1998.
Portfolio is
managed by a team Richard Lucy, CFA, managing director, holds BS and MBA
of portfolio degrees from New York University. He managed fixed
managers at Goldman income assets at Brown Brothers Harriman & Co. for nine
Sachs Asset years before joining Goldman Sachs in 1992. He began
Management. You'll managing the Bond and Income Portfolio in 1998.
find more about
Goldman Sachs on
page 49.
- --------------------------------------------------------------------------------
Proposed plan of The fund's board of trustees has approved a proposed
reorganization reorganization of this portfolio into the Managed Bond
Portfolio, subject to the approval of the shareholders of
this portfolio. If shareholder approval is obtained, it
is expected that the reorganization will take place in
the summer of 2000. If the reorganization occurs,
shareholders of this portfolio would become shareholders
of the Managed Bond Portfolio, and this Bond and Income
Portfolio would cease to exist.
- --------------------------------------------------------------------------------
17
<PAGE>
ABOUT THE PORTFOLIOS EQUITY PORTFOLIO
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio's primary investment objective is
investment goal capital appreciation. Current income is of secondary
importance.
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in large capitalization U.S. companies that have
better prospects for growth than the general U.S.
economy. It normally invests at least 90% of its assets
in equity securities of U.S. issuers, including foreign
issuers that are traded in the U.S.
This portfolio is Investments include principally common stock, but the
managed using a portfolio may also invest in fixed income securities
computerized rating that can be converted into equity securities, and
system that seeks warrants. The portfolio management team uses the
to forecast how Russell 1000 Growth Index as an overall model for the
companies will portfolio. The team tries to:
perform based on an
analysis of a broad . maintain industry, style, capitalization and risk
range of variables characteristics that are similar to the index.
that measure their
value, growth, . find companies with capitalizations and earnings
momentum and risk, growth expectations that are above the average of the
and on the index and with dividend yields that are below the
portfolio managers' average of the index.
outlook on the
market. The team selects individual companies using a
proprietary computerized rating system, called a
"multifactor model," combined with fundamental
research.
The portfolio managers may use options, futures or
other techniques as a substitute for securities and to
provide equity exposure to the portfolio's cash
position. The portfolio may also lend some of its
assets, as long as the loans it makes are secured.
The team may temporarily change its strategies if it
believes that economic conditions make it necessary to
try to protect the portfolio from potential loss. In
this case, the portfolio may invest in U.S. government
securities, corporate bonds, repurchase agreements, or
money market instruments, which may prevent the
portfolio from achieving its investment goal.
[SYMBOL] ------------------------------------------------
Risks you should be The Equity Portfolio principally invests in equity
aware of securities, which may go up or down in value, sometimes
rapidly and unpredictably. While equities may offer the
potential for greater long-term growth than most fixed
income securities, they generally have higher
volatility. The portfolio may be affected by the
following risks, among others:
. price volatility - the value of the portfolio changes
as the prices of the investments it holds go up or
down. This portfolio principally invests in large
companies, which tend to have less volatile prices
than smaller companies. The portfolio managers also
look for companies they think have the potential for
rapid growth, which may give the portfolio a higher
risk of price volatility than a portfolio that
invests in equities that are "undervalued," for
example.
. risks of using derivatives - this portfolio may use
options, futures and other investment techniques to
help it achieve its investment goals. There's always
a risk that these techniques could reduce returns or
increase the portfolio's volatility.
18
<PAGE>
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF EQUITY PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94
varied over the ------ ----- ---- ----- ------
past 10 years. (2.55) 29.77 6.30 16.06 (2.87)
The table below the 95 96 97 98 99
bar chart compares ----- ----- ----- ----- -----
the portfolio's 23.80 28.03 18.18 30.28 38.54
performance with
the Russell 1000 Best and worst quarterly performance during this period:
Growth Index, an
index of large 4th quarter 1999: 25.74%; 3rd quarter 1998: (15.53)%
companies that have
high price-to-book
ratios and Average annual total return
forecasted growth as of December 31, 1999 1 year 5 years 10 years
values. It also --------------------------------------------------------
compares Equity Portfolio/1/ 38.54% 27.59% 17.73%
performance with Russell 1000 Growth Index 33.16% 32.41% 20.32%
the Standard & Standard & Poor's 500 Composite
Poor's 500 Stock Price Index 21.04% 28.55% 18.20%
Composite Stock
Price Index, an /1/ Goldman Sachs Asset Management began managing the
index of the stocks portfolio on May 1, 1998, and some investment
of approximately policies changed at that time. Another firm managed
500 large- the portfolio before that date. Performance of the
capitalization U.S. Equity Portfolio before 1995 is based on the
companies. performance of the portfolio of the Pacific
Corinthian Variable Fund, which the Pacific Select
Returns do not Fund acquired on December 31, 1994.
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ------------------------------------------------
Who manages the Robert Jones, CFA, managing director, has 18 years of
portfolio investment experience. Before joining Goldman Sachs in
1989, he provided quantitative research for a major
[LOGO OF GOLDMAN banking firm and an options consulting firm. His
SACHS APPEARS HERE] articles on quantitative techniques have been published
in leading financial journals. He has a BA from Brown
The Equity University and an MBA from the University of Michigan.
Portfolio is He began managing the Equity Portfolio in 1998.
managed by a team
of portfolio Victor Pinter, vice president, was a consultant at
managers at Goldman Chase Econometrics/IDC and a project manager in the
Sachs Asset Information Technology Division of Goldman Sachs before
Management. You'll he joined Goldman Sachs in 1985. He has a BS from
find more about Brooklyn College and an MBA from New York University's
Goldman Sachs on Stern School of Business. He joined the quantitative
page 49. equity management team in 1992.
Kent Clark, CFA, managing director, has a Bachelor of
Commerce from the University of Calgary and an MBA from
the University of Chicago. His research has been
published in The Journal of Financial and Quantitative
Analysis. He joined the quantitative equity management
team in 1992.
Melissa Brown, CFA, vice president, is a product
manager for the quantitative equity group. Before
joining Goldman Sachs in 1998, she was the director of
quantitative equity research at Prudential Securities
for 14 years, was on Prudential's investment policy
committee, and appeared on Institutional Investor
Magazine's "All-Star" list every year from 1988 to
1997. She has a BS in economics from the Wharton School
of the University of Pennsylvania and an MBA in finance
from New York University.
19
<PAGE>
ABOUT THE PORTFOLIOS I-NET TOLLKEEPER PORTFOLIO
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital.
investment goal
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest at least 65% of its assets in equity securities
of "I-Net Tollkeeper" companies, which are media,
telecommunications, technology and Internet companies
The management team that provide access, infrastructure, content and
believes that one services to Internet companies and Internet users, and
way to invest in which have developed, or are seeking to develop,
the Internet is to predictable, sustainable or recurring revenue streams
invest in those by increasing "traffic," or customers and sales, and
businesses raising "tolls," or prices in connection with the
participating in growth of the Internet.
the growth of the
Internet that may Examples of I-Net Tollkeeper companies may include:
have long-lasting
strategic . Access providers that enable individuals and
advantages businesses to connect to the Internet through, for
including: dominant example, cable systems or the telephone network;
market share;
strong brand names; . Infrastructure companies that provide items such as
recurring revenue servers, routers, software and storage necessary for
streams; cost companies to participate in the Internet;
advantages;
economies of scale; . Media content providers that own copyrights,
financial strength; distribution networks and/or programming who may
technological benefit from increased advertising by Internet
advantages; and companies and/or from having new distribution
strong experienced channels;
management teams.
. Service providers that may facilitate transactions,
communications, security, computer programming and
back-office functions for Internet businesses.
Normally, the portfolio invests at least 90% of its
assets in equity securities, primarily in publicly-
traded U.S. companies. The portfolio may invest up to
35% of its assets in non-I-Net Tollkeeper companies
which may use the Internet to enhance their cost
structure, revenue opportunities or competitive
advantage. The portfolio may also invest in Internet-
based companies (that are not I-Net Tollkeeper
companies) that the portfolio managers believe exhibit
a sustainable business model. The portfolio may
participate significantly in the initial public
offering (IPO) market.
The portfolio may lend some of its assets, as long as
the loans it makes are secured.
The team may temporarily change these strategies if it
believes economic conditions make it necessary to try
to protect the portfolio from potential loss. In this
case, the portfolio may invest in U.S. Government
securities, commercial paper, bank instruments, and
non-convertible corporate bonds with a remaining
maturity of less than one year, which may prevent the
portfolio from achieving its investment goal.
[SYMBOL] ------------------------------------------------
Risks you should be The I-Net Tollkeeper Portfolio principally invests in
aware of equity securities, which may go up or down in value,
sometimes rapidly and unpredictably. While equities may
offer the potential for greater long-term growth than
Because the most fixed income securities, they generally have
portfolio higher volatility. The portfolio may be affected by the
concentrates its following risks, among others:
investments in
I-Net Tollkeeper . industry concentration risk - the portfolio is
companies, the subject to greater risk of loss as a result of
portfolio's adverse economic, business or other developments than
performance may be if its investments were diversified across different
substantially industry sectors.
different from the
returns of the . Internet risk - the risk that the stock prices of
broader stock Internet and Internet-related companies will
market and of experience significant price movements as a result of
"pure" Internet intense worldwide competition, consumer preferences,
funds. product compatibility, product obsolescence,
government regulation, excessive investor optimism or
pessimism, or other factors.
. price volatility - the value of the portfolio changes
as the prices of its investments go up and down. This
portfolio invests in companies participating in the
growth of the Internet, which may give the portfolio
higher volatility than a portfolio that invests in
equities of other industries, or a broader spectrum
of industries. The prices of these companies may be
affected by intense competition, changing
technologies, consumer preferences, problems with
product compatibility, government regulation,
interest rates, and investor optimism or pessimism
with little or no basis in traditional economic
analysis.
20
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . IPO risk - IPOs may be more volatile than other
aware of securities. IPOs may have a magnified impact on the
portfolio during the start-up phase when the
(continued) portfolio's asset base is relatively small. As assets
grow, the effect of IPOs on the portfolio's
performance will not likely be as significant.
The portfolio may . risks of foreign investing - foreign investments may
not invest more be riskier than U.S. investments for many reasons,
than 25% of its including changes in currency exchange rates,
assets in foreign unstable political and economic conditions, a lack of
securities, adequate company information, differences in the way
including emerging securities markets operate, less secure foreign banks
market countries. or securities depositories than those in the U.S.,
and foreign controls on investment.
. emerging countries risk - compared to developed
foreign markets, emerging market countries (such as
many in Latin America, Asia, Middle East, Eastern
Europe and Africa):
. often have smaller market capitalizations and are
generally subject to greater price volatility
. may have a higher degree of political and economic
instability
. have less governmental regulation of the financial
industry and markets, and companies are not
subject to as extensive and frequent accounting,
financial and other reporting requirements.
Investment in securities of Eastern European
countries, including in particular, Russia, and other
emerging market countries, also involve risk of loss
resulting from problems in share registration and
custody.
[SYMBOL] ------------------------------------------------
Who manages the George D. Adler is a vice president and senior
portfolio portfolio manager of Goldman Sachs. He joined the
company as a portfolio manager in 1997. From 1990 to
1997, Mr. Adler was a portfolio manager at Liberty
Investment Management, Inc. (Liberty) and its
[LOGO OF GOLDMAN predecessor firm, Eagle Asset Management (Eagle).
SACHS APPEARS HERE]
Steve Barry is a vice president and senior portfolio
The I-Net manager of Goldman Sachs. He joined the company as a
Tollkeeper portfolio manager in 1999. From 1988 to 1999, Mr. Barry
Portfolio is was a portfolio manager at Alliance Capital Management
managed by a team L.P.
of portfolio
managers at Goldman Robert G. Collins is a vice president and senior
Sachs Asset portfolio manager of Goldman Sachs. He joined the
Management. You'll company as a portfolio manager and co-chair of the
find more about growth equity committee in 1997. From 1991 to 1997, Mr.
Goldman Sachs on Collins was a portfolio manager at Liberty and its
page 49. predecessor firm, Eagle.
Herbert E. Ehlers is a managing director, senior
portfolio manager and chief investment officer of the
growth equity investment team of Goldman Sachs. He
joined the company in 1997. From 1994 to 1997, Mr.
Ehlers was the chief investment officer and chairman at
Liberty, and from 1984 to 1994 was a portfolio manager
and president at Liberty's predecessor firm, Eagle.
Gregory H. Ekizian is a vice president and senior
portfolio manager of Goldman Sachs. He joined the
company as a portfolio manager and co-chair of the
growth equity investment committee in 1997. From 1990
to 1997, Mr. Ekizian was a portfolio manager at Liberty
and its predecessor firm, Eagle.
Scott Kolar is an associate and a portfolio manager of
Goldman Sachs. He joined the company as an equity
analyst in 1997 and became a portfolio manager in 1999.
From 1994 to 1997, Mr. Kolar was an equity analyst and
information systems specialist at Liberty.
Ernest C. Segundo, Jr. is a vice president and senior
portfolio manager of Goldman Sachs. He joined the
company as a portfolio manager in 1997. From 1992 to
1997, Mr. Segundo was a portfolio manager at Liberty
and its predecessor firm, Eagle.
David G. Shell is a vice president and senior portfolio
manager of Goldman Sachs. He joined the company as a
portfolio manager in 1997. From 1987 to 1997, Mr. Shell
was a portfolio manager at Liberty and its predecessor
firm, Eagle.
21
<PAGE>
ABOUT THE PORTFOLIOS MULTI-STRATEGY PORTFOLIO
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks to provide a high total return
investment goal from a portfolio of equity and fixed income securities.
Total return will consist of income plus realized and
unrealized capital gains and losses.
[SYMBOL] -----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in a mix of equity and fixed income securities.
Equity securities, which usually make up about 60% of
A portfolio that the portfolio, are principally the common stock of
invests in a mix of large and medium-sized U.S. companies. The portfolio
fixed income and may also invest in preferred stock, warrants, rights
equity securities and fixed income securities that can be converted into
tends to be less equity securities. Fixed income securities of any
volatile than a credit rating, which usually make up about 40% of the
portfolio that portfolio, are principally bonds and notes issued by
invests principally U.S. and foreign companies and governments, and
in equities. mortgage related securities including stripped mortgage
related securities.
Duration is a The portfolio management team allocates assets among
mathematical equity and fixed income securities using a variety of
measure of the analytical tools, and then periodically rebalances the
average life of a portfolio to try to increase returns and reduce risk.
bond that includes The team will vary the percentage allocated to the two
its yield, coupon, types of securities depending on its analysis of market
final maturity and conditions.
call features. It's
often used to Within the equity portion of the portfolio, the team
measure the uses the same three-step investment process it uses for
potential the Equity Income Portfolio. That process includes
volatility of a research, valuation of companies using quantitative
bond's price, and dividend analysis, and selection of individual stocks
is considered a based on their relative valuation.
more accurate
measure than Within the fixed income portion of the portfolio, the
maturity of a team sets duration objectives based on the yield curve,
security's allocates assets across a broad range of fixed income
sensitivity to sectors, and then selects individual securities based
changes in interest on research by a team of managers, analysts and
rates. traders. The average duration of the portfolio will
usually be within one year of the duration of the
Lehman Brothers Aggregate Bond Index. The index had an
average duration of 5.00 years on March 31, 2000.
The team may use options, futures contracts and other
techniques to try to increase returns or to try to
hedge changes in interest rates. The team may also use
derivatives to hedge against changes in currency
exchange rates. The portfolio may lend some of its
assets, as long as the loans it makes are secured.
[SYMBOL] -----------------------------------------------
Risks you should be The Multi-Strategy Portfolio invests in a mix of equity
aware of and fixed income securities. While equities may offer
the potential for greater long-term growth than most
This portfolio may fixed income securities, they generally have higher
not invest more volatility. Fixed income securities are affected
than 10% of its primarily by the financial condition of the company
assets in foreign that has issued it, and changes in interest rates. The
fixed income portfolio may be affected by the following risks, among
securities. others:
. price volatility - the value of the portfolio changes
as the prices of its investments go up or down. This
portfolio invests in large and medium-sized
companies, which tend to have less volatile prices
than smaller companies. The portfolio may, however,
invest in smaller companies.
. changes in interest rates - the portfolio's fixed
income investments may make it sensitive to changes
in interest rates. The value of the portfolio may
fall when interest rates rise.
. credit risk - the portfolio could lose money if the
issuer of a fixed income security is unable to meet
its financial obligations or goes bankrupt.
22
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . risks of foreign investing - foreign investments may
aware of be riskier than U.S. investments for many reasons,
(continued) including changes in currency exchange rates,
unstable political and economic conditions, a lack of
adequate company information, differences in the way
securities markets operate, less secure foreign banks
or securities depositories than those in the U.S.,
and foreign controls on investment.
. risks of using derivatives - this portfolio may use
index options, futures contracts and other investment
techniques to help it achieve its investment goal.
There's always a risk that these techniques could
reduce returns or increase the portfolio's
volatility.
. short-term trading - the portfolio can engage in
short-term trading, which could result in higher
trading costs.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF MULTI-STRATEGY PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94
varied over the ------ ----- ---- ---- ------
past 10 years. (1.47) 24.03 5.57 9.25 (1.50)
The table below the 95 96 97 98 99
bar chart compares ----- ----- ----- ----- ----
the portfolio's 25.25 12.56 19.62 18.17 7.04
performance with
the Standard & Best and worst quarterly performance during this period:
Poor's 500
Composite Stock 4th quarter 1998: 12.08%; 3rd quarter 1990: (10.11)%
Price Index, an
index of the stocks
of approximately Average annual total return
500 large- as of December 31, 1999 1 year 5 years 10 years
capitalization U.S. --------------------------------------------------------
companies, and the Multi-Strategy
Lehman Brothers Portfolio/1/ 7.04% 16.36% 11.47%
Aggregate Bond Lehman Brothers
Index, an index of Aggregate Bond Index (0.83)% 7.73% 7.69%
fixed income Standard & Poor's 500
securities. Composite Stock Price
Index 21.04% 28.55% 18.20%
Returns do not
reflect fees and /1/ J.P. Morgan Investment Management Inc. began
expenses associated managing the portfolio on January 1, 1994, and some
with any variable investment policies changed at that time. Another
annuity contract or firm managed the portfolio before that date.
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] -----------------------------------------------
Who manages the Henry Cavanna, managing director, is a senior equity
portfolio portfolio manager in the U.S. equity and balanced
accounts group. He joined J.P. Morgan in 1971 and his
[LOGO OF J.P. first assignment was in pension administration. He
MORGAN APPEARS began managing the Multi-Strategy Portfolio in 1997. He
HERE] has a BA from Boston College and an LLB from the
University of Pennsylvania.
The Multi-Strategy
Portfolio is William Tennille, vice president, joined J.P. Morgan in
managed by a team 1992. He began managing the Multi-Strategy Portfolio in
of portfolio 1997. He is a fixed income portfolio manager for
managers at pension and institutional accounts and also serves as a
J.P. Morgan mortgage-backed and derivatives investment specialist
Investment for the fixed income group. He is a graduate of the
Management Inc. University of North Carolina.
You'll find more
about J.P. Morgan Peggy Adams, vice president, is a portfolio manager in
on page 49. the U.S. equity and balanced accounts group. She joined
J.P. Morgan in 1989 and has had assignments in
corporate finance, risk arbitrage, and institutional
equity sales. She holds a BA from Brown University and
an MBA from the Yale School of Management.
23
<PAGE>
ABOUT THE PORTFOLIOS EQUITY INCOME PORTFOLIO
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital and
investment goal income.
[SYMBOL] -----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in common stocks of large and medium-sized U.S.
companies, but it may invest in small companies or in
companies located outside the U.S. that are listed on a
U.S. stock exchange.
The portfolio The portfolio is managed by a team of portfolio
manager tries to managers who maintain industry sector weightings that
achieve gross are similar to those of the Standard & Poor's 500
income of 75% of Composite Stock Price Index. The team moderately
the dividend income underweights or overweights sectors when it believes
generated on the this will enhance performance.
stocks included in
the Standard and The team chooses companies to invest in within these
Poor's 500 industry sectors using a three-step process:
Composite Stock
Price Index. When Research - the team looks at company prospects over the
selecting stocks, short term as well as over a relatively long period -
however, the often as much as five years - to gain insight into a
manager puts more company's real growth potential.
emphasis on the
potential for Valuation - the team ranks the companies in each
capital industry group according to their relative value using
appreciation than quantitative earnings, cash flow and dividend analysis
on current and forecasts. The more the team's estimated worth of a
dividends. company exceeds the current market price of its stock,
the more undervalued it considers the company.
Stock selection - using the research and valuation
rankings as a guide, the team buys stocks that are
undervalued and considers selling them when they appear
overvalued. Along with attractive valuation, the team
considers a number of other criteria, including:
. events that could trigger a rise in a stock's price
. high potential reward compared with potential risk
. temporary mispricings caused by market overreactions.
The portfolio invests principally in dividend-paying
common stock. It may also invest in other equity
securities like non-dividend-paying common stock and
preferred stock, and in fixed income securities that
can be converted into equity securities.
The portfolio may invest in index options, stock index
futures and other techniques to try to increase
returns, to try to gain access to a market or as a
substitute for buying the securities in the index. The
portfolio may also lend some of its assets, as long as
the loans it makes are secured. The team may
temporarily change these strategies if it believes
economic conditions make it necessary to try to protect
the portfolio from potential loss. In this case, the
portfolio may invest in investment grade short-term
fixed income securities or cash, which may prevent the
portfolio from achieving its investment goal.
[SYMBOL] -----------------------------------------------
Risks you should be The Equity Income Portfolio principally invests in
aware of equity securities, which may go up or down in value,
sometimes rapidly and unpredictably. While equities may
offer the potential for greater long-term growth than
most fixed income securities, they generally have
higher volatility. The portfolio may be affected by the
following risks, among others:
. price volatility - the value of the portfolio changes
as the prices of its investments go up or down. The
portfolio manager tries to control price volatility
by investing in many different companies in a wide
range of industries.
24
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . risks of using derivatives - this portfolio may use
aware of options, futures contracts and other investment
(continued) techniques to help it achieve its investment goal.
There's always a risk that these techniques could
reduce returns or increase the portfolio's
volatility.
. risks of foreign investing - foreign investments may
be riskier than U.S. investments for many reasons,
including changes in currency exchange rates,
unstable political and economic conditions, a lack of
adequate company information, differences in the way
securities markets operate, less secure foreign banks
or securities depositories than those in the U.S.,
and foreign controls on investment.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF EQUITY INCOME PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94
varied over the ------ ----- ---- ---- ------
past 10 years. (7.54) 31.42 5.36 8.29 (0.28)
The table below the 95 96 97 98 99
bar chart compares ----- ----- ----- ----- -----
the portfolio's 31.66 19.43 28.60 24.18 13.26
performance with
the Standard & Best and worst quarterly performance during this period:
Poor's 500
Composite Stock 4th quarter 1998: 21.81%; 3rd quarter 1990: (16.91)%
Price Index, an
index of the stocks
of approximately Average annual total return
500 large- as of December 31, 1999 1 year 5 years 10 years
capitalization U.S. ---------------------------------------------------------
companies. Equity Income Portfolio/1/ 13.26% 23.25% 14.67%
Standard & Poor's 500 Composite
Returns do not Stock Price Index 21.04% 28.55% 18.20%
reflect fees and
expenses associated /1/ J.P. Morgan Investment Management Inc. began
with any variable managing the portfolio on January 1, 1994, and some
annuity contract or investment policies changed at that time. Another
variable life firm managed the portfolio before that date.
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ------------------------------------------------
Who manages the Henry Cavanna, managing director, is a senior equity
portfolio portfolio manager in the U.S. equity and balanced
accounts group. He joined J.P. Morgan in 1971 and his
[LOGO OF J.P. first assignment was in pension administration. He
MORGAN INVESTMENT] began managing the Equity Income Portfolio in 1997, and
has a BA from Boston College and an LLB from the
The Equity Income University of Pennsylvania.
Portfolio is
managed by a team Peggy Adams, vice president, is a portfolio manager in
of portfolio the U.S. equity and balanced accounts group. She joined
managers at J.P. Morgan in 1989 and has had assignments in
J.P. Morgan corporate finance, risk arbitrage, and institutional
Investment equity sales. She holds a BA from Brown University and
Management Inc. an MBA from the Yale School of Management.
You'll find more
about J.P. Morgan
on page 49.
25
<PAGE>
ABOUT THE PORTFOLIOS GROWTH LT PORTFOLIO
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital in a
investment goal manner consistent with the preservation of capital.
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in a large number of companies of any size, from
small emerging growth to well established companies. It
principally invests in common stock.
This portfolio may The portfolio manager looks for companies that have
invest some of its high potential for earnings growth that may not be
assets in foreign recognized by other investors. The portfolio manager
companies. generally does not limit security selection to any
Investing globally industry sector or use other defined selection
offers greater procedures. The realization of income is not a
diversification significant factor in considering portfolio securities.
because the Before investing in a company, the portfolio manager
portfolio can take may consider:
advantage of
investment . how much demand there is for the company's products
opportunities that and services
are not available
in the U.S. . how the company is positioned against its competitors
. the regulatory environment in which the company
operates.
When selecting companies located outside the U.S., the
portfolio manager may also consider:
. expected levels of inflation
. government policies influencing business conditions
. the outlook for currency relationships
. prospects for relative economic growth among
countries, regions or geographic areas.
The portfolio may also invest in fixed income
securities, including lower-rated "junk" bonds.
The portfolio manager may use options, futures and
other techniques to try to increase returns or to try
to hedge against changes in interest rates or market
declines. The manager may also use forward foreign
currency contracts or derivatives to hedge against
changes in currency exchange rates. The portfolio may
lend some of its assets, as long as the loans it makes
are secured.
The portfolio may invest in U.S. government securities,
higher-quality corporate fixed income securities, money
market instruments or repurchase agreements if the
manager believes they have growth potential or cannot
find equity investments that meet investment criteria.
The portfolio manager may temporarily change these
strategies if he believes economic conditions make it
necessary to try to protect the portfolio from
potential loss. In this case, the portfolio may
increase its position in cash or similar investments,
which may prevent the portfolio from achieving its
investment goal.
[SYMBOL] ------------------------------------------------
Risks you should be The Growth LT Portfolio principally invests in equity
aware of securities, which may go up or down in value, sometimes
rapidly and unpredictably. While equities may offer the
potential for greater long-term growth than most fixed
This portfolio may income securities, they generally have higher
not invest more volatility. The portfolio may also be affected by the
than: following risks, among others:
. 10% of its assets . price volatility - the value of the portfolio changes
in lower-rated, as the prices of its investments go up or down. This
high-yield portfolio invests in companies that the portfolio
("junk") bonds manager believes have the potential for rapid growth,
which may give the portfolio a higher risk of price
. 25% of its assets volatility than a portfolio that invests in equities
in foreign that are "undervalued," for example.
investments.
26
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be This portfolio may also invest in small and medium-
aware of sized companies, which may be more susceptible to
(continued) greater price swings than larger companies because they
may have fewer financial resources, limited product and
market diversification and many are dependent on a few
key managers.
. risks of foreign investing - foreign investments may
be riskier than U.S. investments for many reasons,
including changes in currency exchange rates,
unstable political and economic conditions, a lack of
adequate company information, differences in the way
securities markets operate, less secure foreign banks
or securities depositories than those in the U.S.,
and foreign controls on investment.
. risks of using derivatives - this portfolio may use
options, futures contracts and other investment
techniques to help it achieve its investment goal.
There's always a risk that these techniques could
reduce returns or increase the portfolio's
volatility.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows
how the portfolio's [GRAPH OF GROWTH LT PORTFOLIO APPEARS HERE]
performance has
varied since its 94 95 96 97 98 99
inception. ----- ----- ----- ----- ----- -----
13.25 36.75 17.87 10.96 58.29 98.08
The table below the
bar chart compares Best and worst quarterly performance during this period:
the portfolio's
performance with 4th quarter 1999: 43.24%; 1st quarter 1997: (6.72)%
the Russell 2500
Index, an index of
2,500 U.S. mid-cap Average annual total
companies, and the return as of Since inception
Standard & Poor's December 31, 1999 1 year 5 years (January 4, 1994)/2/
500 Composite Stock ---------------------------------------------------------
Price Index, an Growth LT
index of the stocks Portfolio 98.08% 41.17% 36.12%
of approximately Russell 2500
500 large- Index 24.15% 19.43% 15.73%
capitalization U.S. Standard & Poor's
companies. 500 Composite
Stock Price
Returns do not Index 21.04% 28.55% 23.55%
reflect fees and
expenses associated /1/ Total return for 1994 is for the period from
with any variable January 4, 1994 (commencement of operations) to
annuity contract or December 31, 1994.
variable life
insurance policy, /2/ Portfolio total return calculated from inception
and would be lower date through end of period. Index total returns
if they did. calculated from January 1, 1994 through end of
period.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ------------------------------------------------
Who manages the Warren Lammert, III, CFA, vice president of Janus
portfolio Capital Corporation, joined Janus in 1987 and is
portfolio manager and executive vice president of Janus
[LOGO OF JANUS Mercury Fund and executive vice president of Janus
APPEARS HERE] Investment Fund. He has also been the portfolio manager
of various growth-oriented accounts since 1991. He has
The Growth LT a BA in economics from Yale University and an MA in
Portfolio is economic history (with distinction) from the London
managed by Janus School of Economics.
Capital
Corporation. You'll
find more about
Janus on page 49.
27
<PAGE>
ABOUT THE PORTFOLIOS MID-CAP VALUE PORTFOLIO
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks capital appreciation.
investment goal
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest at least 80% of its assets in the common stocks
of medium-sized U.S. companies in the range of the
A company's Russell Midcap Index that are believed to be
"capitalization" is undervalued based on their return on total capital or
a measure of its equity. The Russell Midcap Index is composed of
size. selected common stocks of medium-sized U.S. companies.
Capitalization is
calculated by The portfolio management team determines a company's
multiplying the value by comparing its share price with its return on
current share price total capital or equity. Companies are considered
by the number of undervalued when their share price is lower than their
shares held by estimated worth or growth prospects.
investors.
Selling short is The portfolio management team attempts to identify
the opposite of a undervalued securities using traditional measures of
typical stock value, including low price to earnings ratio, high
market transaction. yield, unrecognized assets, potential for management
Instead of buying a change and the potential to improve profitability. The
stock and then team's global investment specialists apply both
selling it - quantitative and qualitative analysis to securities
hopefully at a selection. The team focuses on individual stock
higher price - you selection rather than on forecasting stock market
sell the stock trends.
first, and then buy
it, hopefully at a The team may also invest in equity securities of larger
lower price. In a capitalization companies, investment grade fixed income
short sale, you securities, and foreign equity and fixed income
normally borrow the securities.
stock you're
selling.
The portfolio may also lend some of its assets, as long
as the loans it makes are secured. It may use borrowed
money to make investments, which may include short
selling securities it doesn't own. The portfolio
manager may use options, futures contracts and other
techniques to try to increase returns or to try to
hedge against changes in interest rates. The manager
may also use derivatives to hedge against changes in
currency exchange rates.
The team may temporarily change these strategies if it
believes economic conditions make it necessary to
protect the portfolio from potential loss. In this
case, the portfolio may invest any amount in larger
companies, short-term money market instruments or cash,
which may prevent the portfolio from achieving its
investment goal.
[SYMBOL] ------------------------------------------------
Risks you should be The Mid-Cap Value Portfolio principally invests in
aware of equity securities, which may go up or down in value,
sometimes rapidly and unpredictably. While equities may
offer the potential for greater long-term growth than
most fixed income securities, they generally have
higher volatility. The portfolio may also be affected
by the following risks, among others:
. price volatility - the value of the portfolio changes
as the prices of the investments it holds go up or
down. This portfolio invests in medium-sized
companies, which are more susceptible to price swings
than larger companies, but usually tend to have less
volatile price swings than smaller companies.
This portfolio may . risks of foreign investing - foreign investments may
not invest more be riskier than U.S. investments for many reasons,
than 15% of its including changes in currency exchange rates,
assets in foreign unstable political and economic conditions, a lack of
investments. adequate company information, differences in the way
securities markets operate, less secure foreign banks
or securities depositories than those in the U.S.,
and foreign controls on investment.
28
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . risks of using derivatives - this portfolio may use
aware of options, futures contracts and other investment
(continued) techniques to help it achieve its investment goal.
There's always a risk that these techniques could
reduce returns or increase the portfolio's
volatility.
. risks of leveraging - leveraging, or using borrowed
money to buy securities, can magnify the gain - and
the loss - on the security. The portfolio will be
charged interest on any money it borrows. The lender
will have priority over shareholders against the
portfolio's assets.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed
as of December 31 each year/1/
The bar chart shows [GRAPH OF MID-CAP VALUE PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 99
varied since its ----
inception. 5.22
The table below the Best and worst quarterly performance during this period:
bar chart compares
the portfolio's 2nd quarter 1999: 11.22%; 3rd quarter 1999: (14.64)%
performance with
the Russell Midcap
Index, an index of Average annual total return Since inception
800 of the smallest as of December 31, 1999 1 year (January 4, 1999)/2/
companies in the ---------------------------------------------------------
Russell 1000 Index. Mid-Cap Value Portfolio/1/ 5.22% 5.22%
Russell Midcap Index 18.23% 18.23%
Returns do not
reflect fees and
expenses associated /1/ Total return for 1999 is for the period from
with any variable January 4, 1999 (commencement of operations) to
annuity contract or December 31, 1999.
variable life /2/ Portfolio total return calculated from inception
insurance policy, date through end of period. Index total returns
and would be lower calculated from January 1, 1999 through end of
if they did. period.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ------------------------------------------------
Who manages the Herbert W. Gullquist, chief investment officer of
portfolio Lazard and a vice chairman and managing director of
Lazard Freres & Co. LLC, is responsible for ensuring
that all investment activity follows Lazard's
[LOGO OF LAZARD investment philosophy and guidelines. He has managed
ASSET MANAGEMENT the Mid-Cap Value Portfolio since it started on January
APPEARS HERE] 4, 1999. He has 38 years of investment management
experience. Before joining Lazard in 1982, Mr.
The Mid-Cap Value Gullquist was a general partner of Oppenheimer &
Portfolio is Company Inc. and a managing director and the chief
managed by a team investment officer of Oppenheimer Capital Corp. He has
of portfolio a BA from Northwestern University.
managers at Lazard
Asset Management.
You'll find more Eileen D. Alexanderson, CFA, managing director of
about Lazard on Lazard Freres & Co. LLC, is responsible for U.S./global
page 49. equity management and overseeing the day-to-day
operations of the U.S. small cap and U.S. mid-cap
equity investment teams. She has managed the Mid-Cap
Value Portfolio since it started on January 4, 1999.
Ms. Alexanderson joined Lazard in 1979 and has 19 years
of investment experience. She has a BS from St. John's
University.
29
<PAGE>
ABOUT THE PORTFOLIOS EQUITY INDEX PORTFOLIO
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks to provide investment results that
investment goal correspond to the total return of common stocks that
are publicly traded in the United States.
[SYMBOL] -----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in companies that are representative of the
Standard & Poor's 500 Composite Stock Price Index as a
whole. It principally invests in common stock.
The portfolio management team has two objectives:
The goal of an . match the returns of the index before taking into
index fund is to account portfolio costs
mirror the The portfolio usually holds between 400 and 500 of the
performance of a stocks in the index and tries to match its industry
specific index. weightings. Since the portfolio generally invests in
Because individual securities that are included in the index, it has
investment similar risk characteristics and performance. The team
selection is periodically reviews and rebalances the portfolio's
virtually investments to more closely track the performance of
eliminated, active the index. It will not, however, actively manage the
portfolio portfolio or carry out a financial analysis of its
management is not holdings.
required.
This portfolio The team frequently uses index futures as a substitute
invests in for securities and to provide equity exposure to the
companies that are portfolio's cash position.
included in the
Standard & Poor's Portfolio returns will likely be lower than the index
500 Composite Stock because of transaction costs and other expenses the
Price Index, an portfolio has to pay. The portfolio's ability to match
index of the stocks the returns of the index will also depend on the size
of approximately of the portfolio, its cash flow, and how easy it is to
500 large- sell the investments it holds.
capitalization U.S.
companies. . lower transaction costs
This portfolio is expected to have lower transaction
costs than actively managed portfolios because it
generally makes fewer transactions.
The portfolio may lend some of its assets, as long as
the loans it makes are secured. The portfolio may hold
some cash for liquidity, but the team will not change
these strategies at any time for any other reason.
------------------------------------------------------
Risks you should be The Equity Index Portfolio principally invests in
aware of equity securities, which may go up or down in value,
sometimes rapidly and unpredictably. While equities may
offer the potential for greater long-term growth than
most fixed income securities, they generally have
higher volatility. The portfolio may be affected by the
following risks, among others:
. price volatility - the value of the portfolio changes
as the prices of the investments it holds go up or
down. This portfolio primarily invests in large
companies, which sometimes have less volatile prices
than smaller companies.
30
<PAGE>
[SYMBOL] -----------------------------------------------
Risks you should be . stock market risk - The portfolio is not actively
aware of managed, and invests in securities included in the
(continued) index regardless of their investment merit. The team
cannot change this investment strategy, even
temporarily to protect the portfolio from loss during
poor economic conditions. This means the portfolio is
susceptible to a general decline in the U.S. stock
market.
. risks of using derivatives - this portfolio
frequently uses index futures and other investment
techniques to help it achieve its investment goals.
There's always a risk that these techniques could
reduce returns or increase the portfolio's
volatility.
[SYMBOL] -----------------------------------------------
How the portfolio Year by year total return (%)
has performed
as of December 31 each year/1/,/3/
The bar chart shows [GRAPH OF EQUITY INDEX PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 91 92 93 94 95
varied since its ----- ---- ---- ---- -----
inception. 24.88 6.95 9.38 1.05 36.92
The table below the 96 97 98 99
bar chart compares ----- ----- ----- -----
the portfolio's 22.36 32.96 28.45 20.59
performance with
the Standard & Best and worst quarterly performance during this period:
Poor's 500
Composite Stock 4th quarter 1998: 21.31%; 3rd quarter 1998: (9.91)%
Price Index, an
index of the stocks
of approximately Average annual total
500 large- return as of Since inception
capitalization U.S. December 31, 1999 1 year 5 years (January 30, 1991)/2/
companies. ---------------------------------------------------------
Equity Index
Returns do not Portfolio/3/ 20.59% 28.11% 20.01%
reflect fees and Standard & Poor's
expenses associated 500 Composite Stock
with any variable Price Index 21.04% 28.55% 20.46%
annuity contract or
variable life /1/ Total return for 1991 is for the period from
insurance policy, January 30, 1991 (commencement of operations) to
and would be lower December 31, 1991.
if they did.
/2/ Portfolio total return calculated from inception
Looking at how a date through end of period. Index total return
portfolio has calculated from February 1, 1991 through end of
performed in the period.
past is important -
but it's no /3/ Mercury Asset Management US began managing the
guarantee of how it portfolio on January 1, 2000. Another firm managed
will perform in the the portfolio before that date.
future.
[SYMBOL] -----------------------------------------------
Who manages the The Equity Index Portfolio is managed by the
portfolio Quantitative Strategies Division of Mercury Asset
Management US. You'll find more about Mercury on page
[LOGO OF MERCURY 50.
ASSET MANAGEMENT
APPEARS HERE]
31
<PAGE>
ABOUT THE PORTFOLIOS SMALL-CAP INDEX PORTFOLIO
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks investment results that correspond
investment goal to the total return of an index of small capitalization
companies.
[SYMBOL] -----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in companies that are included in the Russell
2000 Small Stock Index. It principally invests in
common stock.
The portfolio management team has two objectives:
The goal of an . match the returns of the index before taking into
index fund is to account portfolio costs
mirror the The portfolio can invest in any number of the stocks in
performance of a the index and tries to match its industry weightings.
specific index. Since the portfolio generally invests in securities
Because individual that are included in the index, it has similar risk
investment characteristics and performance. The team periodically
selection is reviews and rebalances the portfolio's investments to
virtually more closely track the performance of the index. It
eliminated, active will not, however, actively manage the portfolio or
portfolio carry out a financial analysis of its holdings.
management is not
required and
transaction costs The team frequently uses index futures as a substitute
are reduced. for securities and to provide equity exposure to the
portfolio's cash position.
This portfolio Portfolio returns will likely be lower than the index
invests in because of transaction costs and other expenses the
companies that are portfolio has to pay. The portfolio's ability to match
included in the the returns of the index will also depend on the size
Russell 2000 Small of the portfolio, its cash flow, and how easy it is to
Stock Index, an sell the investments it holds.
index of the 2,000
smallest companies . lower transaction costs
listed in the This portfolio is expected to have lower transaction
Russell 3000 Index. costs than actively managed portfolios because it
generally makes fewer transactions.
The portfolio may lend some of its assets, as long as
the loans it makes are secured. The portfolio may hold
some cash for liquidity, but the team will not change
these strategies at any time for any other reason.
[SYMBOL] -----------------------------------------------
Risks you should be The Small-Cap Index Portfolio principally invests in
aware of equity securities, which may go up or down in value,
sometimes rapidly and unpredictably. While equities may
offer the potential for greater long-term growth than
most fixed income securities, they generally have
higher volatility. The portfolio may be affected by the
following risks, among others:
. price volatility - the value of the portfolio changes
as the prices of the investments it holds go up or
down. This portfolio invests in small-cap companies,
which tend to have higher price swings than larger
companies because they have fewer financial
resources, limited product and market diversification
and many are dependent on a few key managers.
32
<PAGE>
[SYMBOL] -----------------------------------------------
Risks you should be . stock market risk - The portfolio is not actively
aware of managed, and invests in securities included in the
(continued) index regardless of their investment merit. It cannot
modify its investment strategy to respond to changes
in the economy, which means the portfolio is
susceptible to a general decline in the U.S. stock
market.
. risks of using derivatives - this portfolio
frequently uses index options and other investment
techniques to help it achieve its investment goals.
There's always a risk that these techniques could
reduce returns or increase the portfolio's
volatility.
[SYMBOL] -----------------------------------------------
How the portfolio Year by year total return (%)
has performed
as of December 31 each year/1/,/3/
The bar chart shows
how the portfolio's [GRAPH OF SMALL-CAP INDEX PORTFOLIO APPEARS HERE]
performance has
varied since its 99
inception. -----
19.36
The table below the Best and worst quarterly performance during this period:
bar chart compares 4th quarter 1999: 18.00%; 3rd quarter 1999:
the portfolio's (6.39)%
performance with
the Russell 2000 Average annual total return Since inception
Small Stock Index, as of December 31, 1999 1 year (January 4, 1999)/2/
an index of the ---------------------------------------------------------
2,000 smallest Small-Cap Index
companies listed in Portfolio/1/,/3/ 19.36% 19.36%
the Russell 3000 Russell 2000 Small
Index. Stock Index 21.26% 21.26%
Returns do not /1/ Total return for 1999 is for the period from
reflect fees and January 4, 1999 (commencement of operations) to
expenses associated December 31, 1999.
with any variable
annuity contract or /2/ Portfolio total return calculated from inception
variable life date through end of period. Index total return
insurance policy, calculated from January 1, 1999 through end of
and would be lower period.
if they did.
/3/ Mercury Asset Management US began managing the
Looking at how a portfolio on January 1, 2000. Another firm managed
portfolio has the portfolio before that date.
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] -----------------------------------------------
Who manages the The Small-Cap Index Portfolio is managed by the
portfolio Quantitative Strategies Division of Mercury Asset
Management US. You'll find more about Mercury on page
[LOGO OF MERCURY 50.
ASSET MANAGEMENT
APPEARS HERE]
33
<PAGE>
ABOUT THE PORTFOLIOS REIT PORTFOLIO
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks current income and long-term
investment goal capital appreciation.
[SYMBOL] -----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest at least 65% of its assets in securities of real
estate investment trusts. It may also invest in equity
securities of real estate operating companies whose
principal business is in the U.S. real estate industry.
Real estate Some of these companies may be foreign.
investment trusts
(REITs) and real
estate operating The portfolio may also invest in companies which invest
companies are in properties, including office and industrial
entities that own buildings, apartments, manufactured homes and hotels.
portfolios of real
estate. REITs
invest primarily in
properties that The portfolio management team uses a "top-down" process
produce income and to determine how assets are allocated. The team focuses
in real estate- on key regional criteria that include demographic and
related loans or macroeconomic factors like population, employment,
interests. household formation and income. When selecting
securities, the team uses a "bottom-up" process that
emphasizes underlying asset values, values per square
foot and property yields.
The team may use options and other techniques to try to
increase returns, and futures contracts, interest rate
derivative products and structured notes to try to
hedge against changes in interest rates. The portfolio
may also lend some of its assets, as long as the loans
it makes are secured.
The team may change these strategies if it believes
economic conditions make it necessary to try to protect
the portfolio from a potential loss. In this case, the
portfolio may invest in investment grade short- and
medium-term fixed income securities or cash, which may
prevent the portfolio from achieving its investment
goal.
[SYMBOL] -----------------------------------------------
Risks you should be The REIT Portfolio principally invests in equity
aware of securities, which may go up or down in value, sometimes
rapidly and unpredictably. While equities may offer the
potential for greater long-term growth than most fixed
income securities, they generally have higher
volatility. The portfolio may also be affected by the
following risks, among others:
. price volatility - the value of the portfolio changes
The portfolio is as the prices of the investments it holds go up or
considered to be down. This portfolio invests in companies
"non-diversified" participating in the real estate industry. The prices
because it may of these companies are affected by real estate
invest in cycles, cash flows, availability of mortgage
securities of a financing, changes in interest rates, overbuilding,
fewer number of property taxes and operating expenses, environmental
issuers than other regulation and changes in zoning laws and
portfolios. This regulations.
increases the risk
that its value . risks of real estate investment trusts (REITs) -
could go down REITs expose the portfolio to the risks of the real
because of the poor estate market. For example, some REITs may invest in
performance of a a limited number of properties, in a narrow
single investment geographic area, or in a single property type, which
or small number of increases the risk that the portfolio could be
investments. unfavorably affected by the poor performance of a
single investment. Borrowers could default on or sell
investments the REIT holds, which could reduce the
cash flow needed to make distributions to investors.
In addition, a REIT may not qualify for preferential
tax treatments or exemptions. REITs require
specialized management and pay management expenses.
This portfolio may . risks of foreign investing - foreign investments may
not invest more be riskier than U.S. investments for many reasons,
than 10% of its including changes in currency exchange rates,
assets in foreign unstable political and economic conditions, a lack of
investments. adequate company information, differences in the way
securities markets operate, less secure foreign banks
or securities depositories than those in the U.S.,
and foreign controls on investment.
34
<PAGE>
[SYMBOL] ----------------------------------------------
Risks you should be . risks of using derivatives - this portfolio may use
aware of options, futures contracts and other investment
(continued) techniques such as interest-sensitive derivative
products and structured notes to help it achieve its
investment goal. There's always a risk that these
techniques could reduce returns or increase the
portfolio's volatility. When it invests in structured
notes and other derivatives, this portfolio is
particularly sensitive to the risk that the other
party to the derivative cannot meet its financial
obligations to pay the portfolio.
[SYMBOL] ----------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF REIT PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 99
varied since its ------
inception. (0.01)
The table below the Best and worst quarterly performance during this period:
bar chart compares
the portfolio's 2nd quarter 1999: 11.80%; 3rd quarter 1999: (7.89)%
performance with
the North American
Real Estate Average annual total return Since inception
Investment Trust as of December 31, 1999 1 year (January 4, 1999)/2/
(NAREIT) Equity ---------------------------------------------------------
Index, an index of REIT Portfolio/1/ (0.01)% (0.01)%
all tax-qualified NAREIT Equity Index (4.62)% (4.62)%
REITs listed on the
New York Stock
Exchange, American /1/ Total return for 1999 is for the period from
Stock Exchange and January 4, 1999 (commencement of operations) to
NASDAQ. December 31, 1999.
Returns do not /2/ Portfolio total return calculated from inception
reflect fees and date through end of period. Index total return
expenses associated calculated from January 1, 1999 through end of
with any variable period.
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ----------------------------------------------
Who manages the Theodore Bigman, managing director, joined MSAM in 1995
portfolio and manages its global real estate securities
investment business. He has managed the REIT Portfolio
[LOGO OF MORGAN since it started on January 4, 1999. Before joining
STANLEY APPEARS MSAM, he was a director at CS First Boston, where he
HERE] established and managed the firm's REIT effort, and had
primary responsibility for $2.5 billion of initial
The REIT Portfolio public offerings by REITs. He graduated from Brandeis
is managed by University in 1983 with a BA in Economics and received
Morgan Stanley an MBA from Harvard University in 1987.
Asset Management
(MSAM). You'll find
more about MSAM on Douglas A. Funke, vice president, joined Morgan Stanley
page 50. & Co. Incorporated (Morgan Stanley), MSAM's affiliate,
in 1993 and MSAM in 1995. He is responsible for
providing research and analytical support for MSAM's
real estate securities investment business. He has been
associated with the REIT Portfolio since its inception
and was named portfolio manager on January 29, 1999.
Before joining MSAM, he was a member of
Morgan Stanley's interest rate and foreign exchange
risk management group, where he assisted in more than
$3 billion of structured financings and firm-related
risk management projects. He graduated from the
University of Chicago in 1993 with a B.A. in Economics
and Political Science.
35
<PAGE>
ABOUT THE PORTFOLIOS INTERNATIONAL VALUE PORTFOLIO
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks long-term capital appreciation
investment goal primarily through investment in equity securities of
corporations domiciled in countries with developed
economies and markets other than the United States.
Current income from dividends and interest will not be
an important consideration.
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in a broadly diversified portfolio of equity
securities of companies located in developed countries
outside of the U.S. which countries are included in the
EAFE Index. It may also invest in securities issued in
The Morgan Stanley emerging market countries.
Capital
International
Europe, It invests at least 70% of its assets in common stock,
Australasia, and in fixed income securities that can be converted
Far East (EAFE) into equity securities.
Index is typically
made up of MSAM uses a two-step process to manage the portfolio:
approximately
950 to 1,100 stocks . allocates assets among three geographic regions -
from 21 developed MSAM's New York office, under the supervision of the
markets in Europe, portfolio manager, decides on the appropriate
Australia, allocation of the portfolio's assets principally
New Zealand and among Europe, Japan and developed Asia, including
Asia. The index Australia and New Zealand, but may also invest in
reflects the other countries. Regional allocation decisions are
relative size of based on a variety of factors, including relative
each market and is valuations, earnings expectations, macroeconomic
a commonly used factors, as well as input from the regional stock
benchmark for the selection teams and from the firm's asset allocation
performance of group, which is made up of several of the company's
companies in senior investment professionals.
developed countries
outside North . invests in companies that are attractively valued -
America. once MSAM has determined the regional allocation,
individual stocks are selected by regional portfolio
management teams in London, Tokyo and Singapore. Each
regional team is responsible for buying securities in
Europe, Japan and Asia, respectively. The regional
teams look for stocks with an estimated worth that
they believe to be higher than their current share
price. The regional specialists review each company's
finances, products and management, and in most cases
will meet with company management, before buying the
stock for the portfolio. The portfolio may invest in
companies of any size.
MSAM may use currency hedging techniques like foreign
currency forward contracts or options to offset changes
in foreign exchange rates. The team may also use stock
index futures to gain additional exposure to foreign
markets. To meet cash flow needs, the portfolio may
invest some of its assets in cash or money market
securities denominated in U.S. dollars or foreign
currencies. It may also lend some of its assets, as
long as the loans it makes are secured.
MSAM may change these strategies if it believes
economic conditions make it necessary to try to protect
the portfolio from a potential loss. In this case, the
portfolio may invest in foreign or U.S. fixed income
securities or money market instruments, which may
prevent the portfolio from achieving its investment
goal.
[SYMBOL] ------------------------------------------------
Risks you should be The International Value Portfolio principally invests
aware of in equity securities, which may go up or down in value,
sometimes rapidly and unpredictably. While equities may
offer the potential for greater long-term growth than
most fixed income securities, they generally have
higher volatility. The portfolio may be affected by the
following risks, among others:
. price volatility - the value of the portfolio changes
as the prices of the investments it holds go up or
down. Small-cap and mid-cap companies may be more
susceptible to larger price swings than larger
companies because they may have fewer financial
resources, limited product and market
diversification, and many are dependent on a few key
managers.
. risks of foreign investing - foreign investments may
be riskier than U.S. investments for many reasons,
including changes in currency exchange rates,
unstable political and economic conditions, a lack of
adequate company information, differences in the way
securities markets operate, less secure foreign banks
or securities depositories than those in the U.S.,
and foreign controls on investment.
36
<PAGE>
[SYMBOL] -----------------------------------------------
Risks you should be . emerging countries risk - compared to developed
aware of foreign markets, emerging market countries (such as
(continued) many in Latin America, Asia, Middle East, Eastern
Europe and Africa):
. often have smaller market capitalizations and are
generally subject to greater price volatility
. may have a higher degree of political and economic
instability
. have less governmental regulation of the financial
industry and markets, and companies are not
subject to as extensive and frequent accounting,
financial and other reporting requirements.
Investment in securities of Eastern European
countries, including in particular, Russia, and other
emerging market countries, also involve risk of loss
resulting from problems in share registration and
custody.
. risks of using derivatives - this portfolio may
invest in foreign currency transactions, forward
foreign currency contracts or options, index options,
futures and other investment techniques to help it
achieve its investment goals. There's always a risk
that these techniques could reduce returns or
increase the portfolio's volatility. When it invests
in structured notes and other derivatives, this
portfolio is particularly sensitive to the risk that
the other party to the derivative cannot meet its
financial obligations to pay the portfolio.
[SYMBOL] -----------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF INTERNATIONAL VALUE PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94
varied over the ------- ----- ------ ----- ----
past 10 years. (13.48) 10.92 (9.78) 30.02 3.01
95 96 97 98 99
The table below the ----- ----- ---- ---- -----
bar chart compares 10.56 21.89 9.28 5.60 22.82
the portfolio's
performance with Best and worst quarterly performance during this period:
the Morgan Stanley 1st quarter 1998: 12.52%; 3rd quarter 1990: (20.35)%
Capital
International Average annual total return
Europe, as of December 31, 1999 1 year 5 years 10 years
Australasia, Far ---------------------------------------------------------
East Index (MSCI International Value Portfolio/1/ 22.82% 13.81% 8.28%
EAFE Index), an MSCI EAFE Index 27.30% 13.15% 7.33%
index of stocks
from 21 countries /1/ Morgan Stanley Asset Management began managing this
in Europe, portfolio on June 1, 1997. Other firms managed the
Australia, portfolio before that date.
New Zealand and
Asia.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
[SYMBOL] -----------------------------------------------
Who manages the Francine Bovich, managing director, has been a
portfolio portfolio manager at Morgan Stanley Asset Management
since April 1993, and began managing the International
Looking at how a Portfolio in 1997. She serves as the
portfolio has U.S. Representative to the United Nations Investment
performed in the Committee. She graduated from Connecticut College with
past is important - a BA in economics and received her MBA in finance from
but it's no New York University.
guarantee of how it
will perform in the
future.
[LOGO OF MORGAN
STANLEY APPEARS
HERE]
The International
Value Portfolio is
managed by Morgan
Stanley Asset
Management (MSAM).
You'll find more
about MSAM on page 50.
37
<PAGE>
ABOUT THE PORTFOLIOS GOVERNMENT SECURITIES PORTFOLIO
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks to maximize total return
investment goal consistent with prudent investment management.
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest at least 65% of its assets in fixed income
securities that are issued or guaranteed by the U.S.
government, its agencies, or government-sponsored
Total return is enterprises.
made up of income
plus any gains in Specific securities are principally:
the value of the
portfolio's . U.S. treasury bonds or other fixed income securities
securities. issued or guaranteed by the U.S. government, its
agencies, government-sponsored enterprises or options
or futures on them.
. mortgage related securities, including stripped
mortgage related securities
. other securities, including corporate bonds and
notes, money market instruments, and fixed income
securities issued by foreign governments or companies
that are denominated in U.S. dollars or foreign
currencies.
When selecting securities, the portfolio manager:
Duration is a . decides what duration the portfolio should maintain.
mathematical The portfolio manager uses duration management as a
measure of the fundamental part of the management strategy for this
average life of a portfolio. The portfolio usually maintains an average
bond that includes duration of three to seven years, varying within this
its yield, coupon, range based on the portfolio manager's outlook on the
final maturity and economy and interest rates. The portfolio manager
call features. It then decides what proportion of securities in the
is often used to portfolio should have short, intermediate and long
measure the durations and maturities.
potential
volatility of a . decides what proportion of securities in the
bond's price, and portfolio should be invested in U.S. government
is considered a securities, foreign bonds, U.S. corporate bonds and
more accurate U.S mortgage related securities. The manager uses an
measure than analytical system it has developed to help select
maturity of a securities that meet yield, duration, maturity and
security's other criteria.
sensitivity to
changes in interest . chooses companies to invest in by carrying out a
rates. credit analysis of each potential investment, which
may include meetings or periodic contact with the
company's management.
. frequently uses options, futures and forward
contracts and other techniques as a substitute for
securities, to try to increase returns or hedge
against changes in interest rates. The manager may
also use derivatives to hedge against changes in
currency exchange rates.
The portfolio may also lend some of its assets, as long
as the loans it makes are secured.
The portfolio manager may temporarily change these
strategies if he believes economic conditions make it
necessary to try to protect the portfolio from
potential loss. In this case, the portfolio may invest
more of its assets in money market securities, which
may prevent the portfolio from achieving its investment
goal.
[SYMBOL] ------------------------------------------------
Risks you should be Since the Government Securities Portfolio principally
aware of invests in fixed income securities, it may be affected
by the following risks, among others:
. changes in interest rates - the value of the
portfolio may fall when interest rates rise. This
portfolio may be particularly sensitive to interest
rates because it primarily invests in U.S. government
securities, may invest in securities with medium or
long terms to maturity, and may use hedging
techniques. Bonds with longer durations tend to be
more sensitive to changes in interest rates, usually
making them more volatile than bonds with shorter
durations.
38
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be The portfolio may also invest in mortgage related
aware of securities, which can be paid off early if the owners
(continued) of underlying mortgages pay off their mortgages sooner
than scheduled. If interest rates are falling, the
Government bonds portfolio will be forced to reinvest this money at
tend to have less lower yields. Stripped mortgage related securities can
credit risk than be particularly sensitive to changes in interest rates.
bonds issued by
most companies . credit risk - the portfolio could lose money if the
because the U.S. issuer of a fixed income security is unable to meet
government is less its financial obligations or goes bankrupt. This
likely than a portfolio is subject to less credit risk than the
company to default other bond portfolios because it principally invests
on a debt. For this in fixed income securities issued or guaranteed by
reason, government the U.S. government, its agencies and government
securities sponsored enterprises, and in high quality corporate
generally pay lower bonds.
rates of interest
than corporate . risks of foreign investing - foreign investments may
securities with be riskier than U.S. investments for many reasons,
similar terms to including changes in currency exchange rates,
maturity. unstable political and economic conditions, a lack of
adequate company information, differences in the way
This portfolio may securities markets operate, less secure foreign banks
not invest more or securities depositories than those in the U.S.,
than 20% of its and foreign controls on investment.
assets in foreign
investments . risks of using derivatives - this portfolio
denominated in frequently uses options, futures and forward
foreign currencies. contracts and other investment techniques to help it
achieve its investment goal. There's always a risk
that these techniques could reduce returns or
increase the portfolio's volatility.
. short-term trading - the portfolio may engage in
short-term trading, which could result in higher
trading costs.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year
The bar chart shows [GRAPH OF GOVERNMENT SECURITIES PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94
varied over the ---- ----- ---- ----- ------
past 10 years. 8.01 16.67 7.52 10.79 (5.10)
The table below the 95 96 97 98 99
bar chart compares ----- ---- ---- ---- ------
the portfolio's 18.81 2.94 9.48 9.24 (1.95)
performance with
the Lehman Brothers Best and worst quarterly performance during this period:
Government Bond
Index, an index of 3rd quarter 1991: 6.63%; 1st quarter 1994: (3.73)%
fixed income
securities issued Average annual total return
by the U.S. as of December 31, 1999 1 year 5 years 10 years
government and its ---------------------------------------------------------
agencies. Government Securities Portfolio (1.95)% 7.48% 7.41%
Lehman Brothers Government Bond
Returns do not Index (2.25)% 7.43% 7.48%
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ------------------------------------------------
Who manages the John Hague, managing director and senior member of the
portfolio portfolio manager group, joined PIMCO in 1987. He has
been the portfolio manager for the Government
[LOGO OF PIMCO Securities Portfolio since 1987. John has 18 years of
APPEARS HERE] investment experience, including two years specializing
in international fixed income products and mortgage-
The Government backed securities with Salomon Brothers, Inc, and three
Securities years in credit research with Morgan Guarantee. He has
Portfolio is a BA in economic analysis from Bowdoin College and an
managed by Pacific MBA in finance from Stanford University.
Investment
Management Company
(PIMCO). You'll
find more about
PIMCO on page 50.
39
<PAGE>
ABOUT THE PORTFOLIOS MANAGED BOND PORTFOLIO
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks to maximize total return
investment goal consistent with prudent investment management.
[SYMBOL] -----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in medium to high-quality, investment grade
fixed income securities with varying terms to maturity.
These securities include principally:
Total return is . U.S. treasury bonds and notes, or options or futures
made up of income on them
plus any gains in . mortgage related securities, including stripped
the value of the mortgage related securities
portfolio's . corporate bonds and notes, some of which may be high
securities. yield ("junk") bonds
. commercial paper and other money market instruments
. fixed income securities issued by foreign governments
and companies that are denominated in U.S. dollars or
foreign currencies, some of which may be issued by
governments in emerging market countries.
When selecting securities, the portfolio manager:
Duration is a . decides what duration the portfolio should maintain.
mathematical The portfolio manager uses duration management as a
measure of the fundamental part of the management strategy for this
average life of a portfolio. The portfolio usually maintains an average
bond that includes duration of three to seven years, varying within this
its yield, coupon, range based on the portfolio manager's outlook on the
final maturity and economy and interest rates. The portfolio manager
call features. It's then decides what proportion of securities in the
often used to portfolio should have short, intermediate and long
measure the durations and maturities.
potential
volatility of a . decides what proportion of securities in the
bond's price, and portfolio should be invested in U.S. government
is considered a securities, foreign bonds, U.S. corporate bonds and
more accurate U.S mortgage related securities.
measure than
maturity of a . uses an analytical system developed by the portfolio
security's manager to help select government and other
sensitivity to securities that meet yield, duration, maturity and
changes in interest other criteria.
rates.
. chooses companies to invest in by carrying out a
credit analysis of each potential investment, which
may include meetings or periodic contact with the
company's management.
. frequently uses options, futures and forward
contracts and other techniques as a substitute for
securities, to try to increase returns or hedge
against changes in interest rates. The manager may
also use derivatives to hedge against changes in
currency exchange rates.
The portfolio may also lend some of its assets, as long
as the loans it makes are secured.
[SYMBOL] -----------------------------------------------
Risks you should be Since the Managed Bond Portfolio principally invests in
aware of fixed income securities, it may be affected by the
following risks, among others:
The price of bonds
that are . changes in interest rates - the value of the
denominated in portfolio's investments may fall when interest rates
foreign currencies rise. Changes in interest rates may have a
is affected by the significant effect on this portfolio, because it may
value of the U.S. invest in securities with medium or long terms to
dollar. In general, maturity and may use interest- sensitive derivatives.
as the value of the Bonds with longer durations tend to be more sensitive
U.S. dollar falls, to changes in interest rates, usually making them
the U.S. dollar more volatile than bonds with shorter durations. The
price of a foreign portfolio may also invest in mortgage related
bond will rise, securities, which can be paid off early if the owners
increasing the of underlying mortgages pay off their mortgages
value of the bond. sooner than scheduled. If interest rates are falling,
As the value of the the portfolio will be forced to reinvest this money
U.S. dollar rises, at lower yields. Stripped mortgage related securities
the U.S. dollar can be particularly sensitive to changes in interest
value of a foreign rates.
bond will fall.
40
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . credit risk - the portfolio could lose money if the
aware of issuer of a fixed income security is unable to meet
(continued) its financial obligations or goes bankrupt. This
portfolio may invest in high yield ("junk") bonds,
which may make it particularly subject to credit
This portfolio may risk, especially during periods of economic
not invest more uncertainty or during economic downturns.
than:
. 10% of its assets . risks of foreign investing - foreign investments may
in lower-rated, be riskier than U.S. investments for many reasons,
high-yield including changes in currency exchange rates,
("junk") bonds unstable political and economic conditions, a lack of
. 20% of its assets adequate company information, differences in the way
in foreign securities markets operate, less secure foreign banks
investments or securities depositories than those in the U.S.,
denominated in and foreign controls on investment.
foreign
currencies. . risks of using derivatives - this portfolio
frequently uses options, futures and forward
contracts and other investment techniques to help it
achieve its investment goal. There's always a risk
that these techniques could reduce returns or
increase the portfolio's volatility.
. short-term trading - the portfolio may engage in
short-term trading, which could result in higher
trading costs.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year
The bar chart shows [GRAPH OF MANAGED BOND PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94
varied over the ---- ----- ---- ----- ------
past 10 years. 8.52 17.03 8.68 11.63 (4.36)
The table below the 95 96 97 98 99
bar chart compares ----- ---- ---- ---- ------
the portfolio's 19.04 4.25 9.92 9.20 (1.91)
performance with
the Lehman Brothers Best and worst quarterly performance during this period:
Government/Corporate
Bond Index, an 3rd quarter 1991: 6.50%; 1st quarter 1994: (2.98)%
index of government
and corporate fixed
income securities. Average annual total return
as of December 31, 1999 1 year 5 years 10 years
Returns do not ---------------------------------------------------------
reflect fees and Managed Bond Portfolio (1.91)% 7.88% 7.97%
expenses associated Lehman Brothers
with any variable Government/Corporate Bond Index (2.15)% 7.60% 7.66%
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ------------------------------------------------
Who manages the John Hague, managing director and senior member of the
portfolio portfolio manager group, joined PIMCO in 1987. He has
been the portfolio manager for the Managed Bond
[LOGO OF PIMCO Portfolio since 1992. John has 18 years of investment
APPEARS HERE] experience, including two years specializing in
international fixed income products and mortgage-backed
The Managed Bond securities with Salomon Brothers, Inc, and three years
Portfolio is in credit research with Morgan Guarantee. He has a BA
managed by Pacific in economic analysis from Bowdoin College and an MBA in
Investment finance from Stanford University.
Management Company
(PIMCO). You'll
find more about
PIMCO on page 50.
41
<PAGE>
ABOUT THE PORTFOLIOS MONEY MARKET PORTFOLIO
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks current income consistent with
investment goal preservation of capital.
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in money market instruments that the portfolio
manager believes have limited credit risk. These
investments principally include commercial paper and
U.S. government obligations. The portfolio may also
The Money Market invest in asset-backed money market instruments and
Portfolio invests foreign money market instruments denominated in U.S.
at least 95% of its dollars. It is anticipated that the portfolio's dollar-
assets in money weighted average term to maturity will not exceed 90
market instruments days.
that have been
given the highest
credit rating for The portfolio manager looks for money market
short-term debt instruments with the highest yields within the highest
securities, or have credit rating categories, based on the evaluation of
not been rated, but credit risk and interest rates. The portfolio may also
are of comparable lend some of its assets, as long as the loans are
quality. secured.
Unlike many money market funds, the Money Market
Portfolio is not managed to maintain a constant net
asset value. Instead, the net asset value will change
with the value of the investments in the portfolio.
[SYMBOL] ------------------------------------------------
Risks you should be The Money Market Portfolio generally has the least
aware of investment risk of the Pacific Select Fund portfolios
because its principal investment strategy is to invest
in short-term securities that are either government
An investment in guaranteed or have very high credit ratings. The value
the portfolio is of the portfolio may, however, be affected by the
not a bank deposit, following risks:
and it is not
insured or . changes in interest rates - the value of the
guaranteed by the portfolio's investments may fall when interest rates
Federal Deposit rise. Short-term money market instruments generally
Insurance are affected less by changes in interest rates than
Corporation or any fixed income securities with longer terms to
other government maturity.
agency. It's
possible to lose . credit risk - the portfolio could lose money if the
money by investing issuer of a money market instrument is unable to meet
in the portfolio. its financial obligations or goes bankrupt.
42
<PAGE>
[SYMBOL] -----------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year
The bar chart shows [GRAPH OF MONEY MARKET PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94 95 96 97 98 99
varied over the ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
past 10 years. 7.92 5.74 3.22 2.58 3.76 5.54 5.07 5.28 5.29 4.94
The table below the Best and worst quarterly performance during this period:
bar chart compares
the portfolio's 2nd quarter 1990: 1.97%; 2nd quarter 1993: 0.62%
performance with
the Merrill Lynch Average annual total return
90-day T-Bill as of December 31, 1999 1 year 5 years 10 years
Index. ---------------------------------------------------------
Money Market Portfolio 4.94% 5.23% 4.93%
Returns do not Merrill Lynch 90-day T-Bill Index 4.85% 5.35% 5.27%
reflect fees and
expenses associated
with any variable 7-day yield ending December 31, 1999: 5.62%
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] -----------------------------------------------
Who manages the Raymond Lee is a senior vice president of Pacific Life.
portfolio He joined the company in 1976, and has been managing
the Money Market Portfolio since 1987. He also oversees
[LOGO OF PACIFIC the management of Pacific Life's publicly traded bond
LIFE APPEARS HERE] portfolio. He has an MBA in finance from the Wharton
School of the University of Pennsylvania and a BA in
The Money Market economics from UCLA.
Portfolio is
managed by Pacific Dale Patrick is a senior investment analyst at Pacific
Life Insurance Life. He joined the company in 1985, and has assisted
Company. You'll in the management of the Money Market Portfolio since
find more about 1994. He is also responsible for the management of
Pacific Life on Pacific Life's short-term fixed income securities. Dale
page 48. has a BA in economics from the University of Colorado.
43
<PAGE>
ABOUT THE PORTFOLIOS HIGH YIELD BOND PORTFOLIO
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks a high level of current income.
investment goal
[SYMBOL] -----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in fixed income securities with lower and
medium-quality credit ratings and intermediate to long
terms to maturity.
Bonds are given a Securities principally include high yield bonds (often
credit rating based called "junk" bonds) and notes. The portfolio may also
on the issuer's invest in fixed income securities that can be converted
ability to pay the into equity securities, and preferred stocks and bonds
quoted interest of foreign issuers that are denominated in U.S.
rate and maturity dollars.
value on time.
When selecting securities, the portfolio manager
focuses on:
The High Yield Bond . seeking high yields while addressing risk by looking
Portfolio invests for securities that offer the highest yields for
principally in high their credit rating.
yield or "junk"
bonds, which are . seeking gains by looking for securities that may be
given a low credit more creditworthy than their credit rating indicates.
rating by Moody's This involves an analysis of each potential security,
(Ba and lower), or and may include meeting with the company's management
Standard & Poor's team.
(BB and lower), or
have not been . reducing credit risk by investing in many different
rated, but are of issuers in a wide range of industries.
comparable quality.
High yield bonds
are considered to The portfolio may also lend some of its assets, as long
be mostly as the loans it makes are secured.
speculative in
nature.
The managers may temporarily change these strategies if
This gives the they believe that economic conditions make it necessary
portfolio more to maintain liquidity or to try to protect the
credit risk than portfolio from potential loss. In this case, the
the other bond portfolio may invest in U.S. government securities,
portfolios, but higher-quality corporate fixed income securities or
also gives it the money market securities, which may prevent the
potential for portfolio from achieving its investment goal.
higher income.
[SYMBOL] -----------------------------------------------
Risks you should be Since the High Yield Bond Portfolio's principal
aware of strategy is to invest in low and medium quality fixed
income securities, it may be affected by the following
risks, among others:
. credit risk - the portfolio could lose money if the
issuer of a fixed income security is unable to meet
its financial obligations or goes bankrupt. This
portfolio may be subject to more credit risk than the
other bond portfolios, because it invests in high
yield bonds. This is especially true during periods
of economic uncertainty or economic downturns.
. changes in interest rates - the value of the
portfolio's investments may fall when interest rates
rise. This portfolio may be sensitive to changes in
interest rates because it may invest in fixed income
securities with intermediate and long terms to
maturity.
. inability to sell securities - high yield bonds may
be less liquid than higher quality investments. The
portfolio could lose money if it cannot sell a
security at the time and price that would be most
beneficial to the portfolio. A security whose credit
rating has been lowered may be particularly difficult
to sell.
. risks of foreign investing - foreign investments may
be riskier than U.S. investments for many reasons,
including changes in currency exchange rates,
unstable political and economic conditions, a lack of
adequate company information, differences in the way
securities markets operate, less secure foreign banks
or securities depositories than those in the U.S.,
and foreign controls on investment.
44
<PAGE>
[SYMBOL] -----------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year
The bar chart shows [GRAPH OF HIGH YIELD BOND PORTFOLIO HERE]
how the portfolio's
performance has 90 91 92 93 94
varied over the ---- ----- ----- ----- ----
past 10 years. 0.38 24.58 18.72 18.01 0.42
95 96 97 98 99
The table below the ----- ----- ---- ---- ----
bar chart compares 18.87 11.31 9.44 2.46 2.90
the portfolio's
performance with Best and worst quarterly performance during this period:
the CS First Boston 1st quarter 1991: 6.51%; 3rd quarter 1998 : 4.66%
Global High Yield
Bond Index, an Average annual total return
index designed to as of December 31, 1999 1 year 5 years 10 years
mirror the ---------------------------------------------------------
performance of the High Yield Bond Portfolio 2.90% 8.83% 10.39%
global high-yield CS First Boston Global High Yield
bond market. Bond Index 3.28% 9.07% 11.06%
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] -----------------------------------------------
Who manages the Simon Lee is a vice president of Pacific Life. He
portfolio joined the company in 1985 and has shared management
responsibility for the High Yield Bond Portfolio since
[LOGO OF PACIFIC 1995. He also manages Pacific Life's high yield and
LIFE APPEARS HERE] convertible bond assets. He has both a BA and an MBA
from Loyola Marymount University.
The High Yield Bond
Portfolio is Michael Long, assistant vice president, high yield
managed by Pacific securities, University of California, Davis, BA,
Life Insurance Economics, 1983. MBA Pepperdine University, 1999. Mr.
Company. You'll Long joined Pacific Life in 1994 as an investment
find more about analyst. He was promoted to his current position in
Pacific Life on 1998. Mr. Long has 16 years experience in the financial
page 48. and securities industry, including 6 years in
investment analyst positions at Franklin Resources,
Inc., Bradford and Marzec, Inc., and Great Northern
Annuity, prior to joining Pacific Life.
Lori A. Johnstone, CFA, assistant vice president, high
yield securities, University of Southern California,
BS, Marketing, 1984. San Diego State University, MBA,
Finance, 1986. Ms. Johnstone joined Pacific Life in
1990 as an investment analyst in high yield securities
and emerging markets. She was promoted to assistant
vice president in 1998. Ms. Johnstone has 13 years
financial industry experience including experience at a
regional broker dealer with a focus on portfolio
management and in the high yield bond investment group
at Columbia Savings.
45
<PAGE>
ABOUT THE PORTFOLIOS LARGE-CAP VALUE PORTFOLIO
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital.
investment goal Current income is of secondary importance.
[SYMBOL] -----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in common and preferred stocks of large U.S.
companies. It tends to emphasize companies with a total
A company's market capitalization of more than $5 billion that are
"capitalization" is included in the Standard & Poor's 500 Composite Stock
a measure of its Price Index. It may also invest in foreign companies
size. and fixed income securities and securities that can be
Capitalization is converted into equity securities.
calculated by
multiplying the The portfolio management team looks for companies that
current share price are undervalued or expected to grow. It focuses on
by the number of companies that meet one or more of the following
shares held by criteria:
investors.
. companies that are believed to be fundamentally
strong, but that aren't fully recognized by other
Undervalued investors
companies may be
fundamentally . companies that are experiencing or that are expected
strong, but not to experience internal changes, like changes in
fully recognized by corporate structure or capitalization
investors. Their
shares could be . companies that are developing new products, expanding
good investments into new markets, or taking advantage of changes in
because their technology or of other changes in the industry or
prices do not regulatory environment.
reflect the true
value of the The portfolio manager may use options, futures
company. contracts and other techniques to try to increase
returns or to try to hedge against changes in interest
rates. The manager may also use derivatives to hedge
changes in currency exchange rates. The portfolio may
lend some of its assets, as long as the loans it makes
are secured.
The portfolio may invest any amount in fixed income
securities for current income.
The team may temporarily change these strategies if it
believes economic conditions make it necessary to try
to protect the portfolio from potential loss. In this
case, the portfolio may invest in fixed income
securities or hold assets in cash or cash equivalents,
which may prevent the portfolio from achieving its
investment goal.
[SYMBOL] -----------------------------------------------
Risks you should be The Large-Cap Value Portfolio principally invests in
aware of equity securities, which may go up or down in value,
sometimes rapidly and unpredictably. While equities may
offer the potential for greater long-term growth than
most fixed income securities, they generally have
higher volatility. The portfolio may be affected by the
following risks, among others:
. price volatility - the value of the portfolio changes
as the prices of the investments it holds go up or
down. The portfolio invests in large companies, which
tend to have more stable prices than smaller
companies.
This portfolio may . risks of foreign investing - foreign investments may
not invest more be riskier than U.S. investments for many reasons,
than 20% of its including changes in currency exchange rates,
assets in foreign unstable political and economic conditions, a lack of
securities. adequate company information, differences in the way
securities markets operate, less secure foreign banks
or securities depositories than those in the U.S.,
and foreign controls on investment.
46
<PAGE>
[SYMBOL] -----------------------------------------------
Risks you should be . risks of using derivatives - this portfolio may use
aware of options, futures contracts and other investment
(continued) techniques to help it achieve its investment goal.
There's always a risk that these techniques could
reduce returns or increase the portfolio's
volatility.
[SYMBOL] -----------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF LARGE-CAP VALUE PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 99
varied since its -----
inception. 11.46
The table below the Best and worst quarterly performance during this period:
bar chart compares
the portfolio's 2nd quarter 1999: 13.06%; 3rd quarter 1999: (10.16)%
performance with
the Standard &
Poor's 500 Average annual total return Since inception
Composite Stock as of December 31, 1999 1 year (January 4, 1999)/2/
Price Index, an ---------------------------------------------------------
index of the stocks Large-Cap Value Portfolio/1/ 11.46% 11.46%
of approximately Standard & Poor's 500
500 large- Composite Stock Price Index 21.04% 21.04%
capitalization U.S.
companies.
/1/ Total return for 1999 is for the period from
Returns do not January 4, 1999 (commencement of operations) to
reflect fees and December 31, 1999.
expenses associated /2/ Portfolio total return calculated from inception
with any variable date through end of period. Index total returns
annuity contract or calculated from January 1, 1999 through end of
variable life period.
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] -----------------------------------------------
Who manages the Jack Cunningham is a portfolio manager and director of
portfolio SaBAM, and is responsible for directing investment
policy and strategy. He is a portfolio manager of the
[LOGO OF SALOMON Salomon Brothers Investors Fund and an equity analyst
BROTHERS APPEARS responsible for covering the food, tobacco, restaurant
HERE] and real estate industries. He has managed the Large-
Cap Value Portfolio since it started on January 4,
The Large-Cap Value 1999. Before joining SaBAM in 1995, Jack worked as an
Portfolio is investment banker and financial analyst for Salomon
managed by a team Brothers Energy Group. He holds a BA in English from
of portfolio the University of Virginia and an MBA from the Amos
managers at Salomon Tuck School at Dartmouth College.
Brothers Asset
Management Inc Jack is supported by a team of 18 U.S. equity
(SaBAM). You'll professionals, each of whom has specific fundamental
find more about and quantitative research skills relating to all stages
SaBAM on page 50. of SaBAM's equity investment process.
47
<PAGE>
MANAGING THE PACIFIC SELECT FUND
--------------------------------------------------------
[LOGO OF PACIFIC Founded in 1868, Pacific Life provides life and health
LIFE APPEARS HERE] insurance products, individual annuities and group
employee benefits, and offers to individuals,
Pacific Life businesses and pension plans a variety of investment
Insurance Company products and services. Over the past five years, the
700 Newport Center company has grown from the 25th to the 16th largest
Drive life insurance company in the nation. The Pacific Life
Newport Beach, family of companies manages $315 billion in assets,
California 92660 making it one of the largest financial institutions in
America, and currently counts 65 of the 100 largest
U.S. corporations as clients. Additional information
about Pacific Life can be obtained at its Web site,
www.PacificLife.com.
In its role as the fund's investment adviser, Pacific
Life supervises the management of all of the fund's
portfolios. Pacific Life manages two portfolios
directly: the Money Market Portfolio and the High Yield
Bond Portfolio. To manage the other portfolios, it has
retained other portfolio managers, many of which have a
worldwide market presence and extensive research
capabilities. Pacific Life oversees and monitors the
performance of these portfolio managers.
Pacific Life, subject to the review of the fund's
board, has ultimate responsibility to oversee the other
portfolio managers. Under an exemptive order from the
Securities and Exchange Commission, Pacific Life and
Pacific Select Fund can hire, terminate and replace the
portfolio managers (except, as a general matter,
portfolio managers affiliated with Pacific Life or
Pacific Select Fund) without shareholder approval.
Within 90 days of the hiring of any new portfolio
manager, shareholders of the affected portfolio will be
sent information about the change.
--------------------------------------------------------
[LOGO OF ALLIANCE Alliance Capital is a leading global investment adviser
CAPITAL APPEARS supervising client accounts with assets as of December
HERE] 31, 1999 totaling $368 billion. Alliance Capital and
its affiliates have 8 offices in the U.S. and 24
Alliance Capital offices worldwide. Alliance Capital's clients are
Management L.P. primarily major corporate employee benefit funds,
1345 Avenue of the public employee retirement systems, investment
Americas companies, foundations and endowment funds.
New York, New York
10105 Alliance Capital is an affiliate of The Equitable Life
Assurance Society of the United States and AXA
Financial, Inc.
Alliance Capital manages the Aggressive Equity
Portfolio and the Emerging Markets Portfolio.
--------------------------------------------------------
[LOGO OF CAPITAL Capital Guardian Trust Company (CGTC), a wholly-owned
GUARDIAN APPEARS subsidiary of Capital Group International, Inc., which
HERE] is in turn a subsidiary of The Capital Group Companies,
Inc., was established in 1968 as a non-depository trust
Capital Guardian company. As of December 31, 1999, CGTC managed over
Trust Company $122 billion, primarily for large institutional
333 South Hope clients.
Street
Los Angeles, CGTC uses a multiple portfolio management system under
California 90071 which a group of portfolio managers each have
investment discretion over a portion of a client's
account. Portfolio management is supported by the
research efforts of over 140 investment professionals.
Capital Group International, Inc. spent over $80
million in 1998 on its research efforts.
CGTC manages the Small-Cap Equity Portfolio, the
Diversified Research Portfolio and the International
Large-Cap Portfolio.
48
<PAGE>
--------------------------------------------------------
[LOGO OF GOLDMAN Created in 1988, Goldman Sachs Asset Management
SACHS APPEARS HERE] (Goldman Sachs) is a unit of the Investment Management
Division (IMD) of Goldman, Sachs & Co. Goldman Sachs
Goldman Sachs Asset provides a wide range of discretionary investment
Management advisory services, quantitatively driven and actively
32 Old Slip managed to U.S. and international equity portfolios,
New York, New York U.S. and global fixed-income portfolios, commodity and
10005 currency products and money market accounts. As of
December 31, 1999, Goldman Sachs, along with other
units of IMD, had assets under management of
$259 billion.
Portfolio management at Goldman Sachs is conducted by
teams that are supported by 600 investment research
professionals, 20 market strategists and 30 economists
around the world. The company has more than 14,500
professionals in 41 offices worldwide.
Goldman Sachs manages the Bond and Income Portfolio,
the Equity Portfolio and the I-Net Tollkeeper
Portfolio(SM). I-Net Tollkeeper Portfolio is a service
mark of Goldman, Sachs & Co.
--------------------------------------------------------
[LOGO OF J.P. Formed in 1984, J.P. Morgan Investment Management Inc.
MORGAN INVESTMENT manages portfolios for corporations, governments and
APPEARS HERE] endowments as well as many of the largest corporate
retirement plans in the nation. As of December 31,
J.P. Morgan 1999, it had approximately $349 billion in assets under
Investment management.
Management Inc.
522 Fifth Avenue J.P. Morgan Investment believes that strong portfolio
New York, New York management depends on access to information. It has one
10036 of the largest research organizations in the investment
management field, with more than 100 analysts who carry
out fixed income, equity, capital market, credit and
economic research around the world.
J.P. Morgan Investment manages the Equity Income
Portfolio and the Multi-Strategy Portfolio.
--------------------------------------------------------
[LOGO OF JANUS Formed in 1969, Janus manages accounts for
APPEARS HERE] corporations, individuals, retirement plans and non-
profit organizations, and serves as the adviser or
Janus Capital subadviser to the Janus Funds and other mutual funds.
Corporation Janus had approximately $249 billion in assets under
100 Fillmore Street management as of December 31, 1999.
Denver, Colorado
80206 The Janus investment team focuses on individual
companies, using an investment process supported by the
company's 21 portfolio managers and 29 securities
analysts.
Janus manages the Growth LT Portfolio.
--------------------------------------------------------
[LOGO OF LAZARD Founded in 1848, Lazard Freres provides both individual
APPEARS HERE] and institutional clients around the world with a wide
variety of investment banking, brokerage and related
Lazard Asset services. Lazard has offices in Cairo, Frankfurt,
Management, London, Paris, Sydney and Tokyo, and had approximately
a division of Lazard $75 billion in assets under management as of December
Freres & Co. LLC 31, 1999.
30 Rockefeller Plaza
New York, New York Teamwork is the foundation of Lazard. Based in New
10112 York, Lazard's team of more than 125 global analysts
drives its bottom-up approach to understanding
individual companies within the global marketplace.
Lazard manages the Mid-Cap Value Portfolio.
49
<PAGE>
MANAGING THE PACIFIC SELECT FUND
--------------------------------------------------------
[LOGO OF MERCURY Mercury is a subsidiary of Merrill Lynch & Company,
ASSET MANAGEMENT Inc. ("Merrill"). Merrill's Asset Management Group
APPEARS HERE] ("AMG") is the world's third largest active global
investment management organization, managing $557
World Financial billion in assets as of December 31, 1999. AMG has both
Center experience and expertise to offer a broad range of
225 Liberty Street investment services to many diversified market
New York, NY 10080 segments. AMG is comprised of various divisions and
subsidiaries including Fund Asset Management, L.P.,
doing business as Mercury Asset Management US.
Mercury/AMG have a dedicated Quantitative Strategies
Division, which includes a five-member senior
management team from the firm that served as portfolio
manager prior to January 1, 2000, which had been
responsible for portfolio management of the fund's
Equity Index and Small-Cap Index Portfolios since
January 30, 1991 and January 1, 1999, respectively,
until July 2, 1999.
Mercury manages the Equity Index Portfolio and the
Small-Cap Index Portfolio.
--------------------------------------------------------
[LOGO OF MORGAN Formed in 1975, Morgan Stanley Dean Witter Investment
STANLEY ASSET Management Inc., doing business as Morgan Stanley Asset
MANAGEMENT APPEARS Management (MSAM), a subsidiary of Morgan Stanley Dean
HERE] Witter & Co., conducts a worldwide portfolio management
business and provides a broad range of portfolio
Morgan Stanley management services to customers in the U.S. and
Asset Management abroad. MSAM and its institutional investment advisory
1221 Avenue of the affiliates managed or acted as fiduciary adviser for
Americas over $185 billion in assets as of December 31, 1999.
New York, New York
10020 MSAM's portfolio managers are supported by a network of
experienced research professionals based in New York,
London, Singapore and Tokyo.
MSAM manages the REIT Portfolio and the International
Value Portfolio.
--------------------------------------------------------
[LOGO OF PIMCO Founded in 1971, Pacific Investment Management Company
APPEARS HERE] (PIMCO) has nearly 300 clients, including some of the
largest employee benefit plans, endowments and
Pacific Investment foundations in America. PIMCO had over $186 billion in
Management Company assets under management as of December 31, 1999.
840 Newport Center
Drive, Suite 300 PIMCO specializes in the management of fixed income
Newport Beach, portfolios. It has a long-term investment philosophy,
California 92660 and uses a variety of techniques, including software
programs it has developed, to help increase portfolio
performance while controlling volatility. PIMCO is a
subsidiary of PIMCO Advisors, L.P., which is an
affiliate of Pacific Life.
On October 31, 1999, PIMCO Advisors, PIMCO Advisors
Holdings L.P. ("PAH") and Allianz AG ("Allianz")
announced that they had reached a definitive agreement
under which Allianz would acquire majority ownership of
PIMCO Advisors and its subsidiaries (the "Allianz
Transaction"). PIMCO is a subsidiary of PIMCO Advisors.
The Allianz Transaction is expected to be completed on
or about May 5, 2000, although there is no assurance
that the transaction will be completed.
PIMCO manages the Managed Bond Portfolio and the
Government Securities Portfolio.
--------------------------------------------------------
[LOGO OF SALOMON Formed in 1989, Salomon Brothers Asset Management Inc
BROTHERS APPEARS (SaBAM) has affiliates in London, Frankfurt, Tokyo and
HERE] Hong Kong. Together, they provide a broad range of
equity and fixed income investment management services
Salomon Brothers to clients around the world. SaBAM also provides
Asset Management Inc investment advisory services to other investment
Seven World Trade companies. As of December 31, 1999, SaBAM and its
Center affiliates had over $29 billion in assets under
New York, New York management.
10048
As a subsidiary of Citigroup Inc., SaBAM is able to
leverage the resources of one of the world's largest
and most innovative financial services companies.
SaBAM manages the Large-Cap Value Portfolio.
50
<PAGE>
--------------------------------------------------------
Fees and expenses The fund pays Pacific Life an advisory fee for the
paid by the fund services it provides as investment adviser. It also
pays for all of the costs of its operations, as well as
for other services Pacific Life provides through a
support services agreement.
The table below shows the advisory fee as an annual
percentage of each portfolio's average daily net
assets. Pacific Life uses part of this fee to pay for
the services of the portfolio managers.
The table also shows the fund expenses for each
portfolio in 1999. To help limit fund expenses, Pacific
Life has agreed to waive all or part of its investment
advisory fees or otherwise reimburse each portfolio for
expenses (not including advisory fees, additional costs
associated with foreign investing and extraordinary
expenses) that exceed 0.25% of its average daily net
assets. Pacific Life does this voluntarily, but does
not guarantee that it will continue to do so after
December 31, 2001. In 1999, Pacific Life reimbursed the
Small-Cap Index Portfolio $96,949.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Other Total
Advisory fee expenses expenses+
----------------------------------------------------------------------------------------------
As an annual % of average daily net assets
<S> <C> <C> <C>
Aggressive Equity Portfolio 0.80 0.05 0.85
Emerging Markets Portfolio/1/ 1.10 0.32 1.42
Diversified Research Portfolio/2/ 0.90 0.05 0.95
Small-Cap Equity Portfolio 0.65 0.05 0.70
International Large-Cap Portfolio/2/ 1.05 0.15 1.20
Bond and Income Portfolio 0.60 0.06 0.66
Equity Portfolio 0.65 0.04 0.69
I-Net Tollkeeper Portfolio/2/ 1.50 0.15 1.65
Multi-Strategy Portfolio 0.65 0.05 0.70
Equity Income Portfolio 0.65 0.05 0.70
Growth LT Portfolio 0.75 0.04 0.79
Mid-Cap Value Portfolio 0.85 0.12 0.97
Equity Index Portfolio/3/ 0.25 0.05 0.30
Small-Cap Index Portfolio/4/ 0.50 0.44 0.94
REIT Portfolio 1.10 0.18 1.28
International Value Portfolio 0.85 0.16 1.01
Government Securities Portfolio 0.60 0.06 0.66
Managed Bond Portfolio/1/ 0.60 0.06 0.66
Money Market Portfolio/1/ 0.35 0.05 0.40
High Yield Bond Portfolio/1/ 0.60 0.06 0.66
Large-Cap Value Portfolio 0.85 0.12 0.97
----------------------------------------------------------------------------------------------
/1/ Total net expenses for these portfolios in 1999, after deduction of an offset for
custodian credits were: 1.41% for Emerging Markets Portfolio, 0.65% for Managed Bond
Portfolio, 0.39% for Money Market Portfolio, and 0.65% for High Yield Bond Portfolio.
/2/ Expenses are estimated. There were no actual advisory fees or expenses for these
portfolios in 1999 because the portfolios started after December 31, 1999.
/3/ The advisory fee for the Equity Index Portfolio has been adjusted to reflect the advisory
fee increase effective January 1, 2000. The actual advisory fee, and total net expenses
for this portfolio in 1999 after deduction of an offset for custodian credits, were 0.16%
and 0.20%, respectively.
/4/ Total net expenses for the Small-Cap Index Portfolio in 1999, after the adviser's
reimbursement and deduction of an offset for custodian credits, were 0.75%.
+ The fund has adopted a brokerage enhancement 12b-1 plan, under which brokerage
transactions may be placed with broker-dealers in return for credits or other compensation
that may be used to help promote distribution of fund shares. There are no fees or charges
to any portfolio under this plan, although the fund's distributor may defray expenses of
up to approximately $300,000 for the year 2000, which it might otherwise incur for
distribution. If such defrayed amount were considered a fund expense, it would represent
approximately .0023% or less of any portfolio's average daily net assets.
51
</TABLE>
<PAGE>
MANAGING THE PACIFIC SELECT FUND
--------------------------------------------------------
How the fund is The Pacific Select Fund is organized as a Massachusetts
organized business trust. Its business and affairs are managed by
its board of trustees.
Under Massachusetts law, shareholders could, under
certain circumstances, be held personally liable if the
fund is not able to meet its financial obligations. It
is very unlikely that this will ever happen, and the
fund's declaration of trust protects shareholders from
liability.
Each portfolio intends to qualify each year as a
regulated investment company under Subchapter M of the
Internal Revenue Code. Portfolios that qualify do not
have to pay income tax as long as they distribute
sufficient taxable income and net capital gains.
The Pacific Select Fund may discontinue offering shares
of any portfolio at any time. If a portfolio is
discontinued, any allocation to that portfolio will be
allocated to another portfolio the trustees believe is
suitable, as long as any required regulatory approvals
are met.
52
<PAGE>
PERFORMANCE OF COMPARABLE ACCOUNTS
- -------------------------------------------------------------------------------
ALLIANCE CAPITAL MANAGEMENT L.P.
- -------------------------------------------------------------------------------
The chart to the This chart shows you the performance of a composite of
right shows the accounts managed by Alliance Capital that are
historical comparable to the Emerging Markets Portfolio, the
performance of the performance of the Emerging Markets Portfolio and
Alliance Emerging performance of a benchmark index.
Markets Equity
Composite, Annual total returns since 1992 and average annual
calculated total returns for the periods ending December 31, 1999.
according to the
standards set by
the Association for
Investment
Management and
Research (AIMR).
Each of the two
accounts in the
composite has
investment
objectives,
policies and
strategies that are
substantially
similar to those of
the Emerging
Markets Portfolio.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Alliance Emerging
Markets Equity
Composite, adjusted
Alliance to reflect estimated Emerging Markets
Emerging fees and expenses Portfolio (%)/3/ MSCI Emerging
Markets Equity of the Emerging (under prior Markets Free
Year Composite (%)/1/ Markets Portfolio (%)/2/ manager) Index (%)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 116.10 116.49 53.56 66.41
1998 (28.85) (29.52) (26.83) (25.34)
1997 (9.35) (9.88) (1.69) (11.59)
1996 21.38 20.35 -- 6.03
1995 (4.04) (4.52) -- (5.21)
1994 (13.12) (13.68) -- (7.32)
1993 63.44 63.44 -- 74.84
1992 16.38 16.05 -- 11.41
1 year 116.10 116.49 53.56 66.41
3 years 11.71 11.37 3.37 3.18
5 years 10.18 9.68 -- 2.00
Since Inception
(10/01/91) 13.47 13.04 -- 10.47
-----------------------------------------------------------------------------------------
</TABLE>
The composite /1/ Composite results are asset weighted and calculated
performance shows on a monthly basis. Quarterly and annual composite
the historical performance figures are computed by linking monthly
track record of the returns. Performance figures for each account are
portfolio manager calculated monthly. Monthly market values include
and is not intended income accruals.
to imply how the
Emerging Markets /2/ In calculating returns, the Emerging Markets
Portfolio has Portfolio's actual expense rates were used for 1996
performed or will to present; and the 1997/98 expense rate was used
perform. Total for prior years.
returns shown under
the heading /3/ The portfolio commenced operations on April 1,
Alliance Emerging 1996. The total return for the portfolio for the
Markets Equity period April 1, 1996 to December 31, 1996 was
Composite represent (3.23)%. The MSCI Emerging Markets Free Index total
past performance of return for the same period was (0.20)%. The average
that composite and annual total return for the portfolio since
not the Emerging inception through December 31, 1999 was 1.79%.
Markets Portfolio.
The accounts in the composite were not subject to the
Returns do not investment limitations, diversification requirements
reflect fees and and other restrictions of the Investment Company Act of
expenses associated 1940 or Subchapter M of the Internal Revenue Code,
with any variable which, if imposed, could have adversely affected the
annuity contract or performance.
variable life
insurance policy, The first column (after "Year") shows performance of
and would be lower Alliance Emerging Markets Equity Composite after the
if they did. deduction of investment management fees. The fees and
expenses of the Composite do not include custody fees
or other expenses normally paid by mutual funds and
which the Emerging Markets Portfolio pays. If these
fees were included, returns would be lower.
The second column shows gross performance of the
Alliance Composite adjusted to reflect the estimated
fees and expenses of the Emerging Markets Portfolio.
The third column shows the actual performance of the
Emerging Markets Portfolio.
The fourth column shows the performance of the MSCI
Emerging Markets Free Index. Results include reinvested
dividends.
53
<PAGE>
PERFORMANCE OF COMPARABLE ACCOUNTS
- -------------------------------------------------------------------------------
LAZARD ASSET MANAGEMENT
- -------------------------------------------------------------------------------
The chart to the This chart does not show you the performance of the
right shows the Mid-Cap Value Portfolio -- it shows the performance of
historical similar accounts managed by Lazard Asset Management
performance of the
Lazard U.S. Mid-Cap Annual total returns, and average annual total returns
Equity Composite, for the periods ending December 31, 1999
calculated
according to the
standards set by
the Association for
Investment
Management and
Research (AIMR).
Each of the six
advisory accounts,
including one
mutual fund, has
investment
objectives,
policies and
strategies that
are substantially
similar to those of
the Mid-Cap Value
Portfolio, except
that leverage has
not been a strategy
used for the Lazard
accounts.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Lazard U.S. Mid-Cap Equity
Composite, adjusted to
reflect estimated fees and
Lazard U.S. Mid-Cap expenses of the Mid-Cap Russell Midcap
Year Equity Composite (%) Value Portfolio (%)/1/ Index (%)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 4.18 3.68 18.23
1998 3.12 2.56 10.10
1997 28.39 27.77 29.01
1996 24.66 24.00 19.00
1 year 4.18 3.68 18.23
3 years 11.31 10.76 18.86
since inception
1/1/96 14.51 13.93 18.90
-------------------------------------------------------------------------------
</TABLE>
The composite /1/ In calculating returns, the Mid-Cap Value Portfolio's
performance shows 1999 actual expense rate was used for prior years.
the historical
track record of the The results shown above are a composite of actual
portfolio manager performance for six advisory accounts, including one
and is not intended mutual fund account, calculated according to the
to imply how the standards set by the Association for Investment
Mid-Cap Value Management and Research (AIMR). Five of the accounts in
Portfolio has the composite were not subject to the investment
performed or will limitations, diversification requirements and other
perform. Total restrictions of the Investment Company Act of 1940 or
returns represent Subchapter M of the Internal Revenue Code, which, if
past performance of imposed, could have adversely affected the performance.
the Lazard U.S.
Mid-Cap Equity The first column shows performance of the Lazard U.S.
Composite and not Mid-Cap Equity Composite after average advisory fees
the Mid-Cap Value and other expenses charged to the accounts in the
Portfolio. composite have been deducted. The fees and expenses of
the composite include investment advisory fees, but,
Returns do not for the accounts other than the mutual fund, do not
reflect fees and include custody fees or other expenses normally paid by
expenses associated mutual funds and which the Mid-Cap Value Portfolio will
with any variable pay. If these were included, returns would be lower.
annuity contract or
variable life The second column shows the gross performance of the
insurance policy, composite, adjusted to reflect the estimated fees and
and would be lower expenses of the Mid-Cap Value Portfolio.
if they did.
The third column shows performance of the Russell
Midcap Index, an index consisting of 800 of the
smallest companies in the Russell 1000 Index, for the
same periods. The Russell 1000 Index is an index of the
1,000 largest companies in the Russell 3000 Index. The
Russell 3000 Index is an index of the 3,000 largest
U.S. companies. Results include reinvested dividends.
54
<PAGE>
- -------------------------------------------------------------------------------
SALOMON BROTHERS ASSET MANAGEMENT INC
- -------------------------------------------------------------------------------
The chart to the This chart does not show you the performance of the
right shows the Large-Cap Value Portfolio -- it shows the performance
historical of a similar account managed by SaBAM
performance of the
Salomon Brothers Annual total returns, and average annual total returns
Investors Value for the periods ending December 31, 1999
Fund, calculated
according to the
standards set by
the Association for
Investment
Management and
Research (AIMR).
This fund has
investment
objectives,
policies and
strategies that are
substantially
similar to those of
the Large-Cap Value
Portfolio.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Salomon Brothers Investors
Value Fund, adjusted to
Salomon Brothers reflect estimated fees and
Investors Value expenses of the Large-Cap
Year Fund, Class O (%) Value Portfolio (%)/2/ S&P 500 (%)
-------------------------------------------------------------------------
<S> <C> <C> <C>
1999 11.74 11.45 21.04
1998 15.47 15.26 28.58
1997 26.47 26.50 33.36
1996 30.55 30.52 22.96
1995 35.48 35.67 37.58
1994 (1.26) (1.52) 1.32
1993 15.17 15.02 10.08
1992 7.44 7.24 7.62
1991 29.31 29.26 30.47
1 year 11.74 11.45 21.04
3 years 17.73 17.57 27.56
5 years 23.62 23.54 28.55
since inception
5/1/90/1/ 16.81 16.68 19.58
-------------------------------------------------------------------------
</TABLE>
This information /1/ Salomon Brothers Investors Value Fund has been
shows the managed by SaBAM since May 1, 1990. It was managed
historical track by another firm prior to that date.
record of the
portfolio manager /2/ In calculating returns, the Large-Cap Value
and is not intended Portfolio's 1999 actual expense rate was used for
to imply how the prior years.
Large-Cap Value
Portfolio has The returns in the first column reflect advisory fees
performed or will and operating expenses of the Salomon Brothers
perform. Total Investors Value Fund, Class O.
returns represent
past performance of The second column shows the gross performance of the
the Salomon Salomon Brothers Investors Fund, Class O, adjusted to
Brothers Investors reflect the estimated fees and expenses of the Large-
Value Fund, and Cap Value Portfolio.
not the Large-Cap
Value Portfolio. The third column shows performance of the S&P 500, an
index of the stocks of approximately 500 large-
Returns do not capitalization U.S. companies, during the same periods.
reflect fees and Results include reinvested dividends.
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
55
<PAGE>
INFORMATION FOR INVESTORS
The Pacific Select Fund is available only to people who
own a variable annuity contract or variable life
insurance policy issued or administered by Pacific Life
Insurance Company or its subsidiaries. You do not buy,
sell or exchange shares of the fund's portfolios - you
choose investment options through your annuity contract
or life insurance policy. Pacific Life or its insurance
subsidiaries then invest in the portfolios of the
Pacific Select Fund according to the investment options
you've chosen. You'll find information about how this
works in the accompanying product prospectus or
offering memorandum.
--------------------------------------------------------
How share prices Each Pacific Select Fund portfolio is divided into
are calculated shares. The price of a portfolio's shares is called its
net asset value per share. Net asset value per share
forms the basis for all transactions involving buying,
selling, exchanging or reinvesting shares.
Each portfolio's net asset value per share is
calculated once a day, every day the New York Stock
Exchange (NYSE) is open, usually at or about 4:00 p.m.
Eastern time. Generally, for any transaction, we'll use
the next asset value calculated after we receive a
request to buy, sell or exchange shares.
An example of how The net asset value per share is calculated by taking
we calculate net the total value of a portfolio's assets, subtracting
asset value per the liabilities, and then dividing by the number of
share shares that have already been issued. The value of a
portfolio's assets is based on the total market value
of all of the securities it holds. In general, the
value of each security is based on its actual or
$80 million estimated market value, with special provision for
portfolio's assets without readily available market quotes, for
assets short-term debt securities, and for situations where
- - $3 million market quotations are deemed unreliable or stale. This
portfolio's special provision means a fair value for a security is
liabilities determined under procedures adopted and monitored by
- -------------- the fund's board of trustees. If the NYSE closes early,
$77 million the portfolio will normally consider the closing price
/ 7 million of a security to be its price at 4:00 p.m. Eastern
outstanding time.
shares
- -------------- A delay may happen in any of the following situations:
= $11 net . the New York Stock Exchange closes on a day other
- -------------- asset than a regular holiday or weekend
value . trading on the New York Stock Exchange is restricted
per . an emergency exists as determined by the SEC, as a
share result of which the sale of securities is not
practicable, or it is not practicable to determine
the value of a variable account's assets, or
. the SEC permits a delay for the protection of
shareholders.
Because foreign securities can be traded on weekends,
U.S. holidays and other times when the NYSE is closed,
changes in the market value of these securities are not
always reflected in the portfolio's net asset value.
It's not possible to buy, sell, exchange or reinvest
shares on days the NYSE is closed, even if there has
been a change in the market value of these securities.
Variable annuity contracts and variable life insurance
policies may have other restrictions on buying and
selling shares.
--------------------------------------------------------
Brokerage The fund has adopted a brokerage enhancement plan under
enhancement plan which the fund, through its distributor, Pacific Select
Distributors, Inc. (formerly Pacific Mutual
The brokerage Distributors, Inc.), can ask Pacific Life and each of
enhancement plan the fund's portfolio managers to allocate brokerage
was adopted by the transactions to particular brokers or dealers, subject
fund pursuant to to best price and execution, to help promote the
Rule 12b-1 under distribution of the fund's shares. In return for
the Investment brokerage transactions, certain brokers and dealers may
Company Act of give brokerage credits, other benefits or services or
1940, and may be other compensation that, under the plan, may be used
considered a with broker-dealers to help obtain certain
distribution plan distribution-related activities or services. These
because it uses a credits or other compensation may be applied toward
fund asset - another service or benefit provided by a broker-dealer
brokerage - to help such as (but not limited to) the ability to promote the
promote fund at a conference or meeting sponsored by a broker-
distribution of the dealer.
fund's shares.
The plan is not expected to increase brokerage costs to
a portfolio. The granting of brokerage credits or
receipt of other compensation under the plan may be a
factor considered by a portfolio manager or the adviser
in allocating brokerage. In addition, a portfolio
manager or the adviser is always free to consider the
sale of fund shares or variable contracts in allocating
brokerage.
56
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is designed to help you understand how the
Pacific Select Fund portfolios have performed for the past five years (or since
inception, if shorter). Certain information reflects financial results for a
single portfolio share. Total investment return indicates how much an
investment in the portfolio would have earned, assuming all dividends and
distributions had been reinvested. Financial highlights do not appear for the
Diversified Research and International Large-Cap Portfolios because these
portfolios started on January 1, 2000 or for the I-Net Tollkeeper Portfolio
because this portfolio started on May 1, 2000.
<TABLE>
<CAPTION>
Aggressive Equity Portfolio Emerging Markets Portfolio
----------------------------------------------- -------------------------------------------
1996/2/ 1997 1998/4/ 1999 1996/2/ 1997 1998 1999
- ------------------------ ----------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 10.00 10.78 11.18 12.66 10.00 9.68 9.47 6.85
Plus income from
investment operations
Net investment income
(loss) $ 0.01 (0.01) 0.01 (0.01) (0.02) 0.06 0.10 0.03
Net realized and
unrealized gain (loss)
on securities $ 0.78 0.41 1.47 3.27 (0.30) (0.22) (2.64) 3.63
- ------------------------ ----------------------------------------------- -------------------------------------------
Total from investment
operations $ 0.79 0.40 1.48 3.26 (0.32) (0.16) (2.54) 3.66
Less distributions
Dividends from net
investment income $ (0.01) - - - - (0.05) (0.08) (0.03)
Distributions from
capital gains $ - - - (1.37) - - - -
- ------------------------ ----------------------------------------------- -------------------------------------------
Total distributions $ (0.01) - - (1.37) - (0.05) (0.08) (0.03)
Net asset value, end of
year $ 10.78 11.18 12.66 14.55 9.68 9.47 6.85 10.48
- ------------------------ ----------------------------------------------- -------------------------------------------
Total investment
return/1/ % 7.86 3.78 13.22 27.35 (3.23) (1.69) (26.83) 53.56
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 49,849 122,752 218,712 466,360 44,083 99,425 106,570 217,030
Ratios of expenses to
average net assets
. after waivers,
reimbursements and
credits % 1.02 0.86 0.89 0.85 2.18 1.46 1.46 1.41
. before waivers,
reimbursements and
credits % 1.03 0.87 0.89 0.85 2.22 1.47 1.46 1.42
Ratios of net investment
income (loss) to
average net assets
. after waivers,
reimbursements and
credits % (0.11) (0.13) 0.01 (0.12) (0.11) 0.80 1.42 0.74
. before waivers,
reimbursements and
credits % (0.12) (0.13) 0.01 (0.13) (0.14) 0.79 1.42 0.74
Portfolio turnover rate % 79.86 189.21 184.42 100.85 47.63 69.60 29.82 48.52
<CAPTION>
Small-Cap Equity Portfolio Bond and Income Portfolio
----------------------------------------------- -------------------------------------------
1995 1996 1997 1998 1999 1995 1996 1997 1998/5/ 1999
- ------------------------ ----------------------------------------------- -------------------------------------------
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 14.90 18.57 21.45 24.61 22.92 10.42 13.02 12.05 12.97 13.30
Plus income from
investment operations
Net investment income $ 0.15 0.08 0.05 0.02 0.05 0.82 0.79 0.80 0.74 0.73
Net realized and
unrealized gain (loss)
on securities $ 3.67 4.11 5.65 0.90 9.75 2.59 (0.94) 1.05 0.39 (1.67)
- ------------------------ ----------------------------------------------- -------------------------------------------
Total from investment
operations $ 3.82 4.19 5.70 0.92 9.80 3.41 (0.15) 1.85 1.13 (0.94)
Less distributions
Dividends from net
investment income $ (0.15) (0.09) (0.05) (0.02) (0.05) (0.81) (0.79) (0.76) (0.78) (0.72)
Distributions from
capital gains $ - (1.22) (2.49) (2.59) (2.88) - (0.03) (0.17) (0.02) (0.53)
- ------------------------ ----------------------------------------------- -------------------------------------------
Total distributions $ (0.15) (1.31) (2.54) (2.61) (2.93) (0.81) (0.82) (0.93) (0.80) (1.25)
Net asset value, end of
year $ 18.57 21.45 24.61 22.92 29.79 13.02 12.05 12.97 13.30 11.11
- ------------------------ ----------------------------------------------- -------------------------------------------
Total investment
return/1/ % 25.75 23.62 30.27 2.69 47.52 33.71 (0.80) 16.32 8.97 (7.34)
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 129,741 167,335 246,555 267,958 425,107 56,853 81,810 112,507 184,538 198,637
Ratios of expenses to
average net assets
. after waivers,
reimbursements and
credits % 0.79 0.76 0.70 0.70 0.70 0.80 0.71 0.66 0.70 0.66
. before waivers,
reimbursements and
credits % 0.79 0.76 0.70 0.70 0.70 0.80 0.71 0.66 0.70 0.66
Ratios of net investment
income to average net
assets
. after waivers,
reimbursements and
credits % 0.88 0.44 0.22 0.11 0.22 6.93 6.74 6.62 5.73 6.08
. before waivers,
reimbursements and
credits % 0.88 0.43 0.21 0.11 0.22 6.93 6.74 6.62 5.72 6.08
Portfolio turnover rate % 46.76 70.22 52.20 48.48 49.34 51.84 26.50 15.32 147.00 82.59
57
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
The information in the financial highlights tables for the years 1995 through
1999 is included and can be read in conjunction with the fund's financial
statements, which are in the fund's annual report dated as of December 31,
1999. These financial statements have been audited by Deloitte & Touche LLP,
independent auditors. Please turn to the back cover to find out how you can get
a copy of the annual report.
<TABLE>
<CAPTION>
Equity Portfolio Multi-Strategy Portfolio
--------------------------------------------------- -----------------------------------------------
1995 1996 1997 1998/5/ 1999 1995 1996 1997 1998 1999
- ------------------------ --------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 14.20 17.52 21.07 23.89 29.27 11.73 14.20 14.75 16.18 17.32
Plus income from
investment operations
Net investment income $ 0.05 0.02 0.14 0.09 0.03 0.45 0.48 0.50 0.46 0.44
Net realized and
unrealized gain on
securities $ 3.33 4.71 3.58 7.01 10.56 2.47 1.20 2.23 2.34 0.74
- ------------------------ --------------------------------------------------- -----------------------------------------------
Total from investment
operations $ 3.38 4.73 3.72 7.10 10.59 2.92 1.68 2.73 2.80 1.18
Less distributions
Dividends from net
investment income $ (0.06) (0.02) (0.13) (0.09) (0.03) (0.45) (0.48) (0.50) (0.46) (0.43)
Distributions from
capital gains $ - (1.16) (0.77) (1.63) (2.33) - (0.65) (0.80) (1.20) (1.09)
- ------------------------ --------------------------------------------------- -----------------------------------------------
Total distributions $ (0.06) (1.18) (0.90) (1.72) (2.36) (0.45) (1.13) (1.30) (1.66) (1.52)
Net asset value, end of
year $ 17.52 21.07 23.89 29.27 37.50 14.20 14.75 16.18 17.32 16.98
- ------------------------ --------------------------------------------------- -----------------------------------------------
Total investment
return/1/ % 23.80 28.03 18.18 30.28 38.54 25.25 12.56 19.62 18.17 7.04
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 108,136 207,897 318,143 502,629 1,042,678 134,501 225,619 367,128 576,424 739,506
Ratios of expenses to
average net assets
. after waivers,
reimbursements and
credits % 0.80 0.74 0.70 0.71 0.69 0.84 0.78 0.71 0.70 0.70
. before waivers,
reimbursements and
credits % 0.80 0.74 0.70 0.71 0.69 0.84 0.78 0.71 0.71 0.70
Ratios of net investment
income to average net
assets
. after waivers,
reimbursements and
credits % 0.27 0.05 0.59 0.35 0.11 3.49 3.37 3.25 2.81 2.57
. before waivers,
reimbursements and
credits % 0.27 0.05 0.59 0.35 0.11 3.49 3.37 3.25 2.81 2.56
Portfolio turnover rate % 226.45 90.98 159.88 130.51 58.72 176.45 132.94 71.89 102.38 196.97
<CAPTION>
Equity Income Portfolio Growth LT Portfolio
--------------------------------------------------- -----------------------------------------------
1995 1996 1997 1998 1999 1995 1996 1997 1998 1999
- ------------------------ --------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 14.05 18.21 20.45 24.47 26.89 11.11 14.12 16.50 17.31 26.20
Plus income from
investment operations
Net investment income
(loss) $ 0.26 0.24 0.20 0.20 0.24 0.10 0.14 0.16 (0.04) 0.15
Net realized and
unrealized gain on
securities $ 4.16 3.15 5.35 5.44 3.20 3.96 2.37 1.51 9.86 23.95
- ------------------------ --------------------------------------------------- -----------------------------------------------
Total from investment
operations $ 4.42 3.39 5.55 5.64 3.44 4.06 2.51 1.67 9.82 24.10
Less distributions
Dividends from net
investment income $ (0.26) (0.24) (0.20) (0.20) (0.24) (0.10) (0.13) (0.09) (0.05) -
Distributions from
capital gains $ - (0.91) (1.33) (3.02) (2.34) (0.95) - (0.77) (0.88) (2.63)
- ------------------------ --------------------------------------------------- -----------------------------------------------
Total distributions $ (0.26) (1.15) (1.53) (3.22) (2.58) (1.05) (0.13) (0.86) (0.93) (2.63)
Net asset value, end of
year $ 18.21 20.45 24.47 26.89 27.75 14.12 16.50 17.31 26.20 47.67
- ------------------------ --------------------------------------------------- -----------------------------------------------
Total investment
return/1/ % 31.66 19.43 28.60 24.18 13.26 36.75 17.87 10.96 58.29 98.08
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 206,653 429,262 806,112 1,262,143 1,813,224 200,785 438,154 677,147 1,279,759 3,655,851
Ratios of expenses to
average net assets
. after waivers,
reimbursements and
credits % 0.83 0.75 0.70 0.69 0.70 0.94 0.87 0.82 0.80 0.79
. before waivers,
reimbursements and
credits % 0.83 0.75 0.70 0.70 0.70 0.94 0.87 0.82 0.80 0.79
Ratios of net investment
income (loss) to
average net assets
. after waivers,
reimbursements and
credits % 1.59 1.31 0.91 0.84 0.91 0.90 0.74 0.52 (0.08) (0.33)
. before waivers,
reimbursements and
credits % 1.59 1.31 0.91 0.84 0.91 0.90 0.74 0.52 (0.08) (0.33)
Portfolio turnover rate % 86.47 94.95 105.93 80.78 69.34 165.83 147.02 145.17 116.96 111.56
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Mid-Cap Value Portfolio Equity Index Portfolio
------------------------------------------- -----------------------------------------------
1999/3/ 1995 1996 1997 1998 1999
- ------------------------ ------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 10.00 13.02 17.45 20.42 25.71 32.33
Plus income from
investment operations
Net investment income $ 0.02 0.34 0.37 0.37 0.38 0.39
Net realized and
unrealized gain on
securities $ 0.50 4.43 3.42 6.13 6.83 6.24
- ------------------------ ------------------------------------------- -----------------------------------------------
Total from investment
operations $ 0.52 4.77 3.79 6.50 7.21 6.63
Less distributions
Dividends from net
investment income $ (0.02) (0.34) (0.37) (0.37) (0.37) (0.39)
Distributions from
capital gains $ - - (0.45) (0.84) (0.22) (0.16)
- ------------------------ ------------------------------------------- -----------------------------------------------
Total distributions $ (0.02) (0.34) (0.82) (1.21) (0.59) (0.55)
Net asset value, end of
year $ 10.50 17.45 20.42 25.71 32.33 38.41
- ------------------------ ------------------------------------------- -----------------------------------------------
Total investment
return/1/ % 5.22 36.92 22.36 32.96 28.45 20.59
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 107,434 137,519 393,412 874,136 1,496,457 2,423,611
Ratios of expenses to
average net assets
. after waivers,
reimbursements and
credits % 0.97 0.42 0.31 0.23 0.21 0.20
. before waivers,
reimbursements and
credits % 0.97 0.42 0.31 0.23 0.21 0.21
Ratios of net investment
income to average net
assets
. after waivers,
reimbursements and
credits % 0.44 2.26 2.05 1.61 1.33 1.14
. before waivers,
reimbursements and
credits % 0.44 2.26 2.04 1.61 1.33 1.13
Portfolio turnover rate % 84.14 7.52 20.28 2.58 2.48 4.16
<CAPTION>
Small-Cap Index Portfolio REIT Portfolio
------------------------------------------- -----------------------------------------------
1999/3/ 1999/3/
- ------------------------ ------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 10.00 10.00
Plus income from
investment operations
Net investment income $ 0.06 0.39
Net realized and
unrealized gain (loss)
on securities $ 1.87 (0.39)
- ------------------------ ------------------------------------------- -----------------------------------------------
Total from investment
operations $ 1.93 0.00
Less distributions
Dividends from net
investment income $ (0.06) (0.39)
Distributions from
capital gains $ (0.13) (0.02)
- ------------------------ ------------------------------------------- -----------------------------------------------
Total distributions $ (0.19) (0.41)
Net asset value, end of
year $ 11.74 9.59
- ------------------------ ------------------------------------------- -----------------------------------------------
Total investment
return/1/ % 19.36 (0.01)
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 115,052 50,101
Ratios of expenses to
average net assets
. after waivers,
reimbursements and
credits % 0.75 1.28
. before waivers,
reimbursements and
credits % 0.94 1.28
Ratios of net investment
income to average net
assets
. after waivers,
reimbursements and
credits % 0.99 6.09
. before waivers,
reimbursements and
credits % 0.80 6.09
Portfolio turnover rate % 52.06 20.24
59
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
International Value Portfolio Government Securities Portfolio
------------------------------------------------- --------------------------------------------
1995 1996 1997/6/ 1998 1999 1995 1996 1997 1998 1999
- ------------------------ ------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 11.94 12.93 15.40 16.21 15.80 9.64 10.84 10.38 10.78 10.98
Plus income from
investment operations
Net investment income $ 0.33 0.28 0.41 0.11 0.06 0.58 0.56 0.53 0.54 0.52
Net realized and
unrealized gain (loss)
on securities $ 0.91 2.54 1.00 0.90 3.37 1.19 (0.27) 0.42 0.42 (0.74)
- ------------------------ ------------------------------------------------- --------------------------------------------
Total from investment
operations $ 1.24 2.82 1.41 1.01 3.43 1.77 0.29 0.95 0.96 (0.22)
Less distributions
Dividends from net
investment income $ (0.25) (0.23) (0.29) (0.17) (0.12) (0.57) (0.53) (0.55) (0.55) (0.52)
Distributions from
capital gains $ - (0.12) (0.31) (1.25) (0.62) - (0.22) - (0.21) (0.14)
- ------------------------ ------------------------------------------------- --------------------------------------------
Total distributions $ (0.25) (0.35) (0.60) (1.42) (0.74) (0.57) (0.75) (0.55) (0.76) (0.66)
Net asset value, end of
year $ 12.93 15.40 16.21 15.80 18.49 10.84 10.38 10.78 10.98 10.10
- ------------------------ ------------------------------------------------- --------------------------------------------
Total investment
return/1/ % 10.56 21.89 9.28 5.60 22.82 18.81 2.94 9.48 9.24 (1.95)
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 182,199 454,019 764,036 996,215 1,683,446 59,767 97,542 129,900 190,428 428,174
Ratios of expenses to
average net assets
. after waivers,
reimbursements and
credits % 1.12 1.07 1.02 1.00 1.01 0.82 0.72 0.66 0.66 0.66
. before waivers,
reimbursements and
credits % 1.12 1.07 1.03 1.00 1.01 0.82 0.72 0.67 0.66 0.66
Ratios of net investment
income to average net
assets
. after waivers,
reimbursements and
credits % 1.87 2.28 1.81 1.36 1.12 5.58 5.33 5.39 5.16 5.19
. before waivers,
reimbursements and
credits % 1.87 2.28 1.79 1.36 1.12 5.58 5.33 5.38 5.16 5.19
Portfolio turnover rate % 16.07 20.87 84.34 45.61 55.56 298.81 307.13 203.01 266.83 370.28
<CAPTION>
Managed Bond Portfolio Money Market Portfolio
------------------------------------------------- --------------------------------------------
1995 1996 1997 1998 1999 1995 1996 1997 1998 1999
- ------------------------ ------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 9.90 11.10 10.75 11.14 11.38 10.03 10.02 10.04 10.06 10.05
Plus income from
investment operations
Net investment income $ 0.65 0.59 0.59 0.57 0.59 0.54 0.47 0.51 0.52 0.46
Net realized and
unrealized gain (loss)
on securities $ 1.19 (0.15) 0.44 0.40 (0.79) - 0.02 0.01 - 0.03
- ------------------------ ------------------------------------------------- --------------------------------------------
Total from investment
operations $ 1.84 0.44 1.03 0.97 (0.20) 0.54 0.49 0.52 0.52 0.49
Less distributions
Dividends from net
investment income $ (0.64) (0.57) (0.60) (0.58) (0.59) (0.55) (0.47) (0.50) (0.53) (0.46)
Distributions from
capital gains $ - (0.22) (0.04) (0.15) (0.26) - - - - -
- ------------------------ ------------------------------------------------- --------------------------------------------
Total distributions $ (0.64) (0.79) (0.64) (0.73) (0.85) (0.55) (0.47) (0.50) (0.53) (0.46)
Net asset value, end of
year $ 11.10 10.75 11.14 11.38 10.33 10.02 10.04 10.06 10.05 10.08
- ------------------------ ------------------------------------------------- --------------------------------------------
Total investment
return/1/ % 19.04 4.25 9.92 9.20 (1.91) 5.54 5.07 5.28 5.29 4.94
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 126,992 260,270 468,575 765,989 1,090,978 95,949 322,193 451,505 479,121 1,057,072
Ratios of expenses to
average net assets
. after waivers,
reimbursements and
credits % 0.76 0.71 0.66 0.66 0.65 0.53 0.50 0.44 0.42 0.39
. before waivers,
reimbursements and
credits % 0.76 0.71 0.66 0.66 0.66 0.53 0.50 0.44 0.43 0.40
Ratios of net investment
income to average net
assets
. after waivers,
reimbursements and
credits % 6.04 5.71 5.72 5.40 5.68 5.41 4.93 5.17 5.17 4.87
. before waivers,
reimbursements and
credits % 6.04 5.71 5.72 5.40 5.67 5.41 4.93 5.17 5.16 4.87
Portfolio turnover rate % 191.39 386.16 230.87 230.99 374.74 N/A N/A N/A N/A N/A
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
High Yield Bond Portfolio Large-Cap Value Portfolio
---------------------------------------------- ---------------------------------------
1995 1996 1997 1998 1999 1999/3/
- ------------------------ ---------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 8.91 9.79 9.94 9.98 9.34 10.00
Plus income from
investment operations
Net investment income $ 0.76 0.79 0.78 0.78 0.78 0.05
Net realized and
unrealized gain (loss)
on securities $ 0.88 0.25 0.12 (0.55) (0.53) 1.09
- ------------------------ ---------------------------------------------- ---------------------------------------
Total from investment
operations $ 1.64 1.04 0.90 0.23 0.25 1.14
Less distributions
Dividends from net
investment income $ (0.76) (0.79) (0.77) (0.78) (0.78) (0.05)
Distributions from
capital gains $ - (0.10) (0.09) (0.09) - -
- ------------------------ ---------------------------------------------- ---------------------------------------
Total distributions $ (0.76) (0.89) (0.86) (0.87) (0.78) (0.05)
Net asset value, end of
year $ 9.79 9.94 9.98 9.34 8.81 11.09
- ------------------------ ---------------------------------------------- ---------------------------------------
Total investment
return/1/ % 18.87 11.31 9.44 2.46 2.90 11.46
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 84,425 184,744 311,125 389,385 448,747 169,531
Ratios of expenses to
average net assets
. after waivers,
reimbursements and
credits % 0.77 0.71 0.65 0.65 0.65 0.97
. before waivers,
reimbursements and
credits % 0.77 0.71 0.66 0.66 0.66 0.97
Ratios of net investment
income to average net
assets
. after waivers,
reimbursements and
credits % 8.51 8.28 7.89 8.18 8.65 0.86
. before waivers,
reimbursements and
credits % 8.51 8.28 7.89 8.17 8.65 0.86
Portfolio turnover rate % 127.31 120.06 103.19 75.27 52.38 55.23
/1/ Assumes all dividends and distributions have been reinvested. Does not include deductions at the
separate account or contract level for fees and charges that may be incurred by a variable annuity
contract or variable life insurance policy.
/2/ Information is for the period from April 1, 1996 (commencement of operations) to December 31, 1996.
The ratios of expenses to average net assets and the ratios of net investment income (loss) to
average net assets are annualized.
/3/ Information is for the period from January 4, 1999 (commencement of operations) to December 31, 1999.
The ratios of expenses to average net assets and the ratios of net investment income to average net
assets are annualized.
/4/ Alliance Capital Management L.P. began managing the portfolio on May 1, 1998. Another firm managed
the portfolio before that date.
/5/ Goldman Sachs Asset Management began managing the portfolio on May 1, 1998. Another firm managed the
portfolio before that date.
/6/ Morgan Stanley Asset Management began managing the portfolio on June 1, 1997. Other firms managed the
portfolio before that date.
61
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PACIFIC SELECT FUND WHERE TO GO FOR MORE INFORMATION
The Pacific Select You'll find more information about the Pacific Select
Fund is available Fund in the following documents:
only to people who
own a variable Annual and semi-annual reports
annuity contract or The fund's annual and semi-annual reports list the
variable life holdings of the fund's portfolios, describe portfolio
insurance policy performance, and tell you how investment strategies and
issued or portfolio performance have responded to recent market
administered by conditions and economic trends.
Pacific Life
Insurance Company Statement of Additional Information (SAI)
or its The SAI contains detailed information about each
subsidiaries. portfolio's investments, strategies and risks, and is
You'll find out how considered to be part of this prospectus because it is
your annuity incorporated by reference.
contract or life
insurance policy You can get a copy of these documents at no charge by
works in the calling or writing to Pacific Life. You can also get a
product prospectus copy of these documents by contacting the Securities
or offering and Exchange Commission. The SEC may charge you a fee
memorandum that for this information.
accompanies this
document.
Please contact
Pacific Life if you
have any questions
about any of the
Pacific Select Fund
portfolios.
-------------------------------------------------------
How to contact Pacific Life Insurance Company
Pacific Life 700 Newport Center Drive
Post Office Box 9000
Newport Beach, California 92660
Annuities: 1-800-722-2333
Life Insurance: 1-800-800-7681
-------------------------------------------------------
How to contact Public Reference Section of the SEC
the SEC Washington, D.C. 20549-6009
1-800-SEC-0330
Internet: www.sec.gov
Form No. 15-15756-14
Form No. 483-0A SEC file number 811-5141
<PAGE>
[LOGO OF PACIFIC SELECT FUND APPEARS HERE]
PACIFIC SELECT FUND
STATEMENT OF ADDITIONAL INFORMATION
Date: May 1, 2000
----------------
The Pacific Select Fund is an open-end investment management company
currently offering twenty-one investment portfolios. The following twenty of
those portfolios are classified as diversified: the Aggressive Equity
Portfolio; the Emerging Markets Portfolio; the Diversified Research Portfolio;
the Small-Cap Equity Portfolio; the International Large-Cap Portfolio; the
Bond and Income Portfolio; the Equity Portfolio; the I-Net Tollkeeper
PortfolioSM; the Multi-Strategy Portfolio; the Equity Income Portfolio; the
Growth LT Portfolio; the Mid-Cap Value Portfolio; the Equity Index Portfolio;
the Small-Cap Index Portfolio; the International Value Portfolio; the
Government Securities Portfolio; the Managed Bond Portfolio; the Money Market
Portfolio; the High Yield Bond Portfolio; and the Large-Cap Value Portfolio.
The REIT Portfolio is classified as non-diversified. The Fund's Adviser is
Pacific Life Insurance Company.
This Statement of Additional Information ("SAI") is intended to supplement
the information provided to investors in the Prospectus dated May 1, 2000, of
the Fund and has been filed with the Securities and Exchange Commission
("SEC") as part of the Fund's Registration Statement. Investors should note,
however, that this SAI is not itself a prospectus and should be read carefully
in conjunction with the Fund's Prospectus and retained for future reference.
The contents of this SAI are incorporated by reference in the Prospectus in
their entirety. A copy of the Prospectus may be obtained free of charge from
the Fund at the address and telephone numbers listed below.
----------------
Distributor:
Pacific Select Distributors, Inc.
(formerly Pacific Mutual Distributors, Inc.)
700 Newport Center Drive
P.O. Box 9000
Newport Beach, CA 92660
(800) 800-7681
Adviser:
Pacific Life Insurance Company
700 Newport Center Drive
P.O. Box 9000
Newport Beach, CA 92660
Annuities (800) 722-2333
Life Insurance (800) 800-7681
<PAGE>
TABLE OF CONTENTS
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INTRODUCTION................................................................ 1
ADDITIONAL INVESTMENT POLICIES OF THE PORTFOLIOS............................ 1
Aggressive Equity Portfolio............................................... 1
Emerging Markets Portfolio................................................ 2
Diversified Research Portfolio............................................ 3
Small-Cap Equity Portfolio................................................ 3
International Large-Cap Portfolio......................................... 3
Bond and Income Portfolio................................................. 4
Equity Portfolio.......................................................... 4
I-Net Tollkeeper Portfolio................................................ 5
Multi-Strategy Portfolio.................................................. 6
Equity Income Portfolio................................................... 7
Growth LT Portfolio....................................................... 7
Mid-Cap Value Portfolio................................................... 8
Equity Index Portfolio.................................................... 8
Small-Cap Index Portfolio................................................. 9
REIT Portfolio............................................................ 9
International Value Portfolio............................................. 10
Government Securities Portfolio........................................... 11
Managed Bond Portfolio.................................................... 11
Money Market Portfolio.................................................... 12
High Yield Bond Portfolio................................................. 12
Large-Cap Value Portfolio................................................. 13
Diversification Versus Non-Diversification................................ 13
SECURITIES AND INVESTMENT TECHNIQUES........................................ 14
U.S. Government Securities................................................ 14
Real Estate Investment Trusts............................................. 14
Mortgage-Related Securities............................................... 15
Mortgage Pass-Through Securities........................................ 15
GNMA Certificates....................................................... 15
FNMA and FHLMC Mortgage-Backed Obligations.............................. 16
Collateralized Mortgage Obligations (CMOs).............................. 17
FHLMC Collateralized Mortgage Obligations............................... 17
Other Mortgage-Related Securities....................................... 17
CMO Residuals........................................................... 18
Inverse Floaters and Planned Amortization Class Certificates............ 18
Stripped Mortgage-Backed Securities..................................... 19
Mortgage Dollar Rolls................................................... 19
Other Asset-Backed Securities............................................. 19
High Yield Bonds.......................................................... 20
Bank Obligations.......................................................... 21
Municipal Securities...................................................... 22
Small Capitalization Stocks............................................... 22
Corporate Debt Securities................................................. 23
Variable and Floating Rate Securities..................................... 23
Commercial Paper.......................................................... 23
Convertible Securities.................................................... 24
Repurchase Agreements..................................................... 25
Borrowing................................................................. 26
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Reverse Repurchase Agreements and Other Borrowings........................ 26
Firm Commitment Agreements and When-Issued Securities..................... 27
Loans of Portfolio Securities............................................. 27
Short Sales............................................................... 27
Short Sales Against the Box............................................... 28
Illiquid and Restricted Securities (Private Placements)................... 28
Precious Metals-Related Securities........................................ 28
Foreign Securities........................................................ 29
Foreign Currency Transactions and Forward Foreign Currency Contracts...... 31
Options................................................................... 33
Purchasing and Writing Options on Securities............................ 33
Purchasing and Writing Options on Stock Indexes......................... 34
Risks of Options Transactions........................................... 34
Spread Transactions..................................................... 35
Options on Foreign Currencies............................................. 35
Investments in Other Investment Company Securities........................ 37
SPDRs................................................................... 37
WEBS and OPALS.......................................................... 37
Futures Contracts and Options on Futures Contracts........................ 38
Futures on Securities................................................... 38
Interest Rate Futures................................................... 38
Stock Index Futures..................................................... 39
Futures Options......................................................... 39
Limitations............................................................. 40
Risks Associated with Futures and Futures Options....................... 41
Foreign Currency Futures and Options Thereon.............................. 42
Swap Agreements and Options on Swap Agreements............................ 42
Risks of Swap Agreements................................................ 42
Structured Notes.......................................................... 43
Warrants and Rights....................................................... 43
Duration.................................................................. 43
INVESTMENT RESTRICTIONS..................................................... 45
Fundamental Investment Restrictions....................................... 45
Nonfundamental Investment Restrictions.................................... 46
ORGANIZATION AND MANAGEMENT OF THE FUND..................................... 46
Trustees and Officers..................................................... 47
Investment Adviser........................................................ 48
Other Expenses of the Fund................................................ 51
Portfolio Management Agreements........................................... 51
Distribution of Fund Shares............................................... 60
Purchases and Redemptions................................................. 61
Exchanges Among the Portfolios............................................ 61
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 62
Investment Decisions...................................................... 62
Brokerage and Research Services........................................... 62
Portfolio Turnover........................................................ 64
NET ASSET VALUE............................................................. 64
PERFORMANCE INFORMATION..................................................... 66
</TABLE>
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TAXATION.................................................................... 68
Distributions............................................................. 69
Hedging Transactions...................................................... 70
OTHER INFORMATION........................................................... 70
Concentration Policy...................................................... 70
Brokerage Enhancement Plan................................................ 70
Capitalization............................................................ 71
Voting Rights............................................................. 71
Custodian and Transfer Agency and Dividend Disbursing Services............ 72
Financial Statements...................................................... 72
Independent Auditors...................................................... 72
Counsel................................................................... 72
Code of Ethics............................................................ 72
Registration Statement.................................................... 72
APPENDIX.................................................................... 73
Description of Bond Ratings............................................... 73
</TABLE>
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<PAGE>
INTRODUCTION
This SAI is designed to elaborate upon information contained in the
Prospectus, including the discussion of certain securities and investment
techniques. The more detailed information contained herein is intended solely
for investors who have read the Prospectus and are interested in a more
detailed explanation of certain aspects of the Fund's securities and
investment techniques.
ADDITIONAL INVESTMENT POLICIES OF THE PORTFOLIOS
The investment objective and investment policies of each Portfolio are
described in the Prospectus. The following descriptions and the information in
the section "Investment Restrictions" provide more detailed information on
investment policies that apply to each Portfolio, and are intended to
supplement the information provided in the Prospectus. Any percentage
limitations noted are based on market value at time of investment.
Unless otherwise noted, a Portfolio may invest up to 5% of its net assets
(taken at market value at the time of such investment) in any type of security
or investment that the Investment Adviser or Portfolio Manager reasonably
believes is compatible with the investment objectives and policies of the
Portfolio.
Unless otherwise noted, a Portfolio may lend up to 33 1/3% of its total
assets to brokers/dealers and other financial institutions to earn income, may
borrow money for administrative or emergency purposes, may invest in
restricted securities, and may invest up to 15% of its net assets in illiquid
securities (up to 10% for the Money Market Portfolio).
Aggressive Equity Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest a portion of its assets in: high-
quality money market instruments; mortgage-related and asset-backed
securities; convertible securities; repurchase agreements and reverse
repurchase agreements; small capitalization stocks; American Depositary
Receipts ("ADRs"); U.S. Government securities, its agencies or
instrumentalities; U.S. dollar-denominated obligations of foreign governments,
foreign government agencies and international agencies; variable and floating
rate securities; firm commitment agreements; when-issued securities may enter
into short sales against the box; and securities of foreign issuers traded in
the U.S. securities markets and outside the U.S. (including commercial paper),
provided that the Portfolio may not acquire a security of a foreign issuer
principally traded outside the U.S. if, at the time of such investment, more
than 20% of the Portfolio's total assets would be invested in such foreign
securities.
The Portfolio may also invest up to 5% of its net assets in warrants and
rights (valued at the lower of cost or market) provided that no more than 2%
of its net assets are invested in warrants not listed on the New York or
American Stock Exchanges; and may invest in U.S. dollar-denominated corporate
debt securities of domestic issuers (including U.S. dollar-denominated debt
securities of foreign issuers) and debt securities of foreign issuers
denominated in foreign currencies, rated Baa by Moody's Investor's Service,
Inc.. ("Moody's") or BBB by Standard and Poor's Rating Services ("S&P"), or,
if not rated by Moody's or S&P, of equivalent quality. For more information on
the risks of such securities, see "Description of Bond Ratings" in the
Appendix.
Bank obligations of foreign banks (including U.S. branches of foreign banks)
in which the Portfolio may invest must, at the time of investment (i) have
more than $10 billion, or the equivalent in other currencies, in total assets;
(ii) in terms of assets be among the 75 largest foreign banks in the world;
(iii) have branches or agencies (limited purpose offices which do not offer
all banking services) in the U.S.; and (iv) in the opinion of the portfolio
manager, be of an investment quality comparable to obligations of U.S. banks
in which the portfolio may invest.
For hedging purposes, the Portfolio may purchase put and call options on
securities and securities indexes and may write covered call and secured put
options. The Portfolio may also purchase and sell stock index futures
contracts and options thereon. To hedge against the risk of currency
fluctuation associated with investment in
1
<PAGE>
foreign securities, the Portfolio may buy or sell foreign currencies on a spot
(cash) basis and enter into forward foreign currency contracts or purchase and
write options on foreign currencies or foreign currency futures contracts and
purchase and write options thereon. The Portfolio may trade futures contracts
and options on futures contracts not only on U.S. domestic markets, but also
on exchanges located outside of the U.S. The Portfolio will not engage in
"short sales against the box," in which the Portfolio sells short a security
it owns, if, at the time of investment, the total market value of all
securities sold short would exceed 25% of the Portfolio's net assets, and no
more than 15% of the Portfolio's net assets will be subject to such short
sales at any time.
Emerging Markets Portfolio
The Portfolio is subject to guidelines for diversification of foreign
security investments that prescribe the minimum number of countries in which
the Portfolio's assets may be invested. These guidelines are discussed under
"Foreign Securities."
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest up to 10% of its assets in U.S.
government securities, high quality debt securities, money market obligations,
and in cash to meet cash flow needs or if the U.S. Government ever imposes
restrictions on foreign investing. Such money market obligations may include
short-term corporate or U.S. government obligations and bank certificates of
deposit. The Portfolio may also invest in: nonconvertible fixed income
securities denominated in foreign currencies; small capitalization stocks;
equity index swap agreements; ADRs; Global Depositary Receipts ("GDRs");
European Depositary Receipts ("EDRs"), or other securities convertible into
equity securities of U.S. or foreign issuers; up to 5% of its net assets in
warrants and rights (valued at the lower of cost or market) provided that no
more than 2% of its net assets are invested in warrants not listed on the New
York or American Stock Exchanges; variable and floating rate securities;
warrants on securities that it is eligible to purchase; preferred stock;
repurchase agreements; reverse repurchase agreements; firm commitment
agreements; and when-issued securities. The Portfolio is also permitted to
invest in World Equity Benchmark Shares ("WEBS") and Optimised Portfolios as
Listed Securities ("OPALS"). The debt securities (including commercial paper,
foreign government and international agencies) and money market obligations in
which the Portfolio invests may be issued by U.S. and foreign issuers and may
be denominated in U.S. dollars or foreign currencies. The Portfolio may invest
in corporate debt securities rated Baa (Moody's) or BBB (S&P), or, if not
rated by Moody's or S&P, of equivalent quality. For more information on the
risks of such securities, see "Description of Bond Ratings" in the Appendix.
The Portfolio may only invest in bank obligations of foreign banks
(including U.S. branches of foreign banks) which at the time of investment:
(i) had more than $10 billion, or the equivalent in other currencies, in total
assets; (ii) in terms of assets are among the 75 largest foreign banks in the
world; (iii) have branches or agencies (limited purpose offices which do not
offer all banking services) in the U.S.; and (iv) in the opinion of the
portfolio manager, are of an investment quality comparable to obligations of
U.S. banks in which the portfolio may invest.
The Portfolio may engage in the purchase and writing of put and call options
on foreign currencies, securities, and stock indexes. The Portfolio may also
engage in futures contracts on securities and stock indexes, including foreign
exchange futures contracts, and may purchase and sell put and call options
thereon. The Portfolio may enter into forward foreign currency contracts,
foreign currency exchange transactions on a spot (i.e., cash) basis, cross-
hedge between two non-U.S. currencies, and use derivatives and other
management techniques to hedge and manage changes in currency exchange rates.
The Portfolio may trade futures contracts and options on futures contracts not
only on U.S. domestic markets, but also on exchanges located outside of the
U.S.
Investors should understand that the expense ratio of the Portfolio can be
expected to be higher than investment companies investing in domestic
securities since the cost of maintaining the custody of foreign securities and
the rate of advisory fees paid by the Portfolio is higher.
2
<PAGE>
Diversified Research Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest in: U.S. dollar-denominated
corporate debt securities of domestic and foreign issuers; variable and
floating rate securities; convertible securities; U.S. government securities;
equity REITs; bank obligations; warrants; firm commitment agreements; when-
issued securities; commercial paper; repurchase agreements; and reverse
repurchase agreements. The Portfolio may also invest in foreign issuers whose
principal markets are in the U.S. (which include ADRs and foreign securities
registered in the U.S.); and up to 15% of its total assets in companies
domiciled outside the U.S. and not included in the S&P 500. The Portfolio may
engage in foreign currency transactions; forward foreign currency contracts;
and foreign currency futures contracts. The Portfolio may also engage in the
purchasing and writing of put and call options on foreign currencies, foreign
currency futures contracts, and securities, and may purchase put and call
options on stock indexes that are exchange traded or traded on over-the-
counter markets.
The Portfolio may not invest in variable and floating rate securities.
In addition to the risk factors described in the Prospectus, the Portfolio
may be affected by the following risk factors: The Portfolio's growth oriented
approach to stock selection may result in its securities being more sensitive
to changes in current or expected earnings than the prices of other stocks.
The price of growth stocks also is subject to the risk that the stock price of
one or more companies will fall or will fail to appreciate as anticipated by
the Portfolio Manager, regardless of performance of the securities markets.
Small-Cap Equity Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may invest in various foreign securities if listed
on a U.S. exchange or otherwise included in the S&P 500; commercial paper;
repurchase agreements; corporate debt securities; U.S. Government securities,
its agencies or instrumentalities; ADRs; bank obligations; variable and
floating rate securities; firm commitment agreements; when-issued securities;
and may hold a portion of its assets in cash.
The Portfolio may also invest up to 5% of its assets in convertible bonds
and other fixed income securities (other than money market instruments), which
will primarily, at the time of investment, be rated Baa or better by Moody's
or BBB or better by S&P, or, if not rated by Moody's or S&P, will be of
comparable quality as determined by the Portfolio Manager.
The Portfolio may not engage in futures contracts and options on futures
contracts.
International Large-Cap Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest in: high quality debt securities
rated, at the time of purchase, within the top three quality categories by
Moody's or S&P (or unrated securities of equivalent quality); convertible
securities; U.S. government securities; warrants; equity REITs; bank
obligations; variable and floating rate securities; repurchase agreements;
reverse repurchase agreements; and short-term debt obligations (including
commercial paper) denominated in U.S. dollars (including U.S. dollar-
denominated debt securities of foreign issuers) or foreign currencies. The
Portfolio may also engage in foreign currency transactions and forward foreign
currency contracts. The Portfolio may engage in the purchase and writing of
put and call options on foreign currencies, foreign currency futures
contracts, and securities, and may purchase put and call options on stock
indexes that are exchange traded or traded on over-the-counter markets.
Investors should understand that the expense ratio of the Portfolio can be
expected to be higher than investment companies investing in domestic
securities since the cost of maintaining the custody of foreign securities and
the rate of advisory fees paid by the Portfolio is higher.
3
<PAGE>
Bond and Income Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may invest in U.S. dollar-denominated corporate debt
securities of domestic issuers and U.S. dollar-denominated debt securities of
foreign issuers and up to 10% of its assets in non-U.S. dollar denominated
securities (including debt securities of foreign issuers denominated in
foreign currencies). The Portfolio may invest in corporate debt securities
rated Baa (Moody's) or BBB (S&P), or, if not rated by Moody's or S&P, of
equivalent quality. The Portfolio may also invest up to 20% of its assets in
debt securities rated lower than Baa or BBB or, if not rated, of equivalent
quality, 15% of which may consist of debt securities of foreign government or
their agencies located in emerging market countries. See "Description of Bond
Ratings" in the Appendix and the section titled "High Yield Bonds" for more
information on the risks of such securities.
The Portfolio may also invest in warrants; however, not more than 10% of the
market value of its assets (at the time of purchase) may be invested in
warrants other than warrants acquired in units or attached to other securities
and rights; ADRs; convertible securities; variable and floating rate
securities; mortgage dollar rolls; firm commitment agreements; when-issued
securities; repurchase agreements; and reverse repurchase agreements. High-
quality short-term instruments, in which the portfolio may invest include,
among others, commercial paper, bank obligations, certificates of deposit,
time deposits, loans or credit agreements and banker's acceptance issued by
U.S. and foreign banks with assets of at least U.S. $2 billion as of the end
of their most recent fiscal year; short-term debt obligations of savings and
loan institutions with assets of at least U.S. $2 billion as of the end of
their most recent fiscal year; and enter into repurchase agreements which the
Portfolio may, together with other registered investment companies managed by
Goldman Sachs Asset Management or its affiliates, transfer uninvested cash
balances into a single joint account, the daily aggregate balance of which
will be invested in one or more repurchase agreements; and preferred stock.
The Portfolio may invest up to 10% of its assets in the following types of
mortgage-related securities: inverse floaters, super floating rate
collateralized mortgage obligations ("Superfloater"), interest only ("IO's")
and principal-only ("PO's") tranches of stripped mortgage-backed securities
(including planned amortization class certificates) and inverse IO's and up to
5% of its net assets in municipal securities.
For hedging risk or adjusting interest rate exposure, the Portfolio may (but
is not obligated to) use several investment techniques. The Portfolio may
purchase and write put and call options on securities and on securities
indexes and enter into the following types of transactions: financial futures
contracts and options thereon; instruments such as interest rate caps, floors,
and collars; and interest rate swaps. To hedge against fluctuations in
currency exchange rates that affect non-U.S. dollar-denominated securities,
the Portfolio may enter into spot (or cash) transactions in currency, forward
currency contracts, options on foreign currency contracts, foreign currency
futures and options thereon, and currency swaps. The Portfolio may trade
futures contracts and options on futures contracts not only on U.S. domestic
markets, but also on exchanges located outside of the U.S. The Portfolio may
invest up to 5% of its assets in structured notes to hedge interest rate or
currency risk and may enter into swaps, caps, floors, collars, structured
notes, and non-exchange traded options only with counterparties that have
outstanding securities rated A or better by Moody's or S&P or that have
outstanding short-term securities rated P-2 or better by Moody's or A-2 or
better by S&P, or, if not rated by Moody's or S&P, of equivalent quality.
Equity Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest in: U.S. government securities;
small capitalization stocks; corporate bonds; convertible securities, money
market instruments; precious metals-related securities; mortgage-related and
asset-backed securities. The Portfolio may invest in warrants; however, not
more than 5% of the market value of its assets (at the time of purchase) may
be invested in warrants other than warrants acquired in units or attached to
other securities; and rights; bank obligations; variable and floating rate
securities; firm commitment agreements; when-issued securities; and enter in
repurchase agreements, which the Portfolio may, together with other registered
investment companies managed by Goldman Sach Asset Management or its
affiliates, transfer uninvested cash balances into a single joint account, the
daily aggregate balance of which will be invested in one or more repurchase
agreements. In addition, the Portfolio may invest in commercial paper (1)
rated at the time of purchase Prime-1 by Moody's or A-1 by S&P
4
<PAGE>
or (2) if not rated by either Moody's or S&P, issued by a corporation having
an outstanding debt issue rated Aa or better by Moody's or AA or better by
S&P. The Portfolio will not engage in "short sales against the box," in which
the Portfolio sells short a security it owns, if, at the time of investment,
the total market value of all securities sold and held short would exceed 25%
of the Portfolio's net assets, and no more than 15% of the Portfolio's net
assets will be subject to such short sales at any time.
The Portfolio may also purchase and write put and call options on securities
and stock indices and enter into stock index futures contracts and options
thereon. The Portfolio will only enter into futures contracts and futures
options which are standardized and traded on a U.S. exchange, board of trade,
or similar entity. The Portfolio may also purchase Standard & Poor's
Depository Receipts ("SPDRs"), which represent ownership interests in the SPDR
Trust, a long-term unit investment trust established to accumulate and hold a
portfolio of common stocks that is intended to track the price performance and
dividend yield of the Standard & Poor's 500 Composite Stock Price Index ("S&P
500").
I-Net Tollkeeper Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may invest in preferred stocks; repurchase
agreements; U.S. government securities; bank obligations; interests in real
estate investment trusts (equity, mortgage, or hybrid); mortgage-related
securities, including real estate mortgage investment conduit ("REMIC")
certificates; asset-backed securities; commercial paper; firm commitment
agreements; when-issued securities; high-yield bonds; variable and floating
rate securities; convertible securities; equity interests in trusts;
partnerships; joint ventures; limited liability companies and similar
enterprises; warrants and rights. The Portfolio may also invest up to 10% of
its assets in debt securities rated lower than Baa by Moody's or BBB by S&P,
or if not rated by Moody's or S&P, of equivalent quality. For more information
on the risks of such securities, see the "Description of Bond Ratings" in the
Appendix and the discussion under "High Yield Bonds". In addition, the
Portfolio may invest in obligations issued or guaranteed by U.S. or foreign
banks. The Portfolio also may invest in GDRs, EDRs or other similar
instruments representing securities of foreign issuers.
The Portfolio will not engage in "short sales against the box," in which the
Portfolio sells short a security it owns, if, at the time of investment, the
total market value of all securities sold and held short would exceed 25% of
the Portfolio's net assets, and no more than 15% of the Portfolio's net assets
will be subject to such short sales at any time. The Portfolio may purchase
securities on margin. The Portfolio may enter into forward currency contracts
and foreign currency transactions and may purchase and write put and call
options on foreign currencies. The Portfolio may also purchase and write
covered put and call options on securities in which it may invest and on any
securities index consisting of securities in which it may invest. The
Portfolio may invest in futures contracts on securities, stock indexes and
interest rates, and options thereon. The Portfolio may also trade futures
contracts and options on futures contracts not only on U.S. domestic markets,
but also on exchanges located outside of the United States. In addition, the
Portfolio may invest in SPDRs, WEBS and OPALS.
In addition to the risk factors described in the Prospectus, the Portfolio
may be affected by the following risk factors: First, investment in companies
that may be unseasoned, may have limited liquidity, which can result in their
being priced higher or lower than might otherwise be the case. Investments in
unseasoned companies are more speculative and entail greater risk than do
investments in companies with an established operating record.
Second, the legal obligations of online service providers is unclear under
both U.S. and foreign law with respect to freedom of expression, defamation,
libel, invasion of privacy, advertising, copyright or trademark infringement,
information security, or other areas based on the nature and content of the
materials disseminated through online service providers. Moreover, legislation
has been proposed that imposes liability for, or prohibits the transmission
over, the Internet of certain types of information. It is possible that now or
in the future, related claims could be made against online services companies.
These liability issues, as well as possibly other legal issues, could impact
the growth of Internet use.
5
<PAGE>
For example, it is possible that laws and regulations may be adopted with
respect to the Internet or other online service providers with respect to the
imposition of sales tax collection obligations on Internet companies and the
use of personal user information. The nature of this governmental action and
the manner in which it may be interpreted and enforced cannot be predicted.
Changes to existing laws or the passage or proposed passage of new laws
intended to address these and other issues, could create uncertainty in the
marketplace that could reduce demand for the services of an Internet company
or increase the costs of doing business as a result of actual or anticipated
litigation costs or increased service delivery costs, or could in some other
manner have a material adverse effect on an Internet company's business,
results of operations and financial condition.
The success of many Internet companies depends, in large part, upon the
development and maintenance of the infrastructure of the World Wide Web
("Web") for providing reliable Web access and services. There can be no
assurances that the infrastructure or complementary products or services
necessary to make the Web a viable commercial marketplace for the long term
will be developed, or, if they are developed, that the Web will become a
viable commercial marketplace for services such as those offered by Internet
companies.
The market for the purchase of products and services over the Internet is a
new and emerging market. If acceptance and growth of Internet use does not
occur, an Internet company's business and financial performance may suffer.
Although there has been substantial interest in the commercial possibilities
for the Internet, many businesses and consumers have been slow to purchase
Internet access services for a number of reasons, including inconsistent
quality of service, lack of availability of cost-effective, high-speed
service, a limited number of local access points for corporate users,
inability to integrate business applications on the Internet, the need to deal
with multiple and frequently incompatible vendors, inadequate protection of
the confidentiality of stored data and information moving across the Internet
and a lack of tools to simplify Internet access and use. It is possible that a
sufficiently broad base of consumers may not adopt, or continue to use, the
Internet as a medium of commerce.
Despite the implementation of security measures, an Internet company's
networks may be vulnerable to unauthorized access, computer viruses and other
disruptive problems. Internet companies have in the past experienced, and may
in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others. Unauthorized access could also potentially jeopardize the
security of confidential information stored in the computer systems of a
company and its subscribers. These events may result in liability of the
company to its subscribers and also may deter potential subscribers.
Multi-Strategy Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest in: equity securities of small
companies and foreign issuers if U.S. exchange listed or if otherwise included
in the S&P 500; high yield bonds; repurchase agreements; U.S. government
securities; ADRs; bank obligations; variable and floating rate securities; and
firm commitment agreements; and when-issued securities. The Portfolio may
invest in warrants; however, not more than 10% of the market value of its
assets (at the time of purchase) may be invested in warrants other than
warrants acquired in units or attached to other securities. The Portfolio's
equity securities may or may not pay dividends and may or may not carry voting
rights. The Portfolio may invest in U.S. dollar-denominated corporate debt
securities of domestic issuers, U.S. dollar-denominated debt securities of
foreign issuers (including foreign government and international agencies); and
up to 10% of its assets in debt securities of foreign issuers which may be
denominated in foreign currencies rated Baa (Moody's) or BBB (S&P), or, if not
rated by Moody's or S&P, of equivalent quality. The Portfolio may also invest
in debt securities rated lower than Baa by Moody's or BBB by S&P, or if not
rated by Moody's or S&P, of equivalent quality. For more information on the
risks of such securities, see the "Description of Bond Ratings" in the
Appendix and the discussion under "High Yield Bonds". Fixed income securities
in which the portfolio may invest include debentures, asset-backed securities,
mortgage-related securities, convertible securities and money market
instruments.
The Portfolio may purchase and sell put and call options on securities and
stock indexes and may purchase or sell interest rate and stock index futures
contracts and options thereon. The Portfolio will only enter into futures
contracts and futures options which are standardized and traded on a U.S.
exchange, board of trade, or
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similar entity. The Portfolio may also engage in forward currency contracts,
foreign currency transactions, and foreign currency futures and options
thereon in anticipation of or to protect itself against fluctuations in
currency exchange rates with respect to investments in securities of foreign
issuers.
Equity Income Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest in ADRs and in foreign securities if
they are listed on a U.S. exchange or otherwise included in the S&P 500. To
invest temporary cash balances, to maintain liquidity to meet redemptions or
expenses, or for temporary defensive purposes, the Portfolio may invest in:
money market instruments, including U.S. government securities, short-term
bank obligations rated in the highest two rating categories by Moody's or S&P,
or, if not rated by Moody's or S&P, determined to be of equal quality by the
Portfolio Manager; certificates of deposit; time deposits; loans or credit
agreements and banker's acceptances issued by U.S. and foreign banks with
assets of at least U.S. $500 million as of the end of their most recent fiscal
year; short-term debt obligations of savings and loan institutions with assets
of at least U.S. $500 million as of the end of their most recent fiscal year;
and commercial paper and corporate obligations, including variable and
floating rate securities that are issued by U.S. and foreign issuers and that
are rated in the highest two rating categories by Moody's or S&P, or if not
rated by Moody's or S&P, determined to be of equal quality by the Portfolio
Manager. The Portfolio may also invest in high yield and convertible bonds;
repurchase agreements; rights; firm commitment agreements; and when-issued
securities; and other fixed income securities including, but not limited to
high yield/high risk debt securities. The Portfolio may invest in warrants;
however, not more than 10% of the market value of its assets (at the time of
purchase) may be invested in warrants other than warrants acquired in units or
attached to other securities. The Portfolio is also permitted to invest in
U.S. dollar-denominated corporate debt securities of domestic issuers and debt
securities of foreign issuers denominated in foreign currencies, rated Baa
(Moody's) or BBB (S&P), or, if not rated by Moody's or S&P, of equivalent
quality. The Portfolio may also invest in debt securities rated lower than Baa
by Moody's or BBB by S&P, or if not rated by Moody's or S&P, of equivalent
quality. For more information on the risks of such securities, see
"Description of Bond Ratings" in the Appendix and the discussion under "High
Yield Bonds".
In addition to the derivatives described in the Prospectus, the Portfolio
may also purchase and write put and call options on securities and stock
indexes and may purchase or sell stock index futures contracts and options
thereon. The Portfolio will only enter into futures contracts and futures
options which are standardized and traded on a U.S. exchange, board of trade,
or similar entity.
Growth LT Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest in warrants; however, not more than
10% of the market value of its assets (at the time of purchase) may be
invested in warrants other than warrants acquired in units or attached to
other securities; preferred stocks; certificates of deposit; mortgage-related
and asset-backed securities; commercial paper; U.S. government securities;
rights; bank obligations (including certain foreign bank obligations); U.S.
dollar-denominated obligations of foreign governments, foreign government
agencies and international agencies; convertible securities; variable and
floating rate securities; firm commitment agreements; when-issued securities;
repurchase agreements; and reverse repurchase agreements. The Portfolio may
also invest in small capitalization stocks; U.S. dollar-denominated corporate
debt securities of domestic issuers and debt securities of foreign issuers
denominated in foreign currencies, rated Baa (Moody's) or BBB (S&P), or, if
not rated by Moody's or S&P, of equivalent quality. The Portfolio may also
invest up to 10% of its assets in bonds rated lower than Baa by Moody's or BBB
by S&P, or if not rated by Moody's or S&P, of equivalent quality. For more
information on the risks of such securities, see the "Description of Bond
Ratings" in the Appendix and the discussion under "High Yield Bonds". The
Portfolio may also invest in money market funds, including those managed by
Janus Capital Corporation ("Janus") as a means of receiving a return on idle
cash, pursuant to an exemptive order received by Janus from the SEC.
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The Portfolio is also permitted to invest in equity securities of foreign
issuers if U.S. exchange listed or otherwise included in the S&P 500. The
Portfolio may invest up to 25% of its assets in foreign securities denominated
in a foreign currency and not publicly traded in the U.S. In addition, the
Portfolio may purchase ADRs, EDRs, and GDRs, and other types of receipts
evidencing ownership of the underlying foreign securities. The Portfolio may
purchase securities on margin and may engage in the purchase and writing of
put and call options on securities, stock indexes, and foreign currencies. In
addition, the Portfolio may purchase and sell interest rate, stock index, and
foreign currency futures contracts and options thereon. The Portfolio may
trade futures contracts and options on futures contracts not only on U.S.
domestic markets, but also on exchanges located outside of the U.S. The
Portfolio may also engage in forward foreign currency contracts and foreign
currency transactions.
Mid-Cap Value Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest in: preferred stocks; securities
convertible into or exchangeable for common stocks; forward foreign currency
contracts; repurchase agreements; reverse repurchase agreements; ADRs; GDRs;
firm commitment agreements; and when-issued securities; and up to 5% of its
total assets in rights. The Portfolio may invest in warrants; however, not
more than 10% of the market value of its assets (at the time of purchase) may
be invested in warrants other than warrants acquired in units or attached to
other securities. The Portfolio may purchase securities on margin and may
invest a portion of its assets in investment grade debt securities, including:
U.S. Government Securities; commercial paper; mortgage-related securities;
variable and floating rate securities; other short-term bank obligations; and
U.S. dollar-denominated corporate debt securities (including U.S. dollar-
denominated debt securities of foreign issuers, certain foreign bank and
government obligations, foreign government and international agencies).
The Portfolio may borrow for investment purposes ("leveraging") to the
extent permitted under the 1940 Act, which permits an investment company to
engage in borrowing, provided that it maintains continuous asset coverage of
300% of the amount borrowed. If the required coverage should decline as a
result of market fluctuations or other reasons, the Portfolio may be required
to sell some of its portfolio securities within three days to reduce the
amount of its borrowings and to restore the 300% asset coverage, even though
it may be disadvantageous from an investment standpoint to sell securities at
that time. The Portfolio may also invest up to 15% of its total assets,
determined at the time of investment, in foreign equity or debt securities.
The Portfolio will not engage in "short sales," in which the Portfolio sells a
security it does not own, and "short sales against the box," in which the
Portfolio sells short a security it owns, if, at the time of investment, the
total market value of all securities sold and held short would exceed 25% of
the Portfolio's net assets, and no more than 15% of the Portfolio's net assets
will be subject to such short sales at any time.
The Portfolio may also purchase and write put and call options on
securities, stock indexes and foreign currencies and may purchase cash-settled
options on interest rate swaps and equity index swaps. The Portfolio may enter
into interest rate, interest rate index, and currency exchange rate swap
agreements and purchase and sell options thereon. In addition, the Portfolio
may purchase or sell futures contracts on securities, stock indexes, and
currency, and options thereon. The Portfolio may engage in foreign currency
transactions: (1) to fix in U.S. dollars the value of a security the Portfolio
has agreed to buy or sell between the trade and settlement dates; and (2) to
hedge the U.S. dollar value of securities the Portfolio already owns. The
Portfolio will enter into futures contracts and futures options which are
standardized and traded on a U.S. exchange, board of trade, or similar entity.
The Portfolio may also trade futures contracts and options on futures
contracts not only on U.S. domestic markets, but also on exchanges located
outside of the U.S. The Portfolio may also invest in equity real estate
investment trusts ("REITs"), although it currently intends to limit its
investments in REITs to no more than 5% of its assets.
Equity Index Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may purchase and sell stock index futures, purchase
options on stock indexes, and purchase and write options on stock index
futures that are based on stock indexes which the Portfolio attempts to track
or which tend to move together
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with stocks included in the index. The Portfolio will enter into futures
contracts and futures options which are standardized and traded on a U.S.
exchange, board of trade, or similar entity. The Portfolio may also invest in
foreign equity securities if U.S. exchange listed or if otherwise included in
the S&P 500; ADRs; convertible securities; firm commitment agreements; when-
issued securities; and reverse repurchase agreements. The Portfolio may
temporarily invest cash balances, maintained for liquidity purposes or pending
investment, in short-term high quality debt instruments, including: commercial
paper; variable and floating rate securities; repurchase agreements; bank
obligations; and U.S. Government securities, its agencies and
instrumentalities. Temporary investments are not made for defensive purposes
in the event of or in anticipation of a general decline in the market price of
stocks in which the Portfolio invests.
The Portfolio may not invest in restricted securities (including privately
placed securities).
The Fund reserves the right to change the index whose performance the
Portfolio will attempt to replicate or for the Portfolio to seek its
investment objective by means other than attempting to replicate an index,
such as by operating the Portfolio as a managed fund, and reserves the right
to do so without seeking shareholder approval, but only if operating the
Portfolio as described in the Prospectus and above is not permitted under
applicable law for an investment company that serves as an investment medium
for variable insurance contracts, or otherwise involves substantial legal
risk.
Small-Cap Index Portfolio
Under normal conditions, the Portfolio invests at least 80% of the value of
its total assets in the common stock of companies included in the Russell 2000
Small Stock Index ("Russell 2000"). The Portfolio will be managed in an
attempt to minimize the degree to which the investment results of the
Portfolio (before taking into account the Portfolio's expenses) differ from
the results of the Russell 2000.
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may purchase and sell stock index futures and
options thereon and options on stock indexes that are based on the Russell
2000 or other indexes of small capitalization companies. The Portfolio will
enter into futures contracts and futures options which are standardized and
traded on a U.S. exchange, board of trade, or similar entity. The Portfolio
may invest in foreign equity securities if U.S. exchange listed and if they
are included in the Russell 2000 and may invest in warrants; however, not more
than 10% of the market value of its assets (at the time of purchase) may be
invested in warrants other than warrants acquired in units or attached to
other securities. The Portfolio is also permitted to invest in ADRs;
repurchase agreements; rights; equity REITs; U.S. Government securities, its
agencies or instrumentalities; bank obligations; commercial paper; variable
and floating rate securities; firm commitment agreements; when-issued
securities; and securities that are convertible into common stock. The
Portfolio may maintain a portion of its assets in short-term debt securities
and money market instruments to meet redemption requests or pending investment
in the securities of the Russell 2000. These investments will not be made in
anticipation of a general decline in the market prices of stocks in which the
Portfolio invests.
The Fund reserves the right to change the index whose performance the
Portfolio will attempt to replicate or for the Portfolio to seek its
investment objective by means other than attempting to replicate an index,
such as by operating the Portfolio as a managed fund, and reserves the right
to do so without seeking shareholder approval, but only if operating the
Portfolio as described in the Prospectus and above is not permitted under
applicable law for an investment company that serves as an investment medium
for variable insurance contracts, or otherwise involves substantial legal
risk.
REIT Portfolio
The Portfolio is a "non-diversified" portfolio. For purposes of the
Portfolio's investment policies, a company is principally engaged in the real
estate industry if: (1) it derives at least 50% of its revenues or profits
from the ownership, construction, management, financing or sale of
residential, commercial or industrial real estate; or (2) it has at least 50%
of the fair market value of its assets invested in residential, commercial, or
industrial real estate.
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In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may invest in warrants; however, not more than 10%
of the market value of its assets (at the time of purchase) may be invested in
warrants other than warrants acquired in units or attached to other
securities; and up to 10% of its assets in foreign securities (which may
include EDRs and GDRs) including: U.S. dollar-denominated corporate debt
securities, certain foreign bank obligations, and foreign government and
international agencies. The Portfolio may buy and sell put and call options on
securities and may purchase and sell futures contracts on interest rates and
options thereon. The Portfolio may also invest in the following: ADRs; bank
obligations; U.S. Government securities; convertible securities; commercial
paper; variable and floating rate securities; firm commitment agreements;
when-issued securities; preferred stock; repurchase agreements; currency
exchange rate swap agreements; interest rate derivative products, such as
swaps (including interest rate index swaps), caps, collars and floors; and
structured notes.
International Value Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may invest up to 5% of its assets, measured at the
time of investment, in debt securities that are rated below investment grade,
or if not rated, of equivalent quality. For more information on the risks of
such securities, see the "Description of Bond Ratings" in the Appendix and the
discussion under "High Yield Bonds". The Portfolio may also invest in: small
capitalization stocks; nonconvertible fixed income securities denominated in
foreign currencies; repurchase agreements; ADRs; EDRs; GDRs; or other
securities convertible into equity securities of foreign issuers; variable and
floating rate securities; U.S. government securities; bank obligations; firm
commitment agreements; when-issued securities; and commercial paper
denominated in foreign currencies. The Portfolio's investments in convertible
securities are not subject to the limitations described below or in the
section "Bank Obligations."
The Portfolio may also hold cash (in U.S. dollars or foreign currencies) or
short-term securities denominated in such currencies to provide for
redemptions; it is generally not expected that such reserve for redemptions
will exceed 10% of the Portfolio's assets. Securities which may be held for
defensive purposes include nonconvertible preferred stock, debt securities,
government securities issued by U.S. and foreign countries and money market
securities. The Portfolio is subject to guidelines for diversification of
foreign security investments that prescribe the minimum number of countries in
which the Portfolio's assets may be invested. These guidelines are discussed
under "Foreign Securities."
The Portfolio may also invest in obligations of foreign banks (including
U.S. branches of foreign banks) which at the time of investment (i) have more
than U.S. $1 billion, or the equivalent in other currencies, in total assets;
and (ii) in the opinion of the Portfolio Manager, are of an investment quality
comparable to fixed income obligations in which the Portfolio may invest. The
Portfolio may also purchase and sell financial futures contracts, stock index
futures contracts, and foreign currency futures contracts and options thereon.
The Portfolio may trade futures contracts and options on futures contracts not
only on U.S. domestic markets, but also on exchanges located outside of the
U.S. and may purchase and write put and call options on foreign currencies.
The Portfolio may purchase and write put and call options on stock indexes and
may invest in U.S. dollar-denominated corporate debt securities of domestic
issuers (including U.S. dollar-denominated debt securities of foreign issuers)
and debt securities of foreign issuers denominated in foreign currencies,
rated Baa (Moody's) or BBB (S&P), or, if not rated by Moody's or S&P, of
equivalent quality. For more information on the risks of such securities, see
"Description of Bond Ratings" in the Appendix. The Portfolio may also engage
in foreign currency transactions and forward foreign currency contracts in
anticipation of or to protect itself against fluctuations in currency exchange
rates.
Investors should understand that the expense ratio of the Portfolio can be
expected to be higher than investment companies investing in domestic
securities since the cost of maintaining the custody of foreign securities and
the rate of advisory fees paid by the Portfolio is higher.
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Government Securities Portfolio
In addition to its investments in U.S. government securities and related
investments, as described in the Prospectus, the Portfolio may invest up to
35% of its assets in the following: corporate debt securities of domestic
issuers (including U.S. dollar-denominated debt securities of foreign issuers)
rated Aa or better by Moody's or AA or better by S&P, or, if not rated by
Moody's or S&P, of comparable quality as determined by the Portfolio Manager;
mortgage-related securities, including collateralized mortgage obligations and
mortgage-backed bonds; asset-backed securities; repurchase agreements and
reverse repurchase agreements; commercial paper; bank obligations; convertible
securities; variable and floating rate securities; firm commitment agreements;
when-issued securities; ADRs; and in cash or high quality money market
instruments.
The Portfolio may also: purchase and write put and call options on
securities; purchase and sell spread transactions with securities dealers;
enter into interest rate, interest rate index, and currency exchange rate swap
agreements, and purchase and sell options thereon; engage in forward currency
contracts, foreign currency transactions, options on foreign currencies, and
foreign currency futures and options thereon; and purchase and sell interest
rate futures contracts and options thereon. The Portfolio may trade futures
contracts and options on futures contracts not only on U.S. domestic markets,
but also on exchanges located outside of the U.S. In addition, the Portfolio
may invest up to 20% of its total assets in debt securities of foreign
issuers, which may be denominated in foreign currencies.
Managed Bond Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest in: obligations issued or guaranteed
by the U.S. Government, its agencies, or instrumentalities; mortgage-related
securities; asset-backed securities; variable and floating rate debt
securities; bank obligations; commercial paper; convertible securities; firm
commitment agreements; when-issued securities; ADRs; U.S. dollar-denominated
obligations of international agencies (such as the International Bank for
Reconstruction and Development) and government agencies; and repurchase and
reverse repurchase agreements. The Portfolio may invest in U.S. dollar-
denominated debt securities of foreign issuers and up to 20% of its assets in
debt securities of foreign issuers denominated in foreign currencies.
The Portfolio may also invest up to 10% of its assets in debt securities
rated lower than Baa by Moody's or BBB by S&P (although it may not invest in
securities rated lower than B), or if not rated by Moody's or S&P, of
equivalent quality. The Portfolio, except as provided above, may invest only
in securities rated Baa or better by Moody's or BBB or better by S&P or, if
not rated by Moody's or S&P, determined by the Portfolio Manager to be of
comparable quality. The dollar-weighted average quality of all fixed income
securities held by the Portfolio will be A or higher as rated by Moody's and
S&P. In the event that a security owned by the Portfolio is downgraded to
below a B rating, the Portfolio may nonetheless retain the security. For more
information on the risks of such securities, see the "Description of Bond
Ratings" in the Appendix and the discussion under "High Yield Bonds". For the
year ended December 31, 1999, the amount of the Portfolio's average total
assets, measured on the basis of month-end values, invested in debt securities
rated less than investment grade was approximately 6.09%. The asset
composition after this time may or may not be the same as shown in 1999.
In pursuing its investment objective, the Portfolio may purchase and write
put and call options on securities; purchase and sell spread transactions with
securities dealers; purchase and sell interest rate futures contracts and
options thereon; and enter into interest rate, interest rate index, and
currency exchange rate swap agreements, and purchase and sell options thereon.
The Portfolio may trade futures contracts and options on futures contracts not
only on U.S. domestic markets, but also on exchanges located outside of the
U.S.
Furthermore, the Portfolio may engage in foreign currency transactions and
forward currency contracts; options on foreign currencies; and foreign
currency futures and options thereon, in anticipation of or to protect itself
against fluctuations in currency exchange rates with respect to investments in
securities of foreign issuers.
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Money Market Portfolio
The Portfolio invests at least 95% of its total assets, measured at the time
of investment, in a diversified portfolio of money market securities that are
in the highest rating category for short-term instruments. The Portfolio may
invest only in U.S. dollar denominated securities that present minimal credit
risk. The Adviser shall determine whether a security presents minimal credit
risk under procedures adopted by the Fund's Board of Trustees that conform to
SEC rules for money market funds. In addition, the Portfolio is subject to
diversification standards applicable to money market funds under SEC rules.
A money market instrument will be considered to be highest quality (1) if
the instrument (or other comparable short-term instrument of the same issuer)
is rated in the highest rating category, (i.e., Aaa or Prime-1 by Moody's, AAA
or A-1 by S&P) by (i) any two nationally recognized statistical rating
organizations ("NRSROs") or, (ii) if rated by only one NRSRO, by that NRSRO;
(2) an unrated security that is of comparable quality to a security in the
highest rating category as determined by the Adviser; or (3) a U.S. Government
security. The Portfolio may not invest more than 5% of its total assets,
measured at the time of investment, in securities of any one issuer that are
of the highest quality, except that this limitation shall not apply to U.S.
Government securities and repurchase agreements thereon.
With respect to 5% of its total assets, measured at the time of investment,
the Portfolio may also invest in money market instruments that are in the
second-highest rating category for short-term debt obligations (i.e., rated Aa
or Prime-2 by Moody's or AA or A-2 by S&P). A money market instrument will be
considered to be in the second-highest rating category under the criteria
described above with respect to instruments considered highest quality, as
applied to instruments in the second-highest rating category. The Portfolio
may not invest more than the greater of 1% of its total assets or $1,000,000,
measured at the time of investment, in securities of any one issuer that are
in the second-highest rating category.
The quality of securities subject to guarantees may be determined based
solely on the quality of the guarantee. Additional eligibility restrictions
apply with respect to guarantees and demand features. In addition, securities
subject to guarantees not issued by a person in a control relationship with
the issuer of such securities are not subject to the preceding diversification
requirements. However, the Portfolio must generally, with respect to 75% of
its total assets, invest no more than 10% of its total assets in securities
issued by or subject to guarantees or demand features from the same entity.
In the event that an instrument acquired by the Portfolio is downgraded or
otherwise ceases to be of the quality that is eligible for the Portfolio, the
Adviser, under procedures approved by the Board of Trustees shall promptly
reassess whether such security presents minimal credit risk and determine
whether or not to retain the instrument. The Portfolio's investments are
limited to securities that mature within 13 months or less from the date of
purchase (except that securities held subject to repurchase agreements having
terms of 13 months or less from the date of delivery may mature in excess of
13 months from such date).
In addition to the securities and investment techniques described in the
Prospectus, the Portfolio may also invest in firm commitment agreements; when-
issued securities; short-term corporate debt securities (including U.S. dollar
denominated debt securities of foreign issuers and obligations of government
and international agencies); mortgage-related securities; asset-backed
securities; commercial paper; bank obligations; variable and floating rate
securities; savings and loan obligations; and repurchase agreements involving
these securities. The Portfolio may also invest in restricted securities and
up to 10% of its net assets in illiquid securities.
The Portfolio may not engage in futures contracts and options on futures
contracts.
High Yield Bond Portfolio
The Portfolio invests primarily in fixed-income securities (including
corporate debt securities) rated Baa or lower by Moody's, or BBB or lower by
S&P, or, if not rated by Moody's or S&P, of equivalent investment quality as
determined by the Adviser. For more information on the risks of such
securities, see the "Description of Bond Ratings" in the Appendix and the
discussion under "High Yield Bonds". In addition to the investment
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<PAGE>
policies and techniques described in the Prospectus, the Portfolio may also
invest in: U.S. Government securities (including securities of U.S. agencies
and instrumentalities); bank obligations; commercial paper; mortgage-related
securities; asset-backed securities; variable and floating rate debt
securities; firm commitment agreements; when-issued securities; convertible
securities; ADRs; rights; repurchase agreements; reverse repurchase
agreements; U.S. dollar-denominated debt securities of foreign issuers,
foreign government and international agencies and foreign branches of U.S.
banks; dividend-paying common stocks (including up to 10% of the market value
of the Portfolio's total assets in warrants to purchase common stocks) that
are considered by Pacific Life to be consistent with the investment objective
of current income; and higher quality corporate bonds. The Portfolio may also
invest in warrants; however, not more than 10% of the market value of its
assets (at the time of purchase) may be invested in warrants other than
warrants acquired in units or attached to other securities.
In seeking higher income or a reduction in principal volatility, the
Portfolio may purchase and sell put and call options on securities; purchase
or sell interest rate futures contracts and options thereon, and invest up to
5% of its total assets in spread transactions, which give the Portfolio the
right to sell or receive a security or a cash payment with respect to an index
at a fixed dollar spread or yield spread in relationship to another security
or index which is used as a benchmark. The Portfolio will only enter into
futures contracts and futures options which are standardized and traded on a
U.S. exchange, board of trade, or similar entity.
In an effort to reduce credit risk, the Portfolio diversifies its holdings
among many issuers. As of December 31, 1999, the Portfolio held securities of
160 corporate issuers, excluding short-term obligations. As of December 31,
1999, the amount of the Portfolio's average total assets, measured on the
basis of month-end values, invested in bonds rated lower than Baa by Moody's
or BBB by S&P or, if not rated by Moody's or S&P, determined to be of
equivalent quality by Pacific Life, was approximately 94.64%. The asset
composition after this time may or may not be the same as shown in 1999.
Large-Cap Value Portfolio
In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may invest a portion of its assets in: short-term
fixed income securities, such as repurchase agreements, commercial paper,
U.S. Government securities, its agencies or instrumentalities, bank
obligations, and cash or cash equivalents, to meet operating expenses, to
serve as collateral in connection with certain investment techniques, or to
meet anticipated redemption requests. The Portfolio is also permitted to
invest in: mortgage-related securities; small-capitalization stocks; equity
REITS; ADRs; variable and floating rate securities; firm commitment
agreements; when-issued securities; and up to 20% of its net assets, measured
at the time of investment, in foreign companies (including U.S. dollar-
denominated corporate debt securities of foreign issuers, certain foreign bank
obligations, government obligations, foreign government and international
agencies). The Portfolio may invest without limit in high yield convertible
securities, and may, from time to time, invest up to 5% of its net assets in
high yield non-convertible debt securities. The Portfolio may also invest up
to 5% of its assets (no limit on below investment grade convertible
securities) in debt securities rated lower than Baa by Moody's or BBB by S&P,
or if not rated by Moody's or S&P, of equivalent quality. For more information
on the risks of such securities, see the "Description of Bond Ratings" in the
Appendix and the discussion under "High Yield Bonds".
The Portfolio may purchase put and call options on securities and securities
indexes and enter into the following: stock, index and currency futures
contracts (including foreign currency) and options thereon; and forward
currency contracts; foreign currency transactions; currency swaps; and options
on currencies. The Portfolio will enter into futures contracts and futures
options which are standardized and traded on a U.S. exchange, board of trade,
or similar entity. The Portfolio may also trade futures contracts and options
on futures contracts not only on U.S. domestic markets, but also on exchanges
located outside of the U.S.
Diversification Versus Non-Diversification
Each of the Portfolios, other than the REIT Portfolio, are diversified, so
that with respect to 75% of each such Portfolio's assets (100% for the Money
Market Portfolio), it may not invest more than 5% of its assets (taken at
market value at the time of investment) in securities of any one issuer,
except that this restriction does not apply to U.S. Government securities.
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The REIT Portfolio is "non-diversified," which means that the proportion of
the Portfolio's assets that may be invested in the securities of a single
issuer is not limited by the Investment Company Act of 1940, as amended ("1940
Act"). However, to meet Federal tax requirements, the REIT Portfolio may not
have more than 25% of its total assets invested in any one issuer and, with
respect to 50% of its total assets, no more than 5% of its total assets
invested in any one issuer, except that this restriction does not apply to
U.S. Government securities. Nonetheless, because the REIT Portfolio may invest
in a smaller number of companies than a diversified fund, an investment in
this Portfolio may, under certain circumstances, present greater risk to an
investor than an investment in a diversified fund. This risk includes greater
exposure to potential poor earnings or default of fewer issuers than would be
the case for a more diversified fund.
SECURITIES AND INVESTMENT TECHNIQUES
Unless otherwise stated in the prospectus, many investment techniques,
including various hedging techniques and techniques which may be used to help
add incremental income, are discretionary. That means Portfolio Managers may
elect to engage or not to engage in the various techniques at their sole
discretion. Hedging may not be cost-effective or Portfolio Managers may simply
elect not to engage in hedging and have the Portfolio assume full risk of the
investments. Investors should not assume that any Portfolio will be hedged at
all times or that it will be hedged at all; nor should investors assume that
any particular discretionary investment technique or strategy will be employed
at all times, or ever employed.
U.S. Government Securities
All Portfolios may invest in U.S. Government securities. U.S. Government
securities are obligations of, or guaranteed by, the U.S. Government, its
agencies, or instrumentalities. Treasury bills, notes, and bonds are direct
obligations of the U.S. Treasury and they differ with respect to certain items
such as coupons, maturities, and dates of issue. Treasury bills have a
maturity of one year or less. Treasury notes have maturities of one to
ten years and Treasury bonds generally have a maturity of greater than ten
years. Securities guaranteed by the U.S. Government include federal agency
obligations guaranteed as to principal and interest by the U.S. Treasury (such
as GNMA certificates (described below) and Federal Housing Administration
debentures). In guaranteed securities, the payment of principal and interest
is unconditionally guaranteed by the U.S. Government, and thus they are of the
highest credit quality. Such direct obligations or guaranteed securities are
subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, the U.S. Government is obligated to or guarantees to
pay them in full.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of, nor guaranteed by, the U.S.
Treasury. However, they involve federal sponsorship in one way or another:
some are backed by specific types of collateral; some are supported by the
issuer's right to borrow from the U.S. Treasury; some are supported by the
discretionary authority of the U.S. Treasury to purchase certain obligations
of the issuer; others are supported only by the credit of the issuing
government agency or instrumentality. These agencies and instrumentalities
include, but are not limited to Federal National Mortgage Association, Federal
Home Loan Bank, Federal Land Banks, Farmers Home Administration, Central Bank
for Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank,
Farm Credit Banks, and the Tennessee Valley Authority.
Real Estate Investment Trusts
Real estate investment trusts ("REITs") pool investors' funds for investment
primarily in income-producing real estate or in loans or interests related to
real estate. A REIT is not taxed on income distributed to its shareholders or
unitholders if it complies with a regulatory requirement that it distributes
to its shareholders or unitholders at least 95% of its taxable income for each
taxable year. Generally, REITs can be classified as equity REITs, mortgage
REITs or hybrid REITs. Equity REITs invest a majority of their assets directly
in real property and derive their income primarily from rents and capital
gains from appreciation realized through property sales. Equity REITs are
further categorized according to the types of real estate securities they own,
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e.g., apartment properties, retail shopping centers, office and industrial
properties, hotels, health-care facilities, manufactured housing and mixed-
property types. Mortgage REITs invest a majority of their assets in real
estate mortgages and derive their income primarily from income payments.
Hybrid REITs combine the characteristics of both equity and mortgage REITs.
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders or unitholders, and may be subject to changes in
the value of their underlying properties, defaults by borrowers, and to self-
liquidations. Some REITs may have limited diversification and may be subject
to risks inherent in investments in a limited number of properties, in a
narrow geographic area, or in a single property type. Equity REITs may be
affected by changes in underlying property values. Mortgage REITs may be
affected by the quality of the credit extended. REITs are dependent upon
specialized management skills and incur management expenses. In addition, the
performance of a REIT may be affected by its failure to qualify for tax-free
pass-through of income under the Internal Revenue Code of 1986, as amended, or
its failure to maintain an exemption from registration under the 1940 Act.
REITs also involve risks such as refinancing, changes in property values,
general or specific economic risk on the real estate industry, dependency on
management skills, and other risks similar to small company investing.
Mortgage-Related Securities
Mortgage-related securities are interests in pools of mortgage loans made to
residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage banks, commercial banks, and others. Pools of mortgage
loans are assembled as securities for sale to investors by various
governmental, government-related, and private organizations. Subject to its
investment policies, a portfolio may invest in mortgage-related securities as
well as debt securities which are secured with collateral consisting of
mortgage-related securities, and in other types of mortgage-related
securities. For information concerning the characterization of mortgage-
related securities (including collateralized mortgage obligations) for various
purposes including the Fund's policies concerning diversification and
concentration, see "Concentration Policy".
Mortgage Pass-Through Securities. These are securities representing
interests in "pools" of mortgages in which payments of both interest and
principal on the securities are made periodically, in effect "passing through"
periodic payments made by the individual borrowers on the residential mortgage
loans which underlie the securities (net of fees paid to the issuer or
guarantor of the securities). Early repayment of principal on mortgage pass-
through securities (arising from prepayments of principal due to sale of the
underlying property, refinancing, or foreclosure, net of fees and costs which
may be incurred) may expose a Portfolio to a lower rate of return upon
reinvestment of principal. Payment of principal and interest on some mortgage
pass-through securities may be guaranteed by the full faith and credit of the
U.S. Government (in the case of securities guaranteed by the Government
National Mortgage Association, or "GNMAs"); or guaranteed by agencies or
instrumentalities of the U.S. Government (in the case of securities guaranteed
by the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC"), which are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations).
Mortgage pass-through securities created by nongovernmental issuers (such as
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit, which may be
issued by governmental entities, private insurers, or the mortgage poolers.
GNMA Certificates. GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely
payment of interest and principal is guaranteed by the full faith and credit
of the U.S. Government. GNMA is a wholly-owned U.S. Government corporation
within the Department of Housing and Urban Development. GNMA is authorized to
guarantee, with the full faith and credit of the U.S. Government, the timely
payment of principal and interest on securities issued by institutions
approved by GNMA (such as savings and loan institutions, commercial banks, and
mortgage bankers) and backed by pools of mortgages insured by the Federal
Housing Administration ("FHA"), or guaranteed by the Department of
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Veterans Affairs ("VA"). GNMA certificates differ from typical bonds because
principal is repaid monthly over the term of the loan rather than returned in
a lump sum at maturity. Because both interest and principal payments
(including prepayments) on the underlying mortgage loans are passed through to
the holder of the certificate, GNMA certificates are called "pass-through"
securities.
Interests in pools of mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a periodic payment which consists of both
interest and principal payments. In effect, these payments are a "pass-
through" of the periodic payments made by the individual borrowers on the
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Mortgage-related
securities issued by GNMA are described as "modified pass-through" securities.
These securities entitle the holder to receive all interest and principal
payments owed on the mortgage pool, net of certain fees, at the scheduled
payment dates regardless of whether or not the mortgagor actually makes the
payment. Although GNMA guarantees timely payment even if homeowners delay or
default, tracking the "pass-through" payments may, at times, be difficult.
Expected payments may be delayed due to the delays in registering the newly
traded paper securities. The custodian's policies for crediting missed
payments while errant receipts are tracked down may vary. Other mortgage-
backed securities such as those of FHLMC and FNMA trade in book-entry form and
are not subject to the risk of delays in timely payment of income.
Although the mortgage loans in the pool will have maturities of up to 30
years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Early repayments of
principal on the underlying mortgages may expose a Portfolio to a lower rate
of return upon reinvestment of principal. Prepayment rates vary widely and may
be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening
the actual average life of the GNMA certificates. Conversely, when interest
rates are rising, the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the GNMA certificates. Accordingly, it
is not possible to accurately predict the average life of a particular pool.
Reinvestment of prepayments may occur at higher or lower rates than the
original yield on the certificates. Due to the prepayment feature and the need
to reinvest prepayments of principal at current rates, GNMA certificates can
be less effective than typical bonds of similar maturities at "locking in"
yields during periods of declining interest rates, although they may have
comparable risks of decline in value during periods of rising interest rates.
FNMA and FHLMC Mortgage-Backed Obligations. Government-related guarantors
(i.e., not backed by the full faith and credit of the U.S. Government) include
FNMA and FHLMC. FNMA, a federally chartered and privately-owned corporation,
issues pass-through securities representing interests in a pool of
conventional mortgage loans. FNMA guarantees the timely payment of principal
and interest but this guarantee is not backed by the full faith and credit of
the U.S. Government. FNMA is a government sponsored corporation owned entirely
by private stockholders. It is subject to general regulation by the Secretary
of Housing and Urban Development. FNMA purchases conventional (i.e., not
insured or guaranteed by any government agency) residential mortgages from a
list of approved seller/servicers which include state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and
credit unions, and mortgage bankers. FHLMC, a corporate instrumentality of the
United States, was created by Congress in 1970 for the purpose of increasing
the availability of mortgage credit for residential housing. FHLMC issues
Participation Certificates ("PCs") which represent interests in conventional
mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment
of interest and ultimate collection of principal and maintains reserves to
protect holders against losses due to default, but PCs are not backed by the
full faith and credit of the U.S. Government. As is the case with GNMA
certificates, the actual maturity of and realized yield on particular FNMA and
FHLMC pass-through securities will vary based on the prepayment experience of
the underlying pool of mortgages.
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Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may
be collateralized by whole mortgage loans but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments,
generally is first returned to investors holding the shortest maturity class.
Investors holding the longer maturity classes receive principal only after the
first class has been retired. An investor is partially guarded against a
sooner than desired return of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond
offering are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The series A, B, and C
Bonds all bear current interest. Interest on the series Z Bond is accrued and
added to principal and a like amount is paid as principal on the series A, B,
or C Bond currently being paid off. When the series A, B, and C Bonds are paid
in full, interest and principal on the series Z Bond begins to be paid
currently. With some CMOs, the issuer serves as a conduit to allow loan
originators (primarily builders or savings and loan associations) to borrow
against their loan portfolios.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are
made semiannually, as opposed to monthly. The amount of principal payable on
each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately
100% of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their stated maturities. Payment
of principal on the mortgage loans in the collateral pool in excess of the
amount of FHLMC's minimum sinking fund obligation for any payment date are
paid to the holders of the CMOs as additional sinking fund payments. Because
of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the
rate at which principal of the CMOs is actually repaid is likely to be such
that each class of bonds will be retired in advance of its scheduled maturity
date.
If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the CMOs are identical
to those of FHLMC PCs. FHLMC has the right to substitute collateral in the
event of delinquencies and/or defaults.
Other Mortgage-Related Securities. Commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and
other secondary market issuers also create pass-through pools of conventional
residential mortgage loans. Such issuers may, in addition, be the originators
and/or servicers of the underlying mortgage loans as well as the guarantors of
the mortgage-related securities. Pools created by such non-governmental
issuers generally offer a higher rate of interest than government and
government-related pools because there are no direct or indirect government or
agency guarantees of payments in the former pools. However, timely payment of
interest and principal of these pools may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit. The insurance and guarantees are issued by
governmental entities, private insurers, and the mortgage poolers. Such
insurance and
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guarantees and the creditworthiness of the issuers thereof will be considered
in determining whether a mortgage-related security meets a Portfolio's
investment quality standards. There can be no assurance that the private
insurers or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. A Portfolio may buy mortgage-related securities
without insurance or guarantees, if, in an examination of the loan experience
and practices of the originator/servicers and poolers, the Adviser or
Portfolio Manager determines that the securities meet a Portfolio's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. It is expected that governmental, government-related, or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage collateralized investments in
addition to those described above. As new types of mortgage-related securities
are developed and offered to investors, the Adviser or Portfolio Manager will,
consistent with a Portfolio's investment objectives, policies, and quality
standards, consider making investments in such new types of mortgage-related
securities.
CMO Residuals. CMO residuals are derivative mortgage securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the
CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess
cash flow remaining after making the foregoing payments. Each payment of such
excess cash flow to a holder of the related CMO residual represents income
and/or a return of capital. The amount of residual cash flow resulting from a
CMO will depend on, among other things, the characteristics of the mortgage
assets, the coupon rate of each class of CMO, prevailing interest rates, the
amount of administrative expenses and the prepayment experience on the
mortgage assets. In particular, the yield to maturity on CMO residuals is
extremely sensitive to prepayments on the related underlying mortgage assets,
in the same manner as an interest-only ("IO") class of stripped mortgage-
backed securities. See "Other Mortgage-Related Securities--Stripped Mortgage-
Backed Securities." In addition, if a series of a CMO includes a class that
bears interest at an adjustable rate, the yield to maturity on the related CMO
residual will also be extremely sensitive to changes in the level of the index
upon which interest rate adjustments are based. As described below with
respect to stripped mortgage-backed securities, in certain circumstances a
Portfolio may fail to recoup fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently
may not have the liquidity of other more established securities trading in
other markets. Transactions in CMO residuals are generally completed only
after careful review of the characteristics of the securities in question. CMO
residuals may or, pursuant to an exemption therefrom, may not have been
registered under the Securities Act of 1933, as amended. CMO residuals,
whether or not registered under such Act, may be subject to certain
restrictions on transferability, and may be deemed "illiquid" and subject to a
Portfolio's limitations on investment in illiquid securities.
Inverse floaters and planned amortization class certificates
("PAC"). Planned amortization class certificates are parallel-pay real estate
mortgage investment conduit ("REMIC") certificates that generally require that
specified amounts of principal be applied on each payment date to one or more
classes of REMIC certificates, even though all other principal payments and
prepayments of the mortgage assets are then required to be applied to one or
more other classes of the certificates. The scheduled principal payments for
the PAC certificates generally have the highest priority on each payment date
after interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC certificate payment schedule is taken into account in
calculating the final distribution date of each class of the PAC certificate.
In order to create PAC Tranches, generally one or more tranches must be
created that absorb most of the volatility in the underlying mortgage assets.
These tranches tend to have market prices and yields that are much more
volatile than other PAC classes.
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A PAC IO is a PAC bond that pays an extremely high coupon rate, such as
200%, on its outstanding principal balance, and pays down according to a
designated PAC schedule. Due to their high-coupon interest, PAC IO's are
priced at very high premiums to par. Due to the nature of PAC prepayment bands
and PAC collars, the PAC IO has a greater call (contraction) potential and
thus would be impacted negatively by a sustained increase in prepayment
speeds.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the IO
class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments)
on the related underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on the Portfolio's yield to
maturity from these securities. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a Portfolio may fail to
fully recoup its initial investment in these securities even if the security
is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these
securities were only recently developed. As a result, established trading
markets have not yet developed and, accordingly, these securities may be
deemed "illiquid" and subject to a Portfolio's limitations on investment in
illiquid securities.
Mortgage Dollar Rolls. Mortgage "dollar rolls" are contracts in which a
Portfolio sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase
substantially similar (same type, coupon and maturity) but not identical
securities on a specified future date. During the roll period, a Portfolio
loses the right to receive principal and interest paid on the securities sold.
However, a Portfolio would benefit to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase or fee income plus the interest earned on the cash proceeds of
the securities sold until the settlement date for the forward purchase. Unless
such benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of a Portfolio. A Portfolio will hold and maintain in a
segregated account until the settlement date cash or liquid assets in an
amount equal to the forward purchase price. For financial reporting and tax
purposes, a Portfolio treats mortgage dollar rolls as two separate
transactions; one involving the purchase of a security and a separate
transaction involving a sale. Portfolios do not currently intend to enter into
mortgage dollar rolls that are accounted for as a financing.
Other Asset-Backed Securities
Other asset-based securities are securities that directly or indirectly
represent a participation interest in, or are secured by and payable from a
stream of payments generated by particular assets such as automobile loans or
installment sales contracts, home equity loans, computer and other leases,
credit card receivables, or other assets. Generally, the payments from the
collateral are passed through to the security holder. Due to the possibility
that prepayments (on automobile loans and other collateral) will alter cash
flow on asset-backed securities, generally it is not possible to determine in
advance the actual final maturity date or average life of many asset-backed
securities. Faster prepayment will shorten the average life and slower
prepayment will lengthen it. However, it may be possible to determine what the
range of that movement could be and to calculate
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the effect that it will have on the price of the security. Other risks relate
to limited interests in applicable collateral. For example, credit card debt
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which give such debtors the right to set off certain amounts on credit card
debt thereby reducing the balance due. Additionally, holders of asset-backed
securities may also experience delays in payments or losses if the full
amounts due on underlying sales contracts are not realized. The securities
market for asset-backed securities may not, at times, offer the same degree of
liquidity as markets for other types of securities with greater trading
volume.
High Yield Bonds
High Yield Bonds are high risk debt securities rated lower than Baa or BBB,
or, if not rated by Moody's or S&P, of equivalent quality ("high yield bonds,"
which are commonly referred to as "junk bonds").
In general, high yield bonds are not considered to be investment grade, and
investors should consider the risks associated with high yield bonds before
investing in the pertinent Portfolio. Investment in such securities generally
provides greater income and increased opportunity for capital appreciation
than investments in higher quality securities, but they also typically entail
greater price volatility and principal and income risk.
Investment in high yield bonds involves special risks in addition to the
risks associated with investments in higher rated debt securities. High yield
bonds are regarded as predominately speculative with respect to the issuer's
continuing ability to meet principal and interest payments. 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 disrupting the market for such securities. Analysis of the
creditworthiness of issuers of debt securities that are high yield bonds may
be more complex than for issuers of higher quality debt securities, and the
ability of a Portfolio to achieve its investment objective may, to the extent
of investment in high yield bonds, be more dependent upon such
creditworthiness analysis than would be the case if the Portfolio were
investing in higher quality bonds.
Included among the emerging market debt obligations in which the Bond and
Income Portfolio may invest are "Brady Bonds," which are created through the
exchange of existing commercial bank loans to sovereign entities for new
obligations in connection with debt restructuring under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds are not considered U.S. Government securities and are considered
speculative. Brady Bonds have been issued relatively recently, and
accordingly, do not have a long payment history. They may be collateralized or
uncollateralized, or have collateralized or uncollateralized elements, and
issued in various currencies (although most are U.S. dollar- denominated), and
they are traded in the over-the-counter secondary market.
Brady Bonds involve various risk factors including residual risk and the
history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds. There can be no assurance
that Brady Bonds in which the Portfolio may invest will not be subject to
restructuring arrangements or to requests for new credit, which may cause the
Portfolio to suffer a loss of interest or principal on any of its holdings.
High yield bonds may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade bonds. The
prices of high yield bonds have been found to be less sensitive to interest-
rate changes than higher-rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield bond prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If an issuer of high yield bonds
defaults, in addition to risking payment of all or a portion of interest and
principal, a Portfolio may incur additional expenses to seek recovery. In the
case of high yield bonds structured as zero-coupon or pay-in-kind securities,
their market prices are affected to a greater extent by interest rate changes,
and therefore tend to be more volatile than securities which pay interest
periodically and in cash.
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The secondary market on which high yield bonds are traded may be less liquid
than the market for higher grade bonds. Less liquidity in the secondary
trading market could adversely affect the price at which a Portfolio could
sell a high yield bond, and could adversely affect and cause large
fluctuations in the daily net asset value of the Portfolio's shares. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds,
especially in a thinly-traded market. When secondary markets for high yield
bonds are less liquid than the market for higher grade bonds, it may be more
difficult to value the securities because such valuation may require more
research, and elements of judgment may play a greater role in the valuation
because there is less reliable, objective data available.
There are also certain risks involved in using credit ratings for evaluating
high yield bonds. For example, credit ratings evaluate the safety of principal
and interest payments, not the market value risk of high yield bonds. Also,
credit rating agencies may fail to timely reflect subsequent events.
Bank Obligations
Bank obligations include certificates of deposit, bankers' acceptances,
fixed time deposits, and loans or credit agreements. Each Portfolio may also
hold funds on deposit with its sub-custodian bank in an interest-bearing
account for temporary purposes.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on
demand by the investor, but may be subject to early withdrawal penalties which
vary depending upon market conditions and the remaining maturity of the
obligation. There are no contractual restrictions on the right to transfer a
beneficial interest in a fixed time deposit to a third party, although there
is no market for such deposits. A Portfolio will not invest in fixed time
deposits which (i) are not subject to prepayment, or (ii) incur withdrawal
penalties upon prepayment (other than overnight deposits) if, in the
aggregate, more than 15% of its net assets (10% for the Money Market
Portfolio) would be invested in such deposits, repurchase agreements maturing
in more than seven days, and other illiquid assets.
The Portfolio may purchase loans or participation interests in loans made by
U.S. banks and other financial institutions to large corporate customers.
Loans are made by a contract called a credit agreement. Loans are typically
secured by assets pledged by the borrower, but there is no guarantee that the
value of the collateral will be sufficient to cover the loan, particularly in
the case of a decline in value of the collateral. Loans may be floating rate
or amortizing. See "Variable and Floating Rate Securities" below for more
information. Some loans may be traded in the secondary market among banks,
loan funds, and other institutional investors.
Unless otherwise noted, a Portfolio will not invest in any security or bank
loan/credit agreement issued by a commercial bank unless: (i) the bank has
total assets of at least U.S. $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets
of at least U.S. $1 billion, the aggregate investment made in any one such
bank is limited to an amount, currently U.S. $100,000, insured in full by the
Federal Deposit Insurance Corporation ("FDIC"); (ii) in the case of U.S.
banks, it is a member of the FDIC; and (iii) in the case of foreign banks, the
security is, in the opinion of the Adviser or the Portfolio Manager, of an
investment quality comparable with other debt securities of similar maturities
which may be purchased by the Portfolio. These limitations do not prohibit
investments in securities issued by foreign branches of U.S. banks, provided
such U.S. banks meet the foregoing requirements.
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of U.S. banks, including: (i) the
possibilities that their liquidity could be impaired because of future
political and economic developments; (ii) their obligations may be less
marketable than comparable obligations of U.S. banks;
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(iii) a foreign jurisdiction might impose withholding taxes on interest income
payable on those obligations; (iv) foreign deposits may be seized or
nationalized; (v) foreign governmental restrictions, such as exchange
controls, may be adopted which might adversely affect the payment of principal
and interest on those obligations; and (vi) the selection of those obligations
may be more difficult because there may be less publicly available information
concerning foreign banks or the accounting, auditing, and financial reporting
standards, practices and requirements applicable to foreign banks may differ
from those applicable to U.S. banks. Foreign banks are not generally subject
to examination by any U.S. Government agency or instrumentality.
Unless otherwise noted, a Portfolio may invest in short-term debt
obligations of savings and loan associations provided that the savings and
loan association issuing the security (i) has total assets of at least
$1 billion, or, in the case of savings and loan associations which do not have
total assets of at least $1 billion, the aggregate investment made in any one
savings and loan association is insured in full, currently up to $100,000, by
the Savings Association Insurance Fund ("SAIF"); (ii) the savings and loan
association issuing the security is a member of the Federal Home Loan Bank
System; and (iii) the institution is insured by the SAIF.
A Portfolio will not purchase any security of a small bank or savings and
loan association which is not readily marketable if, as a result, more than
15% of the value of its net assets (10% for the Money Market Portfolio) would
be invested in such securities, other illiquid securities, or securities
without readily available market quotations, such as restricted securities and
repurchase agreements maturing in more than seven days.
Municipal Securities
Municipal securities consist of bonds, notes and other instruments issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which is exempt from regular
federal income tax. Municipal securities are often issued to obtain funds for
various public purposes. Municipal securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for privately operated facilities, such as
airports and waste disposal facilities, and, in some cases, commercial and
industrial facilities.
The yields and market values of municipal securities are determined
primarily by the general level of interest rates, the creditworthiness of the
issuers of municipal securities and economic and political conditions
affecting such issuers. Due to their tax exempt status, the yields and market
prices of municipal securities may be adversely affected by changes in tax
rates and policies, which may have less effect on the market for taxable fixed
income securities. Moreover, certain types of municipal securities, such as
housing revenue bonds, involve prepayment risks which could affect the yield
on such securities.
Investments in municipal securities are subject to the risk that the issuer
could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal
payments are to be made or the assets collateralizing such obligations.
Revenue bonds, including private activity bonds, are backed only by specific
assets or revenue sources and not by the full faith and credit of the
governmental issuer.
Small Capitalization Stocks
Investments in larger companies present certain advantages in that such
companies generally have greater financial resources, more extensive research
and development, manufacturing, marketing and service capabilities, more
stability and greater depth of management and technical personnel. Investments
in smaller, less seasoned companies may present greater opportunities for
growth but also involve greater risks than customarily are associated with
more established companies. The securities of smaller companies may be subject
to more abrupt or erratic market movements than larger, more established
companies. These companies may have limited product lines, markets or
financial resources, or they may be dependent upon a limited management group.
Their securities may be traded only in the over-the-counter market or on a
regional securities exchange and may not
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be traded every day or in the volume typical of trading on a major securities
exchange. As a result, the disposition by a Portfolio of securities to meet
redemptions, or otherwise, may require the Portfolio to sell these securities
at a discount from market prices or to sell during a period when such
disposition is not desirable or to make many small sales over a lengthy period
of time.
Corporate Debt Securities
The debt securities in which any Portfolio, other than the Money Market
Portfolio, may invest are limited to corporate debt securities (corporate
bonds, debentures, notes, and other similar corporate debt instruments) which
meet the minimum ratings criteria set forth for that particular Portfolio, or,
if not so rated, are, in the Portfolio Manager's opinion, comparable in
quality to corporate debt securities in which a Portfolio may invest. The debt
securities in which the Money Market Portfolio may invest are described in the
Prospectus and in the discussion of the investment objective and policies of
that Portfolio above.
The investment return on corporate debt securities reflects interest
earnings and changes in the market value of the security. The market value of
corporate debt obligations may be expected to rise and fall inversely with
interest rates generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on interest or principal
payments at the time called for by an instrument.
Variable and Floating Rate Securities
Variable and floating rate securities provide for a periodic adjustment in
the interest rate paid on obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an
appropriate interest rate adjustment index as provided in the respective
obligations. The adjustment intervals may be regular, and range from daily to
annually, or may be event based, such as based on a change in the prime rate.
The interest rate on a floating rate debt instrument ("floater") is a
variable rate which is tied to another interest rate, such as a money market
index or Treasury bill rate. The interest rate on a floater resets
periodically, typically every six months. While, because of the interest rate
reset feature, floaters provide Portfolios with a certain degree of protection
against rises in interest rates, Portfolios investing in floaters will
participate in any declines in interest rates as well.
The interest rate on a leveraged inverse floating rate debt instrument
("inverse floater") resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly,
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of a
Portfolio's limitations on investments in such securities.
A super floating rate collateralized mortgage obligation ("super floater")
is a leveraged floating-rate tranche in a CMO issue. At each monthly reset
date, a super floater's coupon rate is determined by a slated formula.
Typically, the rate is a multiple of some index minus a fixed-coupon amount.
When interest rates rise, a super floater is expected to outperform regular
floating rate CMOs because of its leveraging factor and higher lifetime caps.
Conversely, when interest rates fall, a super floater is expected to
underperform floating rate CMOs because its coupon rate drops by the
leveraging factor. In addition, a super floater may reach its cap as interest
rates increase and may no longer provide the benefits associated with
increasing coupon rates.
Commercial Paper
Each Portfolio, other than the Money Market Portfolio, may invest in
commercial paper denominated in U.S. dollars, issued by U.S. corporations or
foreign corporations and (1) rated at the date of investment Prime-1 or Prime-
2 by Moody's or A-1 or A-2 by S&P or (2) if not rated by either Moody's or
S&P, issued by a corporation
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having an outstanding debt issue rated Aa or better by Moody's or AA or better
by S&P or (3) if not rated, are determined to be of an investment quality
comparable to rated commercial paper in which a Portfolio may invest. If
issued by a foreign corporation, such commercial paper is U.S. dollar-
denominated and not subject at the time of purchase to foreign tax
withholding. The Money Market Portfolio may invest in commercial paper that
meets the standards for money market securities that Portfolio may acquire as
described in the Prospectus and in the discussion of the investment objective
and policies of that Portfolio above.
Commercial paper obligations may include variable amount master demand
notes. These are obligations that permit the investment of fluctuating amounts
at varying rates of interest pursuant to direct arrangements between a
Portfolio, as lender, and the borrower. These notes permit daily changes in
the amounts borrowed. The lender has the right to increase the amount under
the note at any time up to the full amount provided by the note agreement, or
to decrease the amount, and the borrower may prepay up to the full amount of
the note without penalty. Because variable amount master demand notes are
direct lending arrangements between the lender and borrower, it is not
generally contemplated that such instruments will be traded and there is no
secondary market for these notes. However, they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued interest,
at any time. In connection with master demand note arrangements, the Adviser
or Portfolio Manager will monitor, on an ongoing basis, the earning power,
cash flow, and other liquidity ratios of the borrower and its ability to pay
principal and interest on demand. The Adviser or Portfolio Manager also will
consider the extent to which the variable amount master demand notes are
backed by bank letters of credit. These notes generally are not rated by
Moody's or S&P; a Portfolio, other than the Money Market Portfolio, may invest
in them only if the Adviser or Portfolio Manager believes that at the time of
investment the notes are of comparable quality to the other commercial paper
in which the Portfolio may invest. With respect to the Money Market Portfolio,
determination of eligibility for the Portfolio will be in accordance with the
standards described in the discussion of the Portfolio in the Prospectus and
in "Additional Investment Policies of the Portfolios" above. Master demand
notes are considered by the Portfolio to have a maturity of one day unless the
Adviser or Portfolio Manager has reason to believe that the borrower could not
make immediate repayment upon demand. See the Appendix for a description of
Moody's and S&P ratings applicable to commercial paper.
Convertible Securities
Convertible securities are fixed-income securities which may be converted or
exchanged at a stated exchange ratio into underlying shares of common stock.
The exchange ratio for any particular convertible security may be adjusted
from time to time due to stock splits, dividends, spin-offs, other corporate
distributions, or scheduled changes in the exchange ratio. Convertible bonds
and convertible preferred stocks, until converted, have general
characteristics similar to both fixed-income and equity securities. Although
to a lesser extent than with fixed-income securities generally, the market
value of convertible securities tends to decline as interest rates increase
and, conversely, tends to increase as interest rates decline. In addition,
because of the conversion or exchange feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the
underlying common stocks, and, therefore, also will react to variations in the
general market for equity securities. A unique feature of convertible
securities is that as the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield basis,
and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As fixed-income securities, convertible securities are investments which
provide for a stable stream of income with generally higher yields than common
stocks. Of course, like all fixed-income securities, there can be no assurance
of current income because the issuers of the convertible securities may
default in their obligations. Convertible securities, however, generally offer
lower interest or dividend yields than non-convertible securities of similar
quality because of the potential for capital appreciation.
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A convertible security, in addition to providing fixed-income, offers the
potential for capital appreciation through the conversion feature which
enables the holder to benefit from increases in the market price of the
underlying common stock. In selecting the securities for a Portfolio, the
Adviser or Portfolio Manager gives substantial consideration to the potential
for capital appreciation of the common stock underlying the convertible
securities. However, there can be no assurance of capital appreciation because
securities prices fluctuate.
Convertible securities generally are subordinated to other similar but
nonconvertible securities of the same issuer although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar non-
convertible securities.
A "synthetic convertible" is created by combining distinct securities which
possess the two principal characteristics of a true convertible, i.e., fixed-
income ("fixed-income component") and the right to acquire equity securities
("convertibility component"). This combination is achieved by investing in
nonconvertible fixed-income securities (nonconvertible bonds and preferred
stocks) and in warrants, granting the holder the right to purchase a specified
quantity of securities within a specified period of time at a specified price.
However, the synthetic convertible differs from the true convertible
security in several respects. Unlike a true convertible, which is a single
security having a unitary market value, a synthetic convertible is comprised
of two distinct securities, each with its own market value. Therefore, the
"market value" of a synthetic convertible is the sum of the values of its
fixed-income component and its convertibility component. For this reason, the
value of a synthetic convertible and a true convertible security will respond
differently to market fluctuations.
More flexibility is possible in the assembly of a synthetic convertible than
in the purchase of a convertible security in that its two components may be
purchased separately. For example, a Portfolio Manager may purchase a warrant
for inclusion in a synthetic convertible but temporarily hold short-term
investments while postponing purchase of a corresponding bond pending
development of more favorable market conditions.
A holder of a synthetic convertible faces the risk that the price of the
stock underlying the convertibility component will decline, causing a decline
in the value of the warrant; should the price of the stock fall below the
exercise price and remain there throughout the exercise period, the entire
amount paid for the warrant would be lost. Since a synthetic convertible
includes the fixed-income component as well, the holder of a synthetic
convertible also faces the risk that interest rates will rise, causing a
decline in the value of the fixed-income instrument.
Repurchase Agreements
Repurchase agreements entail the purchase of a portfolio eligible security
from a bank or broker-dealer that agrees to repurchase the security at the
Portfolio's cost plus interest within a specified time (normally one day).
Repurchase agreements permit an investor to maintain liquidity and earn income
over periods of time as short as overnight. If a Portfolio acquires securities
from a bank or broker-dealer it may simultaneously enter into a repurchase
agreement with the seller wherein the seller agrees at the time of sale to
repurchase the security at a mutually agreed upon time and price. The term of
such an agreement is generally quite short, possibly overnight or for a few
days, although it may extend over a number of months (up to one year) from the
date of delivery. The resale price is in excess of the purchase price by an
amount which reflects an agreed upon market rate of return, effective for the
period of time the Portfolio is invested in the security. This results in a
fixed rate of return protected from market fluctuations during the period of
the agreement. This rate is not tied to the coupon rate on the security
subject to the repurchase agreement.
If the party agreeing to repurchase should default and if the value of the
securities held by a Portfolio should fall below the repurchase price, a loss
could be incurred. Repurchase agreements will be entered into only where the
underlying security is within the three highest credit categories assigned by
established rating agencies (Aaa, Aa, or A by Moody's or AAA, AA, or A by S&P)
or, if not rated by Moody's or S&P, are of equivalent
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investment quality as determined by the Adviser or Portfolio Manager, except
that the Money Market Portfolio will enter into repurchase agreements only
where the underlying securities are of the quality that is eligible for the
Portfolio as described in the Prospectus and in the discussion of that
Portfolio's investment objective and policies above.
Under the 1940 Act, repurchase agreements are considered to be loans by the
purchaser collateralized by the underlying securities. The Adviser or
Portfolio Manager to a Portfolio monitors the value of the underlying
securities at the time the repurchase agreement is entered into and at all
times during the term of the agreement to ensure that its value always equals
or exceeds the agreed upon repurchase price to be paid to the Portfolio. The
Adviser or Portfolio Manager, in accordance with procedures established by the
Board of Trustees, also evaluates the creditworthiness and financial
responsibility of the banks and brokers or dealers with which the Portfolio
enters into repurchase agreements.
A Portfolio may not enter into a repurchase agreement having more than seven
days remaining to maturity if, as a result, such agreements, together with any
other securities which are not readily marketable, would exceed 15% of the net
assets of the Portfolio (10% for the Money Market Portfolio). If the seller
should become bankrupt or default on its obligations to repurchase the
securities, a Portfolio may experience delay or difficulties in exercising its
rights to the securities held as collateral and might incur a loss if the
value of the securities should decline. A Portfolio also might incur
disposition costs in connection with liquidating the securities.
Borrowing
Each Portfolio may borrow up to certain limits. A Portfolio may not borrow
if, as a result of such borrowing, the total amount of all money borrowed by
the Portfolio exceeds 33 1/3% of the value of its total assets (at the time of
such borrowing), including reverse repurchase agreements. This borrowing may
be unsecured. Borrowing may exaggerate the effect on net asset value of any
increase or decrease in the market value of a Portfolio. Money borrowed will
be subject to interest costs which may or may not be recovered by appreciation
of the securities purchased. A Portfolio also may be required to maintain
minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest
rate. Reverse repurchase agreements will be included as borrowing subject to
the borrowing limitations described above.
Reverse Repurchase Agreements and Other Borrowings
Reverse repurchase agreements, among the forms of borrowing, involve the
sale of a debt security held by the Portfolio, with an agreement by that
Portfolio to repurchase the security at a stated price, date and interest
payment.
A Portfolio will use the proceeds of a reverse repurchase agreement to
purchase other money market instruments which either mature at a date
simultaneous with or prior to the expiration of the reverse repurchase
agreement or which are held under an agreement to resell maturing as of that
time. The use of reverse repurchase agreements by a Portfolio creates leverage
which increases a Portfolio's investment risk. If the income and gains on
securities purchased with the proceeds of reverse repurchase agreements exceed
the cost of the agreements, the Portfolio's earnings or net asset value will
increase faster than otherwise would be the case; conversely, if the income
and gains fail to exceed the costs, earnings or net asset value would decline
faster than otherwise would be the case. A Portfolio will enter into a reverse
repurchase agreement only when the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. However, reverse repurchase agreements involve the
risk that the market value of securities retained by the Portfolio may decline
below the repurchase price of the securities sold by the Portfolio which it is
obligated to repurchase.
A Portfolio may enter into reverse repurchase agreements with banks or
broker-dealers. Entry into such agreements with broker-dealers requires the
creation and maintenance of segregated assets consisting of U.S. Government
securities, cash or liquid securities marked-to-market daily at least equal in
value to its obligations in respect of reverse repurchase agreements.
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Firm Commitment Agreements and When-Issued Securities
Firm commitment agreements are agreements for the purchase of securities at
an agreed upon price on a specified future date. A Portfolio may purchase new
issues of securities on a "when-issued" basis, whereby the payment obligation
and interest rate on the instruments are fixed at the time of the transaction.
Such transactions might be entered into, for example, when the Adviser or
Portfolio Manager to a Portfolio anticipates a decline in the yield of
securities of a given issuer and is able to obtain a more advantageous yield
by committing currently to purchase securities to be issued or delivered
later.
Except for the Mid-Cap Value Portfolio, a Portfolio will not enter into such
a transaction for the purpose of investment leverage. Liability for the
purchase price--and all the rights and risks of ownership of the securities--
accrue to the Portfolio at the time it becomes obligated to purchase such
securities, although delivery and payment occur at a later date. Accordingly,
if the market price of the security should decline, the effect of the
agreement would be to obligate the Portfolio to purchase the security at a
price above the current market price on the date of delivery and payment.
During the time the Portfolio is obligated to purchase such securities it will
segregate assets consisting of U.S. Government securities, cash or liquid
securities marked-to-market daily of an aggregate current value sufficient to
make payment for the securities.
Loans of Portfolio Securities
For the purpose of realizing additional income, each Portfolio may make
secured loans of its portfolio securities to broker-dealers or U.S. banks
provided: (i) such loans are secured continuously by collateral consisting of
cash, cash equivalents, or U.S. Government securities maintained on a daily
marked-to-market basis in an amount or at a market value at least equal to the
current market value of the securities loaned; (ii) the Portfolio may at any
time call such loans (subject to notice provisions in the loan agreement) and
obtain the securities loaned; (iii) the Portfolio will receive an amount in
cash at least equal to the interest or dividends paid on the loaned
securities; and (iv) the aggregate market value of securities loaned will not
at any time exceed 33 1/3% of the total assets of the Portfolio. In addition,
it is anticipated that the Portfolio may share with the borrower some of the
income received on the collateral for the loan or that it will be paid a
premium for the loan. If the borrower fails to deliver the loaned securities
on a timely basis (as defined in the loan agreement), the Portfolio could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. It should be noted that in
connection with the lending of its portfolio securities, the Portfolio is
exposed to the risk of delay in recovery of the securities loaned or possible
loss of rights in the collateral should the borrower become insolvent. The
Fund has authorized State Street Bank & Trust Company and The Chase Manhattan
Bank ("Chase") (collectively, the "Lending Agents") to engage in securities
lending. In determining whether to lend securities, the Lending Agents
consider all relevant facts and circumstances, including the creditworthiness
of the borrower. Voting rights attached to the loaned securities may pass to
the borrower with the lending of portfolio securities. The Portfolio may
recall securities if the Portfolio Manager wishes to vote on matters put
before shareholders.
Short Sales
A short sale is a transaction in which a Portfolio sells a security it does
not own in anticipation of a decline in the market price. Even during normal
or favorable market conditions, the Portfolio may make short sales in an
attempt to maintain portfolio flexibility and facilitate the rapid
implementation of investment strategies if the Portfolio Manager believes that
the price of a particular security or group of securities is likely to
decline.
When the Portfolio makes a short sale, the Portfolio must arrange through a
broker to borrow the security to deliver to the buyer; and, in so doing, the
Portfolio becomes obligated to replace the security borrowed at its market
price at the time of replacement, whatever that price may be. The Portfolio
may have to pay a premium to borrow the security. The Portfolio must also pay
any dividends or interest payable on the security until the Portfolio replaces
the security.
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The Portfolio's obligation to replace the security borrowed in connection
with the short sale will be secured by collateral deposited with the broker,
consisting of cash, U.S. Government securities or other securities acceptable
to the broker. In addition, with respect to any short sale, other than short
sales against the box, the Portfolio will be required to maintain cash or
liquid securities, marked-to-market daily, in segregation in an amount such
that the value of the sum of both collateral deposits is at all times equal to
at least 100% of the current market value of the securities sold short.
Short Sales Against the Box
A short sale is "against the box" when a Portfolio enters into a transaction
to sell a security short as described above, while at all times during which a
short position is open, maintaining an equal amount of such securities, or
owning securities giving it the right, without payment of future
consideration, to obtain an equal amount of securities sold short. The
Portfolio's obligation to replace the securities sold short is then completed
by purchasing the securities at their market price at time of replacement.
Illiquid and Restricted Securities (Private Placements)
Generally, a security is considered illiquid if it cannot be disposed of
within seven days. Its illiquidity might prevent the sale of such security at
a time when a Portfolio Manager might wish to sell, and these securities could
have the effect of decreasing the overall level of a Portfolio's liquidity.
Further, the lack of an established secondary market may make it more
difficult to value illiquid securities, requiring the Fund to rely on
judgments that may be somewhat subjective in determining value, which could
vary from the amount that a Portfolio could realize upon disposition.
A Portfolio will not acquire restricted securities (including privately
placed securities) if they are illiquid and other securities that are
illiquid, such as repurchase agreements maturing in more than seven days, if
as a result they would comprise more than 15% of the value of the Portfolio's
net assets, and in the case of the Money Market Portfolio, 10% of the value of
its Portfolio assets. The privately placed securities in which these
Portfolios may invest are called restricted securities because there are
restrictions or conditions attached to their resale.
Restricted securities may be sold only in a public offering with respect to
which a registration statement is in effect under the Securities Act of 1933
or in a transaction exempt from such registration such as certain privately
negotiated transactions. Where registration is required, the Portfolio may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
Portfolio may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, the Portfolio might obtain a less favorable price than prevailed when
it decided to sell. Restricted securities will be priced at fair value as
determined in good faith under the direction of the Board of Trustees. If
through the appreciation of restricted securities or the depreciation of
unrestricted securities, the Portfolio should be in a position where more than
15% of the value of its net assets are invested in restricted securities that
are illiquid and other securities that are illiquid, the Portfolio Manager
will consider whether steps should be taken to assure liquidity.
Certain restricted securities may be purchased by certain "qualified
institutional buyers" without the necessity for registration of the
securities. A Portfolio may acquire such a security without the security being
treated as illiquid for purposes of the above-described limitation on
acquisition of illiquid assets if the Portfolio Manager determines that the
security is liquid under guidelines adopted by the Fund's Board of Trustees.
Investing in such restricted securities could have the effect of increasing
the level of the Portfolio's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
Precious Metals-Related Securities
Precious metals-related securities are considered equity securities of U.S.
and foreign companies involved in the exploration, mining, development,
production, or distribution of gold or other natural resources, including
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minerals and metals such as copper, aluminum, silver, platinum, uranium,
strategic metals, diamonds, coal, oil, and phosphates.
The value of these securities may be affected by worldwide financial and
political factors, and prices may fluctuate sharply over short time periods.
For example, precious metals securities may be affected by changes in
inflation expectations in various countries, metal sales by central banks of
governments or international agencies, governmental restrictions on the
private ownership of certain precious metals or minerals and other factors.
Foreign Securities
American Depositary Receipts ("ADRs") are dollar-denominated receipts issued
generally by domestic banks and representing the deposit with the bank of a
security of a foreign issuer. ADRs are publicly-traded on exchanges or over-
the-counter in the United States. European Depositary Receipts ("EDRs") and
global Depositary Receipts ("GDRs") are receipts evidencing an arrangement
with a non-U.S. bank similar to that for ADRs and are designed for use in the
non-U.S. securities markets. EDRs and GDRs are not necessarily quoted in the
same currency as the underlying security.
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies.
These risks are intensified with respect to investments in emerging market
countries. These include differences in accounting, auditing and financial
reporting standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation, nationalization, or
confiscatory taxation, adverse changes in investment or exchange control
regulations, trade restrictions, political instability (which can affect U.S.
investments in foreign countries), and potential restrictions on the flow of
international capital. It may be more difficult to obtain and enforce
judgments against foreign entities. Additionally, income (including dividends
and interest) from foreign securities may be subject to foreign taxes,
including foreign withholding taxes, and other foreign taxes may apply with
respect to securities transactions. Transactions on foreign exchanges or over-
the-counter markets may involve greater time from the trade date until
settlement than for domestic securities transactions and, if the securities
are held abroad, may involve the risk of possible losses through the holding
of securities in custodians and depositories in foreign countries. Foreign
securities often trade with less frequency and volume than domestic securities
and therefore may exhibit greater price volatility. Changes in foreign
exchange rates will affect the value of those securities which are denominated
or quoted in currencies other than the U.S. dollar. Investing in ADRs, EDRs
and GDRs may involve many of the same special risks associated with investing
in securities of foreign issuers other than liquidity risks.
There is generally less publicly available information about foreign
companies comparable to reports and ratings that are published about companies
in the United States. Foreign companies are also generally not subject to
uniform accounting and auditing and financial reporting standards, practices,
and requirements comparable to those applicable to U.S. companies.
It is contemplated that most foreign securities will be purchased in over-
the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New
York Stock Exchange, and securities of some foreign companies are less liquid
and more volatile than securities of comparable U.S. companies. Similarly,
volume and liquidity in most foreign bond markets is less than in the United
States and at times, volatility of price can be greater than in the United
States. Fixed commissions on foreign stock exchanges are generally higher than
negotiated commissions on U.S. exchanges, although the Portfolio will endeavor
to achieve the most favorable net results on its portfolio transactions. There
is generally less government supervision and regulation of stock exchanges,
brokers, and listed companies than in the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations,
nationalization, expropriation or confiscatory taxation, limitations on the
removal
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of funds or other assets of the Portfolio, political or social instability, or
diplomatic developments which could affect United States investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the United States' economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments position.
The dividends and interest payable on certain of the Portfolios' foreign
portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution.
Each of the emerging countries, including Asia and Eastern Europe, may be
subject to a substantially greater degree of economic, political and social
instability and disruption than is the case in the United States, Japan and
most Western European countries. This instability may result from, among other
things, the following: (i) authoritarian governments or military involvement
in political and economic decision making, including changes or attempted
changes in governments through extra-constitutional means; (ii) popular unrest
associated with demands for improved political, economic or social conditions;
(iii) internal insurgencies; (iv) hostile relations with neighboring
countries; (v) ethnic, religious and racial disaffection or conflict; and (vi)
the absence of developed legal structures governing foreign private
investments and private property. Such economic, political and social
instability could disrupt the principal financial markets in which the
Portfolios may invest and adversely affect the value of the Portfolios'
assets. A Portfolio's investments could in the future be adversely affected by
any increase in taxes or by political, economic or diplomatic developments.
Investment opportunities within former "east bloc" countries in Eastern Europe
may be considered "not readily marketable" for purposes of the limitation on
illiquid securities set forth above.
Investment in foreign securities also involves the risk of possible losses
through the holding of securities in custodian banks and securities
depositories in foreign countries. The Fund has entered into a Custody
Agreement with Investors Fiduciary Trust Company ("IFTC"), a trust company
chartered under the laws of Missouri, which has entered into a Subcustodial
Agreement with Chase under which Chase, together with certain of its foreign
branches and agencies and foreign banks and securities depositories acting as
subcustodian to Chase, will maintain custody of the securities and other
assets of foreign issuers for the Fund. Under these agreements, Chase and IFTC
have agreed (i) to use reasonable care in the safekeeping of these securities,
(ii) to indemnify and hold harmless the Fund from and against any loss which
shall occur as a result of the failure of a foreign bank or securities
depository holding such securities and (iii) to exercise reasonable care in
the safekeeping of such securities to the same extent as if the securities
were held in New York. Pursuant to requirements of the SEC, Chase is required
to use reasonable care in the selection of foreign subcustodians, and to
consider the financial strength of the foreign subcustodian, its general
reputation and standing (for depository, its operating history and number of
participants), its ability to provide efficiently the custodial services
required, its relative costs for the services to be rendered, and the Fund's
ability to obtain jurisdiction over the foreign subcustodian to enforce
judgments. No assurance can be given that expropriation, nationalization,
freezes, or confiscation of assets, which would impact assets of the
Portfolio, will not occur, and shareholders bear the risk of losses arising
from these or other events.
Foreign investments of any Portfolio whose principal investment strategy is
to invest in companies located outside of the U.S. will be allocated to at
least three countries at all times. In addition, each Portfolio may not invest
more than 50% of its assets in any one second tier country or more than 25% of
its assets in any one third tier country. First tier countries are: Germany,
the United Kingdom, Japan, the United States, France, Canada, and Australia.
Second tier countries are all countries not in the first or third tier. Third
tier countries are countries identified as "emerging" or "developing" by the
International Bank for Reconstruction and Development ("World Bank") or
International Finance Corporation. The Portfolios are not subject to any limit
upon investment in issuers domiciled or primarily traded in the United States.
Less diversification among countries may create an opportunity for higher
returns, but may also result in higher risk of loss because of greater
exposure to a market decline in a single country.
Furthermore, there are greater risks involved in investing in emerging
market countries and/or their securities markets, such as less diverse and
less mature economic structures, less stable political systems, more
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restrictive foreign investment policies, smaller-sized securities markets and
low trading volumes. Such risks can make investments illiquid and more
volatile than investments in developed countries and such securities may be
subject to abrupt and severe price declines.
Foreign Currency Transactions and Forward Foreign Currency Contracts
Generally, foreign exchange transactions will be conducted on a spot, i.e.,
cash, basis at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market. This rate, under normal market conditions,
differs from the prevailing exchange rate in an amount generally less than
0.15 of 1% due to the costs of converting from one currency to another.
However, the Portfolios have authority to deal in forward foreign exchange
transactions to hedge and manage currency exposure against possible
fluctuations in foreign exchange rates. This is accomplished through
contractual agreements to purchase or sell a specified currency at a specified
future date and price set at the time of the contract. When entering into such
contracts, a Portfolio assumes the credit risk of the counterparty.
Dealings in forward foreign exchange transactions may include hedging
involving either specific transactions or portfolio positions. A Portfolio may
purchase and sell forward foreign currency contracts in combination with other
transactions in order to gain exposure to an investment in lieu of actually
purchasing such investment. Transaction hedging is the purchase or sale of
forward foreign currency contracts with respect to specific receivables or
payables of a Portfolio arising from the purchase and sale of portfolio
securities, the sale and redemption of shares of a Portfolio, or the payment
of dividends and distributions by a Portfolio. Position hedging is the sale of
forward foreign currency contracts with respect to portfolio security
positions denominated in or exposed to a foreign currency. In connection with
either of these types of hedging, a Portfolio may also engage in proxy
hedging. Proxy hedging entails entering into a forward contract to buy or sell
a currency whose changes in value are generally considered to be moving in
correlation with a currency or currencies in which portfolio securities are or
are expected to be denominated. Proxy hedging is often used when a currency in
which portfolio securities are denominated is difficult to hedge. The precise
matching of a currency with a proxy currency will not generally be possible
and there may be some additional currency risk in connection with such hedging
transactions. In addition to the above, a portfolio may also cross-hedge
between two non-U.S. currencies, which involves moving a security from one
currency into a second currency that is not the currency that account
performance is based upon. The Portfolios will not speculate in forward
foreign exchange.
A Portfolio may enter into forward foreign currency contracts only under the
following circumstances: First, when a Portfolio enters into a contract for
the purchase or sale of a security denominated in or exposed to a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for the purchase or sale of the amount of
foreign currency involved in the underlying security transactions (or a proxy
currency considered to move in correlation with that currency) for a fixed
amount of dollars, a Portfolio may be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the
date the security is purchased or sold and the date on which payment is made
or received. Second, when the Portfolio Manager of a Portfolio believes that
the currency of a particular foreign country may suffer a substantial movement
against another currency, it may enter into a forward contract to sell or buy
the amount of the former foreign currency (or a proxy currency considered to
move in correlation with that currency), approximating the value of some or
all of the Portfolio's portfolio securities denominated in or exposed to such
foreign currency. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible since the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely difficult and
the successful execution of a short-term hedging strategy is highly uncertain.
In no event will a Portfolio enter into forward contracts or maintain a net
exposure to such contracts, where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of
the value of that Portfolio's holdings denominated in or exposed to that
foreign currency (or a proxy currency considered to move in correlation with
that currency), or exposed to a particular
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securities market, or futures contracts, options or other derivatives on such
holdings. In addition, in no event will a Portfolio enter into forward
contracts under this second circumstance, if, as a result, the Portfolio will
have more than 25% of the value of its total assets committed to the
consummation of such contracts. Under normal circumstances, consideration of
the prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
The Portfolios will cover outstanding forward currency contracts by
maintaining liquid portfolio securities or other assets denominated in or
exposed to the currency underlying the forward contract or the currency being
hedged. To the extent that a Portfolio is not able to cover its forward
currency positions with underlying portfolio securities, cash or liquid equity
or debt securities will be segregated in an amount equal to the value of the
Portfolio's total assets committed to the consummation of forward foreign
currency exchange contracts. If the value of the securities used to cover a
position or the value of segregated assets declines, a Portfolio will find
alternative cover or additional cash or securities will be segregated on a
daily basis so that the value of the segregated assets will equal the amount
of the Portfolio's commitments with respect to such contracts.
When a Portfolio Manager of a Portfolio believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar, that
Portfolio may enter into a forward contract to sell the amount of foreign
currency approximating the value of some or all of the Portfolio's holdings
denominated in or exposed to such foreign currency. At the maturity of the
forward contract to sell, the Portfolio may either sell the portfolio security
and make delivery of the foreign currency or it may retain the security and
terminate its contractual obligation to deliver the foreign currency by
purchasing an "offsetting" contract with the same currency trader obligating
the Portfolio to purchase, on the same maturity date, the same amount of the
foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for a Portfolio to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Portfolio is obligated to deliver.
If a Portfolio retains the portfolio security and engages in an offsetting
transaction, the Portfolio will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. If the
Portfolio engages in an offsetting transaction, it may subsequently enter into
a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Portfolio will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
A Portfolio is not required to enter into such transactions with regard to
their foreign currency denominated securities and will not do so unless deemed
appropriate by its Portfolio Manager. It also should be realized that this
method of protecting the value of a Portfolio's holdings in securities against
a decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
which one can achieve at some future point in time. Additionally, although
such contracts tend to minimize the risk of loss due to a decline in the value
of the hedged currency, at the same time they tend to limit any potential gain
which might result from the value of such currency increase.
Although a Portfolio values its shares in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a Portfolio
at one rate, while offering a lesser rate of exchange should the Portfolio
desire to resell that currency to the dealer.
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Options
Purchasing and Writing Options on Securities. A Portfolio may purchase and
sell (write) (i) both put and call options on debt or other securities in
standardized contracts traded on national securities exchanges, boards of
trade, similar entities, or for which an established over-the-counter market
exists; and (ii) agreements, sometimes called cash puts, which may accompany
the purchase of a new issue of bonds from a dealer.
An option on a security is a contract that gives the holder of the option,
in return for a premium, the right to buy from (in the case of a call) or sell
to (in the case of a put) the writer of the option the security underlying the
option at a specified exercise price at any time during the term of the
option. The writer of an option on a security has the obligation upon exercise
of the option to deliver the underlying security upon payment of the exercise
price or to pay the exercise price upon delivery of the underlying security. A
Portfolio may purchase put options on securities to protect holdings in an
underlying or related security against a substantial decline in market value.
Securities are considered related if their price movements generally correlate
to one another. For example, the purchase of put options on debt securities
held in a Portfolio will enable a Portfolio to protect, at least partially, an
unrealized gain in an appreciated security without actually selling the
security. In addition, the Portfolio will continue to receive interest income
on such security.
A Portfolio may purchase call options on securities to protect against
substantial increases in prices of securities the Portfolio intends to
purchase pending its ability to invest in such securities in an orderly
manner. A Portfolio may sell put or call options it has previously purchased,
which could result in a net gain or loss depending on whether the amount
realized on the sale is more or less than the premium and other transaction
costs paid on the put or call option which is sold. A Portfolio may also allow
options to expire unexercised.
In order to earn additional income on its portfolio securities or to protect
partially against declines in the value of such securities, a Portfolio may
write covered call options. The exercise price of a call option may be below,
equal to, or above the current market value of the underlying security at the
time the option is written. During the option period, a covered call option
writer may be assigned an exercise notice by the broker-dealer through whom
such call option was sold requiring the writer to deliver the underlying
security against payment of the exercise price. This obligation is terminated
upon the expiration of the option period or at such earlier time in which the
writer effects a closing purchase transaction. Closing purchase transactions
will ordinarily be effected to realize a profit on an outstanding call option,
to prevent an underlying security from being called, to permit the sale of the
underlying security, or to enable the Portfolio to write another call option
on the underlying security with either a different exercise price or
expiration date or both.
In order to earn additional income or to facilitate its ability to purchase
a security at a price lower than the current market price of such security, a
Portfolio may write secured put options. During the option period, the writer
of a put option may be assigned an exercise notice by the broker-dealer
through whom the option was sold requiring the writer to purchase the
underlying security at the exercise price.
A Portfolio may write call options and put options only if they are
"covered" or "secured." In the case of a call option on a security, the option
is "covered" if the Portfolio owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are segregated) upon conversion or exchange of
other securities held by the Portfolio, or, if the Portfolio has a call on the
same security if the exercise price of the call held (i) is equal to or less
than the exercise price of the call written or (ii) is greater than the
exercise price of the call written, if the difference is maintained by the
Portfolio in segregated cash, U.S. Government securities or liquid securities
marked-to-market daily. A put is secured if the Portfolio maintains cash, U.S.
Government securities or liquid securities marked-to-market daily with a value
equal to the exercise price on a segregated basis, sells short the security
underlying the put option at an equal or greater exercise price, or holds a
put on the same underlying security at an equal or greater exercise price.
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Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security, exercise price, and expiration). There can be
no assurance, however, that a closing purchase or sale transaction can be
effected when the Portfolio desires.
A Portfolio will realize a capital gain from a closing purchase transaction
if the cost of the closing option is less than the premium received from
writing the option, or, if it is more, the Portfolio will realize a capital
loss. If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Portfolio will realize a capital gain
or, if it is less, the Portfolio will realize a capital loss. The principal
factors affecting the market value of a put or a call option include supply
and demand, interest rates, the current market price of the underlying
security in relation to the exercise price of the option, the volatility of
the underlying security, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by a Portfolio is an
asset of the Portfolio. The premium received for an option written by a
Portfolio is recorded as a deferred credit. The value of an option purchased
or written is marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or no closing
price is available, at the mean between the last bid and asked prices.
Purchasing and Writing Options on Stock Indexes. A stock index is a method
of reflecting in a single number the market values of many different stocks
or, in the case of value weighted indices that take into account prices of
component stocks and the number of shares outstanding, the market values of
many different companies. Stock indexes are compiled and published by various
sources, including securities exchanges. An index may be designed to be
representative of the stock market as a whole, of a broad market sector (e.g.,
industrials), or of a particular industry (e.g., electronics). An index may be
based on the prices of all, or only a sample, of the stocks whose value it is
intended to represent.
A stock index is ordinarily expressed in relation to a "base" established
when the index was originated. The base may be adjusted from time to time to
reflect, for example, capitalization changes affecting component stocks. In
addition, stocks may from time to time be dropped from or added to an index
group. These changes are within the discretion of the publisher of the index.
Different stock indexes are calculated in different ways. Often the market
prices of the stocks in the index group are "value weighted;" that is, in
calculating the index level, the market price of each component stock is
multiplied by the number of shares outstanding. Because of this method of
calculation, changes in the stock prices of larger corporations will generally
have a greater influence on the level of a value weighted (or sometimes
referred to as a capitalization weighted) index than price changes affecting
smaller corporations.
In general, index options are very similar to stock options, and are
basically traded in the same manner. However, when an index option is
exercised, the exercise is settled by the payment of cash--not by the delivery
of stock. The assigned writer of a stock option is obligated to pay the
exercising holder cash in an amount equal to the difference (expressed in
dollars) between the closing level of the underlying index on the exercise
date and the exercise price of the option, multiplied by a specified index
"multiplier." A multiplier of 100, for example, means that a one-point
difference will yield $100. Like other options listed on United States
securities exchanges, index options are issued by the Options Clearing
Corporation ("OCC").
Gains or losses on the Portfolios' transactions in securities index options
depend primarily on price movements in the stock market generally (or, for
narrow market indexes, in a particular industry or segment of the market)
rather than the price movements of individual securities held by a Portfolio
of the Fund. A Portfolio may sell securities index options prior to expiration
in order to close out its positions in stock index options which it has
purchased. A Portfolio may also allow options to expire unexercised.
Risks of Options Transactions. There are several risks associated with
transactions in options. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. A decision as to
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whether, when, and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Portfolio
seeks to close out an option position. If a Portfolio were unable to close out
an option it had purchased on a security, it would have to exercise the option
to realize any profit or the option may expire worthless. If a Portfolio were
unable to close out a covered call option it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Portfolio forgoes,
during the option's life, the opportunity to profit from increases in the
market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased by a Portfolio, the
Portfolio would not be able to close out the option. If restrictions on
exercise were imposed, the Portfolio might be unable to exercise an option it
has purchased.
With respect to index options, current index levels will ordinarily continue
to be reported even when trading is interrupted in some or all of the stocks
in an index group. In that event, the reported index levels will be based on
the current market prices of those stocks that are still being traded (if any)
and the last reported prices for those stocks that are not currently trading.
As a result, reported index levels may at times be based on non-current price
information with respect to some or even all of the stocks in an index group.
Exchange rules permit (and in some instances require) the trading of index
options to be halted when the current value of the underlying index is
unavailable or when trading is halted in stocks that account for more than a
specified percentage of the value of the underlying index. In addition, as
with other types of options, an exchange may halt the trading of index options
whenever it considers such action to be appropriate in the interests of
maintaining a fair and orderly market and protecting investors. If a trading
halt occurs, whether for these or for other reasons, holders of index options
may be unable to close out their positions and the options may expire
worthless.
Spread Transactions. Spread transactions are not generally exchange listed
or traded. Spread transactions may occur in the form of options, futures,
forwards or swap transactions. The purchase of a spread transaction gives a
Portfolio the right to sell or receive a security or a cash payment with
respect to an index at a fixed dollar spread or fixed yield spread in
relationship to another security or index which is used as a benchmark. The
risk to a Portfolio in purchasing spread transactions is the cost of the
premium paid for the spread transaction and any transaction costs. The sale of
a spread transaction obligates a Portfolio to purchase or deliver a security
or a cash payment with respect to an index at a fixed dollar spread or fixed
yield spread in relationship to another security or index which is used as a
benchmark. In addition, there is no assurance that closing transactions will
be available. The purchase and sale of spread transactions will be used in
furtherance of a Portfolio's objectives and to protect a Portfolio against
adverse changes in prevailing credit quality spreads, i.e., the yield spread
between high quality and lower quality securities. Such protection is only
provided during the life of the spread transaction. The Fund does not consider
a security covered by a spread transaction to be "pledged" as that term is
used in the Fund's policy limiting the pledging or mortgaging of its assets.
The sale of spread transactions will be "covered" or "secured" as described in
the "Options", "Options on Foreign Currencies", "Futures Contracts and Options
on Futures Contracts", and "Swap Agreements and Options on Swap Agreements"
sections.
Options on Foreign Currencies
Portfolios may purchase and sell options on foreign currencies for hedging
purposes in a manner similar to that in which futures or forward contracts on
foreign currencies will be utilized. For example, a decline in the U.S. dollar
value of a foreign currency in which portfolio securities are denominated will
reduce the U.S. dollar value of such securities, even if their value in the
foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, a Portfolio may buy put
options on the foreign currency. If the value of the currency declines, the
Portfolio will have the right to sell such currency for a fixed amount in U.S.
dollars and will offset, in whole or in part, the adverse effect on its
portfolio.
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Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Portfolio may buy call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, if currency exchange rates do not move in the direction or
to the extent desired, the Portfolio could sustain losses on transactions in
foreign currency options that would require the Portfolio to forgo a portion
or all of the benefits of advantageous changes in those rates.
A Portfolio may write options on foreign currencies for hedging purposes.
For example, to hedge against a potential decline in the U.S. dollar value of
foreign currency denominated securities due to adverse fluctuations in
exchange rates, the Portfolio could, instead of purchasing a put option, write
a call option on the relevant currency. If the expected decline occurs, the
option will most likely not be executed and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, the Portfolio
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Portfolio to hedge the
increased cost up to the amount of the premium. As in the case of other types
of options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium. If exchange rates do not
move in the expected direction, the option may be exercised and the Portfolio
would be required to buy or sell the underlying currency at a loss which may
not be offset by the amount of the premium. Through the writing of options on
foreign currencies, the Portfolio also may lose all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
exchange rates.
A Portfolio may write covered call and put options on foreign currencies. A
call option written on a foreign currency by the Portfolio is "covered" if the
Portfolio (i) owns the underlying foreign currency covered by the call; (ii)
has an absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held in
segregation) upon conversion or exchange of other foreign currency held in its
portfolio; (iii) has a call on the same foreign currency and in the same
principal amount as the call written if the exercise price of the call held
(a) is equal to or less than the exercise price of the call written, or (b) is
greater than the exercise price of the call written, if the difference is
maintained by the Portfolio in segregated government securities, cash or
liquid securities marked-to-market daily, and/or cash, U.S. Government
securities, or liquid securities marked-to-market daily; or (iv) segregates
and marks-to-market cash or liquid assets equal to the value of the underlying
foreign currency. A put option written on a foreign currency by a Portfolio is
"covered" if the option is secured by (i) segregated government securities,
cash or liquid securities marked-to-market daily of that foreign currency,
and/or segregated U.S. Government securities, cash or liquid securities
marked-to-market daily at least equal to the exercise price, (ii) sells short
the security underlying the put option at an equal or greater exercise price,
or (iii) a put on the same underlying currency at an equal or greater exercise
price.
A Portfolio also may write call options on foreign currencies for cross-
hedging purposes that would not be deemed to be covered. A written call option
on a foreign currency is for cross-hedging purposes if it is not covered but
is designed to provide a hedge against a decline due to an adverse change in
the exchange rate in the U.S. dollar value of a security which the Portfolio
owns or has the right to acquire and which is denominated in the currency
underlying the option. In such circumstances, the Portfolio collateralizes the
option by segregating cash, U.S. Government Securities, and/or liquid
securities marked-to-market daily in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked-to-market daily.
Foreign currency options are subject to the risks of the availability of a
liquid secondary market described above, as well as the risks regarding
adverse market movements, margining of options written, the nature of the
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foreign currency market, possible intervention by governmental authorities and
the effects of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not presented by
the over-the-counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency option
exercises, or would result in undue burdens on the OCC or its clearing member,
impose special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise.
In addition, options on foreign currencies may be traded on foreign
exchanges and over-the-counter in foreign countries. Such transactions are
subject to the risk of governmental actions affecting trading in or the prices
of foreign currencies or securities. The value of such positions also could be
adversely affected by (i) other complex foreign political and economic
factors, (ii) lesser availability than in the United States of data on which
to make trading decisions, (iii) delays in a Portfolio's ability to act upon
economic events occurring in foreign markets during non-business hours in the
United States, (iv) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the United States, and (v) low
trading volume.
Investments in Other Investment Company Securities
Under the 1940 Act, a Portfolio may not own more than 3% of the outstanding
voting stock of an investment company, invest more than 5% of its total assets
in any one investment company, or invest more than 10% of its total assets in
the securities of investment companies. As the shareholder of another
investment company, a Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including
advisory fees. Such expenses are in addition to the expenses a Portfolio pays
in connection with its own operations.
SPDRs. Standard & Poor's Depository Receipts ("SPDRs") are interests in a
unit investment trust ("UIT") that may be obtained from the UIT or purchased
in the secondary market (SPDRs are listed on the American Stock Exchange). The
UIT has been established to accumulate and hold a portfolio of common stocks
that is intended to track the price performance and dividend yields of the S&P
500.
Individual investments in SPDRs are not redeemable, except upon termination
of the UIT. However, large quantities of SPDRs known as "Creation Units" are
redeemable from the sponsor of the UIT. The liquidity of small holdings of
SPDRs, therefore, will depend upon the existence of a secondary market.
The price of SPDRs is derived from and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by a Portfolio could result in losses on SPDRs.
Trading in SPDRs involves risks similar to those risks, described under "Risks
of Options Transactions."
WEBS and OPALS. World Equity Benchmark Shares ("WEBS") have been listed on
the American Stock Exchange since 1996 and are issued by Foreign Fund, Inc.,
an open-end investment company registered under the 1940 Act. WEBS are
designed to replicate the composition and performance of publicly traded
issuers in particular foreign countries. The market prices of WEBS are
expected to fluctuate in accordance with both changes in the net asset values
of their underlying indices and the supply and demand of WEBS on the American
Stock Exchange. Investments in WEBS are managed by BZW Barclays Global Fund
Advisors.
Optimised Portfolios as Listed Securities ("OPALS") track the performance of
adjustable baskets of stocks owned by Morgan Stanley Capital (Luxembourg) S.A.
(the "Counterparty") until a specified maturity date. Holders of OPALS will
receive semi-annual distributions corresponding to dividends received on
shares contained in the underlying basket of stocks, net of expenses. On the
maturity date of the OPALS, the holders
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will receive the physical securities comprising the underlying baskets. OPALS
represent an unsecured obligation and therefore carry with them the risk that
the Counterparty will default and the Portfolio may not be able to recover the
current value of its investment.
Investments in SPDRs, WEBS and OPALS will be limited to the percentage
restrictions set forth above for investments in investment company securities.
Futures Contracts and Options on Futures Contracts
There are several risks associated with the use of futures and futures
options. While a Portfolio hedging transactions may protect the Portfolio
against adverse movements in the general level of interest rates or stock or
currency prices, such transactions could also preclude the opportunity to
benefit from favorable movements in the level of interest rates or stock or
currency prices. A hedging transaction may not correlate perfectly with price
movements in the assets being hedged. An incorrect correlation could result in
a loss on both the hedged assets in a Portfolio and/or the hedging vehicle, so
that the Portfolio's return might have been better had hedging not been
attempted.
There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures contract or a futures option position.
Most futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day; once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and lack a deep secondary market. Lack of a liquid market for
any reason may prevent a Portfolio from liquidating an unfavorable position
and the Portfolio would remain obligated to meet margin requirements until the
position is closed.
Futures on securities. A futures contract on a security is an agreement
between two parties (buyer and seller) to take or make delivery of a specified
quantity of a security at a specified price at a future date.
If a fund buys a futures contract to gain exposure to securities, the fund
is exposed to the risk of change in the value of the futures contract, which
may be caused by a change in the value of the underlying securities.
Interest Rate Futures. An interest rate futures contract is an agreement
between two parties (buyer and seller) to take or make delivery of a specified
quantity of financial instruments (such as GNMA certificates or Treasury
bonds) at a specified price at a future date. In the case of futures contracts
traded on U.S. exchanges, the exchange itself or an affiliated clearing
corporation assumes the opposite side of each transaction (i.e., as buyer or
seller). A futures contract may be satisfied or closed out by delivery or
purchase, as the case may be, of the financial instrument or by payment of the
change in the cash value of the index. Frequently, using futures to effect a
particular strategy instead of using the underlying or related security will
result in lower transaction costs being incurred. A public market exists in
futures contracts covering various financial instruments including U.S.
Treasury bonds, U.S. Treasury notes, GNMA certificates, three month
U.S. Treasury bills, 90 day commercial paper, bank certificates of deposit,
and Eurodollar certificates of deposit.
As a hedging strategy a Portfolio might employ, a Portfolio would purchase
an interest rate futures contract when it is not fully invested in long-term
debt securities but wishes to defer their purchase for some time until it can
orderly invest in such securities or because short-term yields are higher than
long-term yields. Such purchase would enable the Portfolio to earn the income
on a short-term security while at the same time minimizing the effect of all
or part of an increase in the market price of the long-term debt security
which the Portfolio intended to purchase in the future. A rise in the price of
the long-term debt security prior to its purchase either would be offset by an
increase in the value of the futures contract purchased by the Portfolio or
avoided by taking delivery of the debt securities under the futures contract.
A Portfolio would sell an interest rate futures contract in order to
continue to receive the income from a long-term debt security, while
endeavoring to avoid part or all of the decline in market value of that
security which would accompany an increase in interest rates. If interest
rates did rise, a decline in the value of the debt security held by the
Portfolio would be substantially offset by the ability of the Portfolio to
repurchase at a lower
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price the interest rate futures contract previously sold. While the Portfolio
could sell the long-term debt security and invest in a short-term security,
ordinarily the Portfolio would give up income on its investment, since long-
term rates normally exceed short-term rates.
Stock Index Futures. A stock index is a method of reflecting in a single
number the market values of many different stocks or, in the case of
capitalization weighted indices that take into account both stock prices and
the number of shares outstanding, many different companies. An index
fluctuates generally with changes in the market values of the common stocks so
included. A stock index futures contract is a bilateral agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to
a specified dollar amount multiplied by the difference between the stock index
value at the close of the last trading day of the contract and the price at
which the futures contract is originally purchased or sold. No physical
delivery of the underlying stocks in the index is made.
A Portfolio may purchase and sell stock index futures contracts to hedge its
securities portfolio. A Portfolio may engage in transactions in futures
contracts only in an effort to protect it against a decline in the value of
the Portfolio's portfolio securities or an increase in the price of securities
that the Portfolio intends to acquire. For example, a Portfolio may sell stock
index futures to protect against a market decline in an attempt to offset
partially or wholly a decrease in the market value of securities that the
Portfolio intends to sell. Similarly, to protect against a market advance when
the Portfolio is not fully invested in the securities market, the Portfolio
may purchase stock index futures that may partly or entirely offset increases
in the cost of securities that the Portfolio intends to purchase.
Futures Options. Futures options possess many of the same characteristics as
options on securities. A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short position (put)
in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true.
Options on stock index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in a stock index futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period
of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
stock index futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the option on the
stock index futures contract. If an option is exercised on the last trading
day prior to the expiration date of the option, the settlement will be made
entirely in cash equal to the difference between the exercise price of the
option and the closing level of the index on which the futures contract is
based on the expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid. During
the option period, the covered call writer (seller) has given up the
opportunity to profit from a price increase in the underlying securities above
the exercise price. The writer of an option has no control over the time when
it may be required to fulfill its obligation as a writer of the option.
If a purchase or sale of a futures contract is made by a Portfolio, the
Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. Each investing Portfolio expects to earn interest income on its
initial margin deposits. A futures contract held by a Portfolio is valued
daily at the official settlement price of the exchange on which it is traded.
Each day the Portfolio pays or receives cash, called "variation margin," equal
to the daily change in value of the futures contract. This process is known as
"marking-to-market."
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Variation margin does not represent a borrowing or loan by a Portfolio but is
instead settlement between the Portfolio and the broker of the amount one
would owe the other if the futures contract expired. In computing daily net
asset value, each Portfolio will mark-to-market its open futures positions.
A Portfolio is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Portfolio.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security, and delivery month). If an offsetting purchase
price is less than the original sale price, the Portfolio realizes a capital
gain, or if it is more, the Portfolio realizes a capital loss. Conversely, if
an offsetting sale price is more than the original purchase price, the
Portfolio realizes a capital gain, or if it is less, the Portfolio realizes a
capital loss. The transaction costs must also be included in these
calculations.
Limitations. The Fund will comply with certain regulations of the Commodity
Futures Trading Commission ("CFTC") under which an investment company may
engage in futures transactions and qualify for an exclusion from being a
"commodity pool." Under these regulations, a Portfolio may only enter into a
futures contract or purchase an option thereon (1) for bona fide hedging
purposes and (2) for other purposes if, immediately thereafter, the initial
margin deposits for futures contracts held by that Portfolio plus premiums
paid by it for open futures option positions, less the amount by which any
such positions are "in-the-money," would not exceed 5% of the Portfolio's
total assets. A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise price. A put
option is "in-the-money" if the exercise price exceeds the value of the
futures contract that is the subject of the option.
When purchasing a futures contract, a Portfolio must segregate cash, U.S.
Government securities and/or other liquid securities marked-to-market daily
(including any margin) equal to the price of such contract or will "cover" its
position by holding a put option permitting the Portfolio to sell the same
futures contract with a strike price equal to or higher than the price of the
futures contract held. When writing a call option on a futures contract, the
Portfolio similarly will segregate government securities, cash and/or liquid
securities marked-to-market daily of that foreign currency, and/or, U.S.
Government securities, cash, or other liquid securities marked-to-market daily
(including any margin) equal to the value of the futures contract or will
"cover" its position by (1) owning the same futures contract at a price equal
to or lower than the strike price of the call option, or (2) owning the
commodity (financial or otherwise) underlying the futures contract, or (3)
holding a call option permitting the Portfolio to purchase the same futures
contract at a price equal to or lower than the strike price of the call option
sold by the Portfolio. When selling a futures contract or selling a put option
on a futures contract, the Portfolio is required to segregate government
securities, cash and/or liquid securities marked-to-market daily of that
foreign currency, and/or U.S. Government securities, cash, or other liquid
securities marked-to-market daily (including any margin) equal to the market
value of such contract or exercise price of such option or to "cover" its
position, when selling a futures contract, by (1) owning the commodity
(financial or otherwise) underlying the futures contract or (2) holding a call
option permitting the Portfolio to purchase the same futures contract at a
price equal to or lower than the price at which the short position was
established, and, when selling a put option on the futures contract, by (1)
selling the futures contract underlying the put option at the same or higher
price than the strike price of the put option or (2) purchasing a put option,
if the strike price of the purchased option is the same or higher than the
strike price of the put option sold by the Portfolio.
A Portfolio may not maintain open short positions in futures contracts or
call options written on futures contracts if, in the aggregate, the market
value of all such open positions exceeds the current value of its portfolio
securities, plus or minus unrealized gains and losses on the open positions,
adjusted for the historical relative volatility of the relationship between
the Portfolio and the positions. For this purpose, to the extent the Portfolio
has written call options on specific securities it owns, the value of those
securities will be deducted from the current market value of the securities
portfolio.
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The Fund reserves the right to engage in other types of futures transactions
in the future and to use futures and related options for other than hedging
purposes to the extent permitted by regulatory authorities. If other types of
options, futures contracts, or futures options are traded in the future, a
Portfolio may also use such investment techniques, provided that the Board of
Trustees determines that their use is consistent with the Portfolio's
investment objective.
Risks Associated with Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given hedge
not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the portfolio
securities being hedged and the instruments underlying the hedging vehicle in
such respects as interest rate levels, maturities, conditions affecting
particular industries, and creditworthiness of issuers. A decision as to
whether, when, and how to hedge involves the exercise of skill and judgment
and even a well-conceived hedge may be unsuccessful to some degree because of
market behavior or unexpected interest rate trends.
The price of futures contracts may not correlate perfectly with movement in
the underlying security or stock index, due to certain market distortions.
This might result from decisions by a significant number of market
participants holding stock index futures positions to close out their futures
contracts through offsetting transactions rather than to make additional
margin deposits. Also, increased participation by speculators in the futures
market may cause temporary price distortions. These factors may increase the
difficulty of effecting a fully successful hedging transaction, particularly
over a short time frame. With respect to a stock index futures contract, the
price of stock index futures might increase, reflecting a general advance in
the market price of the index's component securities, while some or all of the
portfolio securities might decline. If a Portfolio had hedged its portfolio
against a possible decline in the market with a position in futures contracts
on an index, it might experience a loss on its futures position until it could
be closed out, while not experiencing an increase in the value of its
portfolio securities. If a hedging transaction is not successful, the
Portfolio might experience losses which it would not have incurred if it had
not established futures positions. Similar risk considerations apply to the
use of interest rate and other futures contracts.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
Foreign markets may offer advantages such as trading in indices that are not
currently traded in the United States. Foreign markets, however, may have
greater risk potential than domestic markets. Unlike trading on domestic
commodity exchanges, trading on foreign commodity exchanges is not regulated
by the CFTC and may be subject to greater risk than trading on domestic
exchanges. For example, some foreign exchanges are principal markets so that
no common clearing facility exists and a trader may look only to the broker
for performance of the contract. Trading in foreign futures or foreign options
contracts may not be afforded certain of the protective measures provided by
the Commodity Exchange Act, the CFTC's regulations, and the rules of the
National Futures Association and any domestic exchange, including the right to
use reparations proceedings before the CFTC and arbitration proceedings
provided by the National Futures Association or any domestic futures exchange.
Amounts received for foreign futures or foreign options transactions may not
be provided the same
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protection as funds received in respect of transactions on United States
futures exchanges. In addition, any profits that the Portfolio might realize
in trading could be eliminated by adverse changes in the exchange rate of the
currency in which the transaction is denominated, or the Portfolio could incur
losses as a result of changes in the exchange rate. Transactions on foreign
exchanges may include both commodities that are traded on domestic exchanges
or boards of trade and those that are not.
There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures or a futures option position, and that
Portfolio would remain obligated to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
Foreign Currency Futures and Options Thereon
Foreign Currency Futures are contracts for the purchase or sale for future
delivery of foreign currencies ("foreign currency futures") which may also be
engaged in for cross-hedging purposes. Cross-hedging involves the sale of a
futures contract on one foreign currency to hedge against changes in exchange
rates for a different ("proxy") currency if there is an established historical
pattern of correlation between the two currencies. These investment techniques
will be used only to hedge against anticipated future changes in exchange
rates which otherwise might adversely affect the value of the Portfolio's
securities or adversely affect the prices of securities that the Portfolio has
purchased or intends to purchase at a later date. The successful use of
foreign currency futures will usually depend on the Portfolio Manager's
ability to forecast currency exchange rate movements correctly. Should
exchange rates move in an unexpected manner, the Portfolio may not achieve the
anticipated benefits of foreign currency futures or may realize losses.
Swap Agreements and Options on Swap Agreements
A Portfolio's current obligations (or rights) under a swap agreement will
generally be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). A Portfolio's current obligations under a
swap agreement will be accrued daily (offset against any amounts owing to the
Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by segregated cash, U.S. Government securities, and/or liquid
securities marked-to-market daily, to avoid any potential leveraging of a
Portfolio. Swap agreements may include: (1) "currency exchange rate", which
involve the exchange by a Portfolio with another party of their respective
rights to make or receive payments is specified currencies; (2) "interest
rate", which involve the exchange by a Portfolio with another party of their
respective commitments to pay or receive interest; and (3) "interest rate
index", which involve the exchange by a Portfolio with another party of the
respective amounts payable with respect to a national principal amount at
interest rates equal to two specified indices; and other interest rate swap
arrangements such as: (1) "caps," under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
exceed a specified rate, or "cap"; (2) "floors," under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a certain level, or "floor"; and (3) "collars,"
under which one party sells a cap and purchases a floor or vice-versa in an
attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.
Generally, the swap agreement transactions in which a Portfolio will engage
are not regulated as futures or commodity option transactions under the
Commodity Exchange Act or by the Commodity Futures Trading Commission.
Risks of Swap Agreements. Whether a Portfolio's use of swap agreements will
be successful in furthering its investment objective will depend on a
Portfolio Manager's ability to predict correctly whether certain types of
investments are likely to produce greater returns than other investments.
Because they are two-party contracts and because they may have terms of
greater than seven days, swap agreements may be considered to be illiquid
investments. It may not be possible to enter into a reverse swap or close out
a swap position prior to its original
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maturity and, therefore, a Portfolio may bear the risk of such position until
its maturity. Moreover, a Portfolio bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. A Portfolio will enter into swap
agreements only with counterparties that meet certain standards for
creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of a Portfolio's repurchase agreement
guidelines unless otherwise specified in the investment policies of the
Portfolio). Certain tax considerations may limit a Portfolio's ability to use
swap agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect a Portfolio's ability
to terminate existing swap agreements or to realize amounts to be received
under such agreements. See the section "Taxation" for more information.
Structured Notes
The value of the principal of and/or interest on such securities is
determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices, or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference. The
terms of the structured notes may provide that in certain circumstances no
principal is due at maturity and, therefore, result in the loss of a
Portfolio's investment. Structured notes may be positively or negatively
indexed, so that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity. In
addition, changes in the interest rates or the value of the security at
maturity may be a multiple of changes in the value of the Reference.
Consequently, structured securities may entail a greater degree of market risk
than other types of fixed-income securities. Structured notes may also be more
volatile, less liquid and more difficult to accurately price than less complex
securities.
Warrants and Rights
Warrants or rights may be acquired as part of a unit or attached to
securities at the time of purchase without limitation. Warrants may be
considered speculative in that they have no voting rights, pay no dividends,
and have no rights with respect to the assets of the corporation issuing them.
Warrants basically are options to purchase equity securities at a specific
price valid for a specific period of time. They do not represent ownership of
the securities, but only the right to buy them. Warrants differ from call
options in that warrants are issued by the issuer of the security which may be
purchased on their exercise, whereas call options may be written or issued by
anyone. The prices of warrants do not necessarily move parallel to the prices
of the underlying securities.
Duration
Duration is a measure of average life of a bond on a present value basis,
which was developed to incorporate a bond's yield, coupons, final maturity and
call features into one measure. Duration is one of the fundamental tools that
may be used by the Adviser or Portfolio Manager in fixed income security
selection. In this discussion, the term "bond" is generally used to connote
any type of debt instrument.
Most notes and bonds have provided interest ("coupon") payments in addition
to a final ("par") payment at maturity. Some obligations also feature call
provisions. Depending on the relative magnitude of these payments, debt
obligations may respond differently to changes in the level and structure of
interest rates. Traditionally, a debt security's "term to maturity" has been
used as a proxy for the sensitivity of the security's price to changes in
interest rates (which is the "interest rate risk" or "volatility" of the
security). However, "term to maturity" measures only the time until a debt
security provides its final payment, taking no account of the pattern of the
security's payments prior to maturity.
Duration is a measure of the average life of a fixed-income security on a
present value basis. Duration takes the length of the time intervals between
the present time and the time that the interest and principal payments
43
<PAGE>
are scheduled or, in the case of a callable bond, expected to be received, and
weights them by the present values of the cash to be received at each future
point in time. For any fixed-income security with interest payments occurring
prior to the payment of principal, duration is always less than maturity. In
general, all other things being the same, the lower the stated or coupon rate
of interest of a fixed-income security, the longer the duration of the
security; conversely, the higher the stated or coupon rate of interest of a
fixed-income security, the shorter the duration of the security.
Although frequently used, the "term of maturity" of a bond is not a useful
measure of the longevity of a bond's cash flow because it refers only to the
time remaining to the repayment of principal or corpus and disregards earlier
coupon payments. Thus, for example, three bonds with the same maturity may not
have the same investment characteristics (such as risk or repayment time). One
bond may have large coupon payments early in its life, whereas another may
have payments distributed evenly throughout its life. Some bonds (such as zero
coupon bonds) make no coupon payments until maturity. Clearly, an investor
contemplating investing in these bonds should consider not only the final
payment or sum of payments on the bond, but also the timing and magnitude of
payments in order to make an accurate assessment of each bond. Maturity, or
the term to maturity, does not provide a prospective investor with a clear
understanding of the time profile of cash flows over the life of a bond.
Another way of measuring the longevity of a bond's cash flow is to compute a
simple average time to payment, where each year is weighted by the number of
dollars the bond pays that year. This concept is termed the "dollar-weighted
mean waiting time," indicating that it is a measure of the average time to
payment of a bond's cash flow. The critical shortcoming of this approach is
that it assigns equal weight to each dollar paid over the life of a bond,
regardless of when the dollar is paid. Since the present value of a dollar
decreases with the amount of time which must pass before it is paid, a better
method might be to weight each year by the present value of the dollars paid
that year. This calculation puts the weights on a comparable basis and creates
a definition of longevity which is known as duration.
A bond's duration depends upon three variables: (i) the maturity of the
bond; (ii) the coupon payments attached to the bond; and (iii) the bond's
yield to maturity. Yield to maturity, or investment return as used here,
represents the approximate return an investor purchasing a bond may expect if
he holds that bond to maturity. In essence, yield to maturity is the rate of
interest which, if applied to the purchase price of a bond, would be capable
of exactly reproducing the entire time schedule of future interest and
principal payments.
Increasing the size of the coupon payments on a bond, while leaving the
maturity and yield unchanged, will reduce the duration of the bond. This
follows from the fact that because bonds with higher coupon payments pay
relatively more of their cash flows sooner, they have shorter durations.
Increasing the yield to maturity on a bond (e.g., by reducing its purchase
price), while leaving the terms to maturity and coupon payments unchanged,
also reduces the duration of the bond. Because a higher yield leads to lower
present values for more distant payments relative to earlier payments, and, to
relatively lower weights attached to the years remaining to those payments,
the duration of the bond is reduced.
There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or
more years; however, their interest rate exposure corresponds to the frequency
of the coupon reset. Another example where the interest rate exposure is not
properly captured by duration is mortgage pass-throughs. The stated final
maturity is generally 30 years but current prepayment rates are more critical
in determining the securities' interest rate exposure. In these and other
similar situations, the Adviser or Portfolio Manager to a Portfolio will use
more sophisticated analytical techniques which incorporate the economic life
of a security into the determination of its interest rate exposure.
Futures, options, and options on futures have durations which, in general,
are closely related to the duration of the securities which underlie them.
Holding long futures or call option positions will lengthen the portfolio
duration if interest rates go down and bond prices go up by approximately the
same amount that holding an equivalent amount of the underlying securities
would.
44
<PAGE>
Short futures or put option positions have durations roughly equal to the
negative duration of the securities that underlie those positions, and have
the effect of reducing portfolio duration if interest rates go up and bond
prices go down by approximately the same amount that selling an equivalent
amount of the underlying securities would.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
Each Portfolio's investment goal as set forth under "About the Portfolios,"
in the Prospectus, and the investment restrictions as set forth below, are
fundamental policies of each Portfolio and may not be changed with respect to
any Portfolio without the approval of a majority of the outstanding voting
shares of that Portfolio. The vote of a majority of the outstanding voting
securities of a Portfolio means the vote, at an annual or special meeting of
(a) 67% or more of the voting securities present at such meeting, if the
holders of more than 50% of the outstanding voting securities of such
Portfolio are present or represented by proxy; or (b) more than 50% of the
outstanding voting securities of such Portfolio, whichever is the less. Under
these restrictions, a Portfolio may not:
(i) except for the REIT Portfolio, invest in a security if, as a result of
such investment, more than 25% of its total assets (taken at market value at
the time of such investment) would be invested in the securities of issuers in
any particular industry, except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (or repurchase agreements with respect thereto). This
restriction does not apply to the REIT Portfolio, which will normally invest
more than 25% of its total assets in securities of issuers of real estate
investment trusts and in industries related to real estate.
(ii) with respect to 75% of its total assets (or, in the case of the REIT
Portfolio, with respect to 50% of its assets), invest in a security if, as a
result of such investment, more than 5% of its total assets (taken at market
value at the time of such investment) would be invested in the securities of
any one issuer, except that this restriction does not apply to securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
(iii) invest in a security if, as a result of such investment, it would hold
more than 10% (taken at the time of such investment) of the outstanding voting
securities of any one issuer;
(iv) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein);
(v) borrow money or pledge, mortgage or hypothecate its assets, except that
a Portfolio may: (a) borrow from banks but only if immediately after each
borrowing and continuing thereafter there is asset coverage of 300%; and (b)
enter into reverse repurchase agreements and transactions in options, futures,
and options on futures as described in the Prospectus and in the Statement of
Additional Information (the deposit of assets in escrow in connection with the
writing of covered put and call options and the purchase of securities on a
"when-issued" or delayed delivery basis and collateral arrangements with
respect to initial or variation margin deposits for futures contracts will not
be deemed to be pledges of a Portfolio's assets);
(vi) lend any funds or other assets, except that a Portfolio may, consistent
with its investment objective and policies: (a) invest in debt obligations
including bonds, debentures or other debt securities, bankers' acceptances,
and commercial paper, even though the purchase of such obligations may be
deemed to be the making of loans; (b) enter into repurchase agreements and
reverse repurchase agreements; and (c) lend its portfolio securities to the
extent permitted under applicable law; and
(vii) act as an underwriter of securities of other issuers, except, when in
connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under the federal securities laws.
45
<PAGE>
Nonfundamental Investment Restrictions
Each Portfolio is also subject to the following restrictions and policies
(which are not fundamental and may therefore be changed without shareholder
approval) relating to the investment of its assets and activities. Unless
otherwise indicated, a Portfolio may not:
(i) invest for the purpose of exercising control or management;
(ii) sell property short, sell securities short, except the Mid-Cap Value
Portfolio, sell short against the box, except the Aggressive Equity, Equity,
I-Net Tollkeeper and Mid-Cap Value Portfolios;
(iii) purchase warrants if immediately after and as a result of such
purchase more than 10% of the market value of the total assets of the
Portfolio would be invested in such warrants, except for the Diversified
Research, I-Net Tollkeeper, and International Large-Cap Portfolios;
(iv) except the Growth LT, I-Net Tollkeeper, and Mid-Cap Value Portfolios,
purchase securities on margin (except for use of short-term credit necessary
for clearance of purchases and sales of portfolio securities) but it may make
margin deposits in connection with transactions in options, futures, and
options on futures;
(v) except the Growth LT and Mid-Cap Value Portfolios, maintain a short
position, or purchase, write, or sell puts, calls, straddles, spreads, or
combinations thereof, except as set forth in the Prospectus and in the SAI for
transactions in options, futures, and options on futures;
(vi) invest in securities that are illiquid, or in repurchase agreements
maturing in more than seven days, if as a result of such investment, more than
15% of the net assets of the Portfolio (taken at market value at the time of
such investment) would be invested in such securities, and with respect to the
Money Market Portfolio, more than 10% of the total assets of the Portfolio
(taken at market value at the time of such investment) would be invested in
such securities; and
(vii) purchase or sell commodities or commodities contracts, except that
subject to restrictions described in the Prospectus and in the SAI, (a) each
Portfolio other than the Money Market and Small-Cap Equity Portfolios may
engage in futures contracts and options on futures contracts; and (b) all
Portfolios may enter into foreign forward currency contracts.
Unless otherwise indicated, as in the restriction for borrowing or
hypothecating assets of a Portfolio, for example, all percentage limitations
listed above apply to each Portfolio only at the time into which a transaction
is entered. Accordingly, if a percentage restriction is adhered to at the time
of investment, a later increase or decrease in the percentage which results
from a relative change in values or from a change in a Portfolio's net assets
will not be considered a violation. For purposes of fundamental restriction
(v) and nonfundamental restriction (vii) as set forth above, an option on a
foreign currency shall not be considered a commodity or commodity contract.
For purposes of nonfundamental restriction (v), a short sale "against the box"
shall not be considered a short position.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund was organized as a Massachusetts business trust on May 4, 1987, and
currently consists of twenty-one separate Portfolios. The assets of each
Portfolio are segregated, and your interest is limited to the Portfolio to
which proceeds from your Variable Contract's Accumulated Value is allocated.
The business and affairs of the Fund are managed under the direction of the
Board of Trustees under the Fund's Agreement and Declaration of Trust.
46
<PAGE>
Trustees and Officers
The Trustees and Executive Officers of the Fund, their business address, and
principal occupations during the past five years are:
<TABLE>
<CAPTION>
Business Affiliates and
Name and Address Position with the Fund Principal Occupations
---------------- ---------------------- -----------------------
<C> <C> <S>
Thomas C. Sutton* Chairman of the Chairman of the Board,
700 Newport Center Drive Board and Trustee Director and Chief Executive
Newport Beach, CA 92660 Officer of Pacific Life,
Age 57 Pacific Mutual Holding
Company and Pacific
LifeCorp; and similar
positions with other
subsidiaries and affiliates
of Pacific Life; Director of
Newhall Land & Farming;
Director of The Irvine
Company; Director of Edison
International; Management
Board Member of PIMCO
Advisors L.P.; Former Equity
Board Member of PIMCO
Advisors L.P.
Lucie H. Moore Trustee Former Partner with Gibson,
1825 Port Manleigh Place Dunn & Crutcher.
Newport Beach, CA 92660
Age 43
Richard L. Nelson Trustee Business Consultant; retired
8 Cherry Hills Lane Partner with Ernst & Young
Newport Beach, CA 92660 LLP; Director of Wynn's
Age 70 International, Inc.
Lyman W. Porter Trustee Professor Emeritus of
2639 Bamboo Street Management in the Graduate
Newport Beach, CA 92660 School of Management at the
Age 70 University of California,
Irvine. Former Member of the
Academic Advisory Board of
the Czechoslovak Management
Center and of the Board of
Trustees of the American
University of Armenia.
Alan Richards Trustee Retired Chairman of E. F.
7381 Elegans Place Hutton Insurance Group;
Carlsbad, CA 92009 Former Director of E. F.
Age 70 Hutton and Company, Inc.;
Chairman of IBIS Capital,
LLC; Director of Inspired
Arts, Inc.; Former Director
of Western National
Corporation.
Glenn S. Schafer President President and Director of
700 Newport Center Drive Pacific Life, Pacific Mutual
Newport Beach, CA 92660 Holding Company and Pacific
Age 50 LifeCorp and similar
positions with other
subsidiaries and affiliates
of Pacific Life; Management
Board Member of PIMCO
Advisors L.P.; Former Equity
Board Member of PIMCO
Advisors L.P.
Brian D. Klemens Vice President Vice President and Treasurer
700 Newport Center Drive and Treasurer (12/98 to present); and
Newport Beach, CA 92660 Assistant Controller (4/94
Age 43 to 12/98) of Pacific Life.
Vice President and Treasurer
of other subsidiaries and
affiliates of Pacific Life.
Diane N. Ledger Vice President Vice President, Variable
700 Newport Center Drive and Assistant Regulatory Compliance,
Newport Beach, CA 92660 Secretary Corporate Law of Pacific
Age 60 Life.
Sharon A. Cheever Vice President Vice President and
700 Newport Center Drive and General Investment Counsel of
Newport Beach, CA 92660 Counsel Pacific Life.
Age 44
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Business Affiliates and
Name and Address Position with the Fund Principal Occupations
---------------- ---------------------- -----------------------
<C> <C> <S>
Audrey L. Milfs Secretary Vice President, Director and
700 Newport Center Drive Corporate Secretary of
Newport Beach, CA 92660 Pacific Life and similar
Age 54 positions with other
subsidiaries of Pacific
Life.
</TABLE>
- --------
* Mr. Sutton is an "interested person" of the Fund (as that term is defined
in the Investment Company Act) because of his position with Pacific Life as
shown above.
Trustees other than those affiliated with Pacific Life Insurance Company
("Pacific Life" or the "Adviser") or a Portfolio Manager, currently receive an
annual fee of $15,000 and $1,500 for each Board of Trustees meeting attended,
including each Audit, Policy, or Nominating Committee meeting attended, plus
reimbursement of related expenses. In addition, the Chairman of the Fund's
Audit, Policy and Nominating Committees each receive an additional annual fee
of $2,000. The following table summarizes the aggregate compensation paid by
the Fund to each Trustee who was not affiliated with Pacific Life or a
Portfolio Manager in 1999. The table also shows total compensation paid to
these Trustees in 1999 by the Fund and PIMCO Funds: Multi-Manager Series, an
investment company managed by an affiliate of Pacific Life for which
Messrs. Nelson, Porter, and Richards (but not Mr. Sutton or Ms. Moore) also
serve as trustees (collectively, "Fund Complex").
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation
Accrued Annual from Fund
Aggregate as Part of Benefits Complex
Compensation Fund Upon Paid to
Name of Trustee from Fund Expenses Retirement Trustees
- --------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Richard L. Nelson............... $40,000 0 0 $105,500
Lyman W. Porter................. $40,000 0 0 $103,500
Alan Richards................... $40,000 0 0 $108,500
Lucie H. Moore.................. $36,500 0 0 N/A
</TABLE>
None of the Trustees or Officers directly own shares of the Fund. As of
April 15, 2000, the Trustees and Officers as a group owned Variable Contracts
that entitled them to give voting instructions with respect to less than 1% of
the outstanding shares of the Fund.
Investment Adviser
Pacific Life serves as Investment Adviser to the Fund pursuant to an
Investment Advisory Agreement ("Advisory Contract") between Pacific Life and
the Fund.
Pacific Life is a life insurance company that is domiciled in California.
Along with subsidiaries and affiliates, Pacific Life's operations include life
insurance, annuities, pension and institutional products, group employee
benefits, broker-dealer operations and investment advisory services. As of the
end of 1999, Pacific Life had $101 billion of individual life insurance in
force and total admitted assets of approximately $48 billion. Pacific Life is
ranked the 16th largest life insurance carrier in the U.S. based on admitted
assets as of December 31, 1999. The Pacific Life family of companies has total
assets and funds under management of $315 billion as of December 31, 1999.
Pacific Life is authorized to conduct life insurance and annuity business in
the District of Columbia and all states except New York. Its principal offices
are located at 700 Newport Center Drive, Newport Beach, California 92660.
Pacific Life was originally organized on January 2, 1868, under the name
"Pacific Mutual Life Insurance Company of California" and reincorporated as
"Pacific Mutual Life Insurance Company" on July 22, 1936. On September 1,
1997, Pacific Life converted from a mutual life insurance company to a stock
life insurance company ultimately controlled by a mutual holding company.
Pacific Life is a subsidiary of Pacific LifeCorp, a holding company which, in
turn, is a subsidiary of Pacific Mutual Holding Company, a mutual holding
company. Under their respective charters, Pacific Mutual Holding Company must
always hold at least 51% of the
48
<PAGE>
outstanding voting stock of Pacific LifeCorp, and Pacific LifeCorp must always
own 100% of the voting stock of Pacific Life. Owners of Pacific Life's annuity
contracts and life insurance policies have certain membership interests in
Pacific Mutual Holding Company, consisting principally of the right to vote on
the election of the Board of Directors of the mutual holding company and on
other matters and certain rights upon liquidation or dissolutions of the
mutual holding company.
Pacific Life is responsible for administering the affairs of and supervising
the investment program for the Fund. Pacific Life also furnishes to the Board
of Trustees, which has overall responsibility for the business and affairs of
the Fund, periodic reports on the investment performance of each Portfolio.
Under the terms of the Advisory Contract, Pacific Life is obligated to
manage the Fund's Portfolios in accordance with applicable laws and
regulations.
The Advisory Contract will continue in effect until December 31, 2000, and
from year to year thereafter, provided such continuance is approved annually
by (i) the holders of a majority of the outstanding voting securities of the
Fund or by the Board of Trustees, and (ii) a majority of the Trustees who are
not parties to such Advisory Contract or "interested persons", as defined in
the Investment Company Act of 1940 (the "1940 Act"), of any such party. The
Advisory Contract was originally approved by the Board of Trustees, including
a majority of the Trustees who are not parties to the Advisory Contract, or
interested persons of such parties, at its meeting held on July 21, 1987, and
by the shareholders of the Fund at a Meeting of Shareholders held on
October 28, 1988. An Addendum to the Advisory Contract for the Equity Index
Portfolio was approved by the Board of Trustees, including a majority of the
Trustees who are not parties to the Contract, or interested persons of such
parties, at a meeting held on October 28, 1988. The Advisory Contract was also
approved by the shareholders of the Equity Index Portfolio of the Fund at a
Meeting of Shareholders of the Equity Index Portfolio held on April 21, 1992.
An Addendum to the Advisory Contract which increased the advisory fee schedule
with respect to the High Yield Bond, Managed Bond, Government Securities,
Small-Cap Equity, Equity Income, Multi-Strategy, and International Value
Portfolios, and which included the Growth LT Portfolio as a Portfolio to which
the Adviser will perform services under the Advisory Contract, was approved by
the Board of Trustees, including a majority of the Trustees who are not
parties to the Contract, or interested persons of such parties, at a meeting
held on September 29, 1993, and was approved by shareholders of the High Yield
Bond, Managed Bond, Government Securities, Small-Cap Equity, Equity Income,
Multi-Strategy, and International Value Portfolios at a Special Meeting of
Shareholders on December 13, 1993. An Addendum to the Advisory Contract for
the Equity and Bond and Income Portfolios was approved by the Board of
Trustees, including a majority of the Trustees who are not parties to the
Advisory Contract or interested persons of such parties, at a meeting held on
August 12, 1994, and by the sole shareholder of those Portfolios on September
6, 1994. An Addendum to the Advisory Contract for the Aggressive Equity and
Emerging Markets Portfolios was approved by the Board of Trustees, including a
majority of the Trustees who are not parties to the Advisory Contract or
interested persons of such parties, at a meeting held on November 17, 1995,
and by the sole shareholder of those Portfolios on January 30, 1996. An
Addendum to the Advisory Contract for the Large-Cap Value, Mid-Cap Value,
Small-Cap Index, and REIT Portfolios was approved by the Board of Trustees,
including a majority of the Trustees who are not parties to the Advisory
Contract or interested persons of such parties, at a meeting held on August 6,
1998, and by the sole shareholder of those Portfolios on December 21, 1998. An
Addendum to the Advisory Contract for the Diversified Research and
International Large-Cap Portfolios was approved by the Board of Trustees,
including a majority of the Trustees who are not parties to the Advisory
Contract or interested persons of such parties, at a meeting held on August
27, 1999, and by the sole shareholder of those Portfolios on December 14,
1999. An Addendum to the Advisory Contract for the I-Net Tollkeeper Portfolio
was approved by the Board of Trustees, including a majority of the Trustees
who are not parties to the Advisory Contract or interested persons of such
parties, at a meeting held on January 28, 2000 and by the sole shareholder of
the Portfolio on April 10, 2000. The Advisory Contract may be terminated
without penalty by vote of the Trustees or the shareholders of the Fund, or by
the Adviser, on 60 days' written notice by either party to the Advisory
Contract and will terminate automatically if assigned.
The Fund pays the Adviser, for its services under the Agreement, a fee based
on an annual percentage of the average daily net assets of each Portfolio. For
the Money Market Portfolio, the Fund pays .40% of the first
49
<PAGE>
$250 million of the average daily net assets of the Portfolio, .35% of the
next $250 million of the average daily net assets of the Portfolio, and .30%
of the average daily net assets of the Portfolio in excess of $500 million.
For the High Yield Bond, Managed Bond, Government Securities, and Bond and
Income Portfolios, the Fund pays .60% of the average daily net assets of each
of the Portfolios. For the Small-Cap Equity, Equity Income, Multi-Strategy,
and Equity Portfolios, the Fund pays .65% of the average daily net assets of
each of the Portfolios. For the Aggressive Equity Portfolio, the Fund pays
.80% of the average daily net assets of the Portfolio. For the Growth LT
Portfolio, the Fund pays .75% of the average daily net assets of the
Portfolio. For the Equity Index Portfolio, the Fund pays .25% of the average
daily net assets of the Portfolio. For the Diversified Research Portfolio, the
Fund pays .90% of the average daily net assets of the Portfolio. For the
International Large-Cap Portfolio, the Fund pays 1.05% of the average daily
net assets of the Portfolio. For the Small-Cap Index Portfolio, the Fund pays
0.50% of the average daily net assets of the Portfolio. For the Large-Cap
Value, Mid-Cap Value, and International Value Portfolios, the Fund pays .85%
of the average daily net assets of each of the Portfolios. For the REIT and
Emerging Markets Portfolios, the Fund pays 1.10% of the average daily net
assets of each of the Portfolios. For the I-Net Tollkeeper Portfolio, the Fund
pays 1.50% of the average daily net assets of the Portfolio. The fee shall be
computed and accrued daily and paid monthly.
Net advisory fees paid or owed to Pacific Life for 1999 were as follows:
Aggressive Equity Portfolio--$2,428,084, Emerging Markets Portfolio--
$1,641,630, Small-Cap Equity Portfolio--$1,897,060, Bond and Income
Portfolio--$1,184,797, Equity Portfolio--$4,542,082, Multi-Strategy
Portfolio--$4,280,824, Equity Income Portfolio--$9,869,169, Growth LT
Portfolio--$15,561,994, Mid-Cap Value Portfolio--$439,097, Equity Index
Portfolio--$3,003,427, Small-Cap Index Portfolio--$259,676, REIT Portfolio--
$309,008, International Value Portfolio--$10,752,012, Government Securities
Portfolio--$1,902,459, Managed Bond Portfolio--$5,736,488, Money Market
Portfolio--$2,572,715, High Yield Bond Portfolio--$2,551,011, and Large-Cap
Value Portfolio--$729,158. The Diversified Research and International Large-
Cap Portfolios did not begin operations until January 3, 2000 and the I-Net
Tollkeeper Portfolio did not begin operations until May 1, 2000.
Net advisory fees paid or owed to Pacific Life for 1998 were as follows:
Aggressive Equity Portfolio--$1,301,554, Emerging Markets Portfolio--
$1,135,155, Small-Cap Equity Portfolio--$1,647,286, Bond and Income
Portfolio--$867,006, Equity Portfolio--$2,577,278, Multi-Strategy Portfolio--
$2,986,639, Equity Income Portfolio--$6,578,365, Growth LT Portfolio--
$6,762,035, Equity Index Portfolio--$1,888,470, International Value
Portfolio--$7,820,564, Government Securities Portfolio--$915,619, Managed Bond
Portfolio--$3,687,063, Money Market Portfolio--$1,802,788 and High Yield Bond
Portfolio--$2,126,319. The Large-Cap Value, Mid-Cap Value, Small-Cap Index and
REIT Portfolios did not begin operations until January 4, 1999. The
Diversified Research and International Large-Cap Portfolios did not begin
operations until January 3, 2000 and the I-Net Tollkeeper Portfolio did not
begin operations until May 1, 2000.
Net advisory fees paid or owed to Pacific Life for 1997 were as follows:
Aggressive Equity Portfolio--$684,226, Emerging Markets Portfolio--$868,075,
Small-Cap Equity Portfolio--$1,355,092, Bond and Income Portfolio--$568,647,
Equity Portfolio--$1,818,664, Multi-Strategy Portfolio--$1,866,445, Equity
Income Portfolio--$4,062,587, Growth LT Portfolio--$4,193,552, Equity Index
Portfolio--$1,080,856, International Value Portfolio--$5,353,459, Government
Securities Portfolio--$645,820, Managed Bond Portfolio--$2,055,929, Money
Market Portfolio--$1,521,271 and High Yield Bond Portfolio--$1,466,135. The
Large-Cap Value, Mid-Cap Value, Small-Cap Index and REIT Portfolios did not
begin operations until January 4, 1999. The Diversified Research and
International Large-Cap Portfolios did not begin operations until January 3,
2000 and the I-Net Tollkeeper Portfolio did not begin operations until May 1,
2000.
Pacific Life has agreed, until at least December 31, 2001, to waive its fees
or otherwise reimburse each Portfolio for its operating expenses to the extent
that such expenses, exclusive of advisory fees, additional custodial charges
associated with holding foreign securities, foreign taxes on dividends,
interest, or gains, and extraordinary expenses, exceed 0.25% of the
Portfolio's average daily net assets. Pacific Life began this expense
reimbursement policy in April 1989. There can be no assurance that this policy
will be continued beyond December 31, 2001.
50
<PAGE>
Other Expenses of the Fund
The Fund bears all costs of its operations. These costs may include expenses
for custody, audit fees, fees and expenses of the independent trustees,
organizational expenses and other expenses of its operations, including the
cost of support services, and may, if applicable, include extraordinary
expenses such as expenses for special consultants or legal expenses.
The Fund is also responsible for bearing the expense of various matters,
including, among other things, the expense of registering and qualifying the
Fund on state and federal levels, legal and accounting services, maintaining
the Fund's legal existence, shareholders' meetings and expenses associated
with preparing, printing and distributing reports, proxies and prospectuses to
shareholders.
The Fund and Pacific Life entered into an Agreement for Support Services
effective October 1, 1995, pursuant to which Pacific Life provides support
services such as those described above. Under the terms of the Agreement for
Support Services, it is not intended that Pacific Life will profit from these
services to the Fund.
Fund expenses directly attributable to a Portfolio are charged to that
Portfolio; other expenses are allocated proportionately among all the
Portfolios in relation to the net assets of each Portfolio.
The Fund paid Pacific Life $264,738 for its services under the Agreement for
Support Services during 1999, $231,976 during 1998, and $165,000 during 1997,
representing 0.003%, 0.003%, and 0.004%, respectively, of the Fund's average
daily net assets and anticipates that fees to be paid for 2000 under said
Agreement will be approximately 0.002% of the Fund's average daily net assets.
Portfolio Management Agreements
Pacific Life directly manages both the Money Market and the High Yield Bond
Portfolios. For the other nineteen Portfolios Pacific Life employs other
investment advisory firms as Portfolio Manager, subject to Portfolio
Management Agreements, the terms of which are discussed below.
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Alliance Capital Management L.P. ("Alliance Capital"), 1345 Avenue of the
Americas, New York, NY 10105, which became effective May 1, 1998, Alliance
Capital is the Portfolio Manager and provides investment advisory services to
the Aggressive Equity Portfolio.
For the services provided, Pacific Life pays a monthly fee to Alliance
Capital based on an annual percentage of the average daily net assets of the
Aggressive Equity Portfolio according to the following schedule:
Aggressive Equity Portfolio
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- ---------------------
<S> <C>
.60% On first $100 million
.45% On next $400 million
.40% On excess
</TABLE>
51
<PAGE>
From April 1, 1996 through April 30, 1998, pursuant to a Portfolio
Management Agreement between the Fund, the Adviser and Columbus Circle
Investors ("Columbus Circle"), Metro Center, One Station Place, 8th Floor,
Stamford, Connecticut 06902, Columbus Circle served as the Portfolio Manager
and provided investment advisory services to the Aggressive Equity Portfolio.
For the services provided for the year 1997 and from January 1, 1998 through
April 30, 1998, Pacific Life paid a monthly fee to Columbus Circle based on an
annual percentage of the average daily net assets of the Aggressive Equity
Portfolio according to the following schedule:
Aggressive Equity Portfolio
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- ---------------------
<S> <C>
.55% On first $100 million
.50% On next $150 million
.45% On next $250 million
.40% On excess
</TABLE>
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser
and Alliance Capital as described above, which became effective January 1,
2000, Alliance Capital is the Portfolio Manager and provides investment
advisory services to the Emerging Markets Portfolio. For the services
provided, Pacific Life pays a monthly fee to Alliance Capital based on an
annual percentage of the average daily net assets of the Emerging Markets
Portfolio according to the following schedule:
Emerging Markets Portfolio
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- --------------------
<S> <C>
.85% On first $50 million
.75% On next $50 million
.70% On next $50 million
.65% On next $50 million
.60% On excess
</TABLE>
From April 1, 1996 to December 31, 1999, pursuant to a Portfolio Management
Agreement between the Fund, the Adviser and Blairlogie Capital Management
("Blairlogie"), 4th Floor, 125 Princes Street, Edinburgh EH2 4AD, Scotland,
Blairlogie served as the Portfolio Manager and provided investment advisory
services to the Emerging Markets Portfolio. For the services provided for the
years 1997, 1998 and 1999, Pacific Life paid a monthly fee to Blairlogie based
on an annual percentage of the average daily net assets of the Emerging
Markets Portfolio according to the following schedule:
Emerging Markets Portfolio
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- --------------------
<S> <C>
.85% On first $50 million
.75% On next $50 million
.70% On next $50 million
.65% On next $50 million
.60% On excess
</TABLE>
Alliance Capital Management Corporation ("ACMC") is the general partner of
Alliance Capital and a wholly owned subsidiary of The Equitable Life Assurance
Society of the United States ("Equitable"). As of March 1, 2000, Equitable and
its subsidiaries were the beneficial owners of an approximately 55.7%
partnership interest in Alliance Capital, and Alliance Capital Management
Holding L.P. ("Alliance Holding") owned an approximately 41.87% partnership
interest in Alliance Capital. Equity interests in Alliance Holding are traded
on the New York Stock Exchange in the form of units. Approximately 98% of
Alliance Holding's units are
52
<PAGE>
owned by the public and management or employees of Alliance Capital and
approximately 2% are owned by Equitable. The general partner of Alliance
Holding is ACMC. Equitable, a New York life insurance company, is a wholly
owned subsidiary of AXA Financial, Inc. ("AXA Financial"), a Delaware
corporation whose shares are traded on the New York Stock Exchange. As of
March 1, 2000, AXA, a French insurance holding company, owned approximately
60.3% of the issued and outstanding shares of the common stock of AXA
Financial.
Alliance Capital currently serves as investment adviser to other mutual
funds as well as individual, corporate, retirement, and charitable accounts.
As of December 31, 1999, Alliance Capital was retained as an investment
manager of employee benefit fund assets for 31 of the top 100 of America's
Fortune 500 companies.
Net fees paid or owed by Pacific Life to Alliance Capital for the Aggressive
Equity Portfolio for 1999 were $1,518,840, and from May 1, 1998 through
December 31, 1998 were $622,812. Net fees paid or owed by Pacific Life to
Columbus Circle from January 1, 1998 through April 30, 1998 were $251,083, and
for 1997 were $468,441.
Net fees paid or owed by Pacific Life to Blairlogie for the Emerging Markets
Portfolio for 1999 were $1,141,570, for 1998 were $821,133, and for 1997 were
$642,976.
Pursuant to Portfolio Management Agreements between the Fund, the Adviser,
and Capital Guardian Trust Company ("Capital Guardian"), a wholly-owned
subsidiary of Capital Group International, Inc., which itself is wholly-owned
by The Capital Group Companies, Inc. all of which are located at 333 South
Hope Street, Los Angeles, California 90071, Capital Guardian is the Portfolio
Manager and provides investment advisory services to the Diversified Research,
Small-Cap Equity, and International Large-Cap Portfolios. For the services
provided, Pacific Life pays a monthly fee to Capital Guardian based on an
annual percentage of the average daily net assets of the Diversified Research,
Small-Cap Equity, and International Large-Cap Portfolios according to the
following schedules:
Diversified Research Portfolio
<TABLE>
<CAPTION>
Rate (%) Break-Point (assets)
-------- ---------------------
<S> <C>
.50% On first $150 million
.45% On next $150 million
.35% On next $200 million
.30% On next $500 million
.275% On next $1 billion
.25% On excess
Small-Cap Equity Portfolio
<CAPTION>
Rate (%) Break Point (assets)
-------- ---------------------
<S> <C>
.50% On first $30 million
.40% On next $30 million
.30% On excess
International Large-Cap Portfolio
<CAPTION>
Rate (%) Break-Point (assets)
-------- ---------------------
<S> <C>
.65% On first $150 million
.55% On next $150 million
.45% On next $200 million
.40% On next $500 million
.375% On next $1 billion
.35% On excess
</TABLE>
53
<PAGE>
Capital Guardian is a California state chartered trust company organized in
1968 which provides fiduciary and investment management services to a limited
number of large accounts such as employee benefit plans, college endowment
funds, foundations, and individuals. Accounts managed by Capital Guardian had
combined assets, as of December 31, 1999, in excess of $122 billion. Capital
Guardian's research activities are conducted by affiliated companies that have
research facilities in Los Angeles, San Francisco, New York, Washington, D.C.,
Atlanta, London, Geneva, Hong Kong, Montreal, Singapore, and Tokyo.
Net fees paid or owed by Pacific Life to Capital Guardian for the Small-Cap
Equity Portfolio for 1999 were $966,856, for 1998 were $850,462, and for 1997
were $716,070. The Diversified Research and International Large-Cap Portfolios
did not begin operations until January 3, 2000.
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Goldman Sachs Asset Management ("Goldman Sachs"), 32 Old Slip, New York,
New York 10005, which became effective May 1, 1998, Goldman Sachs is the
Portfolio Manager and provides investment advisory services to the Bond and
Income and Equity Portfolios.
For the services provided, Pacific Life pays a monthly fee to Goldman Sachs
based on an annual percentage of the combined average daily net assets of the
Bond and Income and Equity Portfolios according to the following schedule:
Bond and Income and Equity Portfolios
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- ---------------------
<S> <C>
.35% On first $100 million
.30% On next $100 million
.25% On next $800 million
.20% On excess
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Goldman Sachs, as described above, which became effective May 1, 2000,
Goldman Sachs is the Portfolio Manager and provides investment advisory
services to the I-Net Tollkeeper PortfolioSM (I-Net Tollkeeper Portfolio is a
service mark of Goldman, Sachs & Co.).
For the services provided, Pacific Life pays a monthly fee to Goldman Sachs
based on an annual percentage of the average daily net assets of the I-Net
Tollkeeper Portfolio.
I-Net Tollkeeper Portfolio
<CAPTION>
Rate (%) Break Point (assets)
-------- ---------------------
<S> <C>
.95% On first $1 billion
.90% On excess
</TABLE>
Goldman Sachs is a unit of the Investment Management Division of Goldman,
Sachs & Co., which was founded in 1869. As of December 31, 1999, Goldman Sachs
and its affiliates manage, administer and distribute over $258.5 billion for
institutional and individual investors worldwide, including fixed income
assets in excess of $50.5 billion for which they acted as investment adviser.
The Goldman Sachs Group, L.P., which controlled Goldman Sachs Asset
Management, merged into the Goldman Sachs Group, Inc. as a result of an
initial public offering.
54
<PAGE>
From January 1, 1995 through April 30, 1998, pursuant to a Portfolio
Management Agreement between the Fund, the Adviser, and Greenwich Street
Advisors Division of Smith Barney Mutual Funds Management Inc. ("Greenwich
Street Advisors"), 388 Greenwich Street, 23rd Floor, New York, New York 10048,
Greenwich Street Advisors served as the Portfolio Manager and provided
investment advisory services to the Bond and Income and Equity Portfolios. For
the services provided, for the year 1997 and from January 1, 1998 through
April 30, 1998, Pacific Life paid a monthly fee to Greenwich Street Advisors
based on an annual percentage of the combined average daily net assets of the
Bond and Income and Equity Portfolios according to the following schedule:
Bond and Income and Equity Portfolios
<TABLE>
<CAPTION>
Rate(%) Break Point (assets)
------- ---------------------
<S> <C>
.45% On first $100 million
.40% On next $100 million
.35% On next $200 million
.30% On next $600 million
.20% On excess
</TABLE>
Net Fees paid or owed by Pacific Life to Goldman Sachs in 1999 were $525,489
for the Bond and Income Portfolio and $1,858,012 for the Equity Portfolio, and
from May 1, 1998 through December 31, 1998 were $290,917 for the Bond and
Income Portfolio and $772,931 for the Equity Portfolio. Net fees paid or owed
by Pacific Life to Greenwich Street Advisors from January 1, 1998 through
April 30, 1998 were $147,029 for the Bond and Income Portfolio and $437,389
for the Equity Portfolio and for 1997 were $368,846 for the Bond and Income
Portfolio and $1,088,097 for the Equity Portfolio. The I-Net Tollkeeper
Portfolio did not begin operations until May 1, 2000.
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and J.P. Morgan Investment Management Inc. ("J.P. Morgan Investment"), 522
Fifth Avenue, New York, New York 10036, J.P. Morgan Investment is the
Portfolio Manager and provides investment advisory services to the Multi-
Strategy and Equity Income Portfolios. For the services provided, Pacific Life
pays a monthly fee to J.P. Morgan Investment based on an annual percentage of
the combined average daily net assets of the Multi-Strategy and Equity Income
Portfolios according to the following schedule:
Multi-Strategy and Equity Income Portfolios
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- ---------------------
<S> <C>
.45% On first $100 million
.40% On next $100 million
.35% On next $200 million
.30% On next $350 million
.20% On excess
</TABLE>
J.P. Morgan Investment is an investment manager for corporate, public, and
union employee benefit funds, foundations, endowments, insurance companies,
government agencies and the accounts of other institutional investors. A
wholly-owned subsidiary of J.P. Morgan & Co. Incorporated ("Morgan"), J.P.
Morgan Investment was incorporated in the state of Delaware on February 7,
1984 and commenced operations on July 2, 1984. It was formed from the
Institutional Investment Group of Morgan Guaranty Trust Company of New York,
also a subsidiary of Morgan. Morgan acquired its first tax-exempt client in
1913 and its first pension account in 1940. As of December 31, 1999, Morgan,
through J.P. Morgan Investment and its other subsidiaries, had assets under
management of approximately $349 billion.
Net fees paid or owed by Pacific Life to J.P. Morgan Investment for 1999
were $1,651,512 for the Multi-Strategy Portfolio and $3,806,241 for the Equity
Income Portfolio, for 1998 were $1,263,563 for the Multi-Strategy Portfolio
and $2,783,163 for the Equity Income Portfolio, and for 1997 were $920,564 for
the Multi-Strategy Portfolio and $1,998,776 for the Equity Income Portfolio.
55
<PAGE>
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Janus Capital Corporation ("Janus"), 100 Fillmore Street, Denver, Colorado
80206-4928, Janus is the Portfolio Manager and provides investment advisory
services to the Growth LT Portfolio. For the services provided, Pacific Life
pays a monthly fee to Janus based on an annual percentage of the average daily
net assets of the Growth LT Portfolio according to the following schedule:
Growth LT Portfolio
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- ---------------------
<S> <C>
.55% On first $100 million
.50% On next $400 million
.45% On excess
</TABLE>
Janus serves as investment adviser to the Janus Funds, as well as other
mutual funds and individual, corporate, charitable, and retirement accounts.
Kansas City Southern Industries, Inc. ("KCSI") indirectly through its wholly-
owned subsidiary, Stilwell Financial, Inc., owns approximately 82% of the
outstanding voting stock of Janus. KCSI is a publicly traded holding company
whose primary subsidiaries are engaged in transportation and financial
services. KCSI has announced its intention to separate its transportation and
financial services businesses. KCSI anticipates the separation to be completed
in the first half of 2000.
Net fees paid or owed by Pacific Life to Janus for the Growth LT Portfolio
for 1999 were $9,666,426, for 1998 were $4,364,703 and for 1997 were
$2,813,259.
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Lazard Asset Management ("Lazard"), 30 Rockefeller Plaza, New York, New
York 10112, which became effective January 1, 1999, Lazard is the Portfolio
Manager and provides investment advisory services to the Mid-Cap Value
Portfolio. For the services provided, Pacific Life pays a monthly fee to
Lazard based on an annual percentage of the average daily net assets of the
Mid-Cap Value Portfolio according to the following schedule:
Mid-Cap Value Portfolio
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- ---------------------
<S> <C>
.55% On first $200 million
.50% On next $200 million
.45% On next $200 million
.40% On next $200 million
.30% On next $200 million
.25% On excess
</TABLE>
Lazard, a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New York
limited liability company, which is registered as an investment adviser with
the SEC and is a member of the New York, American and Chicago Stock Exchanges.
Lazard Freres provides its clients with a wide variety of investment banking,
brokerage and related services. Lazard and its affiliates provide investment
management services to client discretionary accounts with assets totaling
approximately $75 billion as of December 31, 1999. Lazard's clients are both
individuals and institutions, some of whose accounts have investment policies
similar to those of the Portfolio.
Net fees paid or owed by Pacific Life to Lazard for the Mid-Cap Value
Portfolio for 1999 were $284,822. The Mid-Cap Value Portfolio did not begin
operations until January 4, 1999.
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser
and Fund Asset Management, L.P., doing business as Mercury Asset Management US
("Mercury"), a subsidiary of Merrill Lynch & Company, Inc., World Financial
Center, 225 Liberty Street, New York, NY 10080, which became effective January
1, 2000, Mercury is the Portfolio Manager and provides investment advisory
services to the
56
<PAGE>
Equity Index and Small-Cap Index Portfolios. For the services provided,
Pacific Life pays a monthly fee to Mercury based on an annual percentage of
the combined average daily net assets of the Equity Index and Small-Cap Index
Portfolios, according to the following schedule:
Equity Index and Small-Cap Index Portfolios
<TABLE>
<CAPTION>
Rate (%) Break-Point (assets)
-------- ---------------------
<S> <C>
.08% On first $100 million
.04% On next $100 million
.02% On excess
</TABLE>
From January 30, 1991, in the case of the Equity Index Portfolio, and
January 1, 1999, in the case of the Small-Cap Index Portfolio, through
December 31, 1999, pursuant to a Portfolio Management Agreement between the
Fund, the Adviser and Bankers Trust Company ("BTCo"), a wholly-owned-
subsidiary of Bankers Trust Corporation, and an indirect subsidiary of
Deutsche Bank AG, 130 Liberty Street, New York, New York 10006, BTCo served as
the Portfolio Manager and provided investment advisory services to the Equity
Index and Small-Cap Index Portfolios. For the services provided for the year
1998, Pacific Life paid to BTCo, at the beginning of each calendar quarter, a
fee based on the net assets of the Equity Index Portfolio according to the
following schedule, subject to a minimum fee of $100,000. For the services
provided for the year 1999, Pacific Life paid to BTCo, at the beginning of
each calendar quarter a fee based on the combined net assets of the Equity
Index and Small-Cap Index Portfolios according to the following schedule,
subject to a minimum fee of $100,000:
Equity Index and Small-Cap Index Portfolios
<TABLE>
<CAPTION>
Rate (%) Break-Point (assets)
-------- ---------------------
<S> <C>
.08% On first $100 million
.04% On next $100 million
.02% On excess
</TABLE>
For the services provided, for the year 1997, Pacific Life paid to BTCo a
quarterly fee in advance, based on the net assets of the Equity Index
Portfolio at the beginning of each calendar quarter at an annual rate in
accordance with the following schedule, subject to a minimum fee of $100,000:
Equity Index Portfolio
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- ---------------------
<S> <C>
.07% On first $100 million
.03% On next $100 million
.01% On excess
</TABLE>
Net fees paid or owed by Pacific Life to BTCo for the Equity Index Portfolio
for 1999 were $435,388, and for the Small-Cap Index Portfolio were $9,430. Net
fees paid or owed by Pacific Life to BTCo for the Equity Index Portfolio for
1998 were $188,793, and for 1997 were $135,863. The Small-Cap Index Portfolio
did not begin operations until January 4, 1999.
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Morgan Stanley Asset Management ("MSAM"), a subsidiary of Morgan Stanley
Dean Witter & Co., whose address is 1221 Avenue of the Americas, New York, New
York 10020, MSAM is the Portfolio Manager and provides investment advisory
services to the REIT and International Value Portfolios. On December 1, 1998
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
57
<PAGE>
For the services provided, under the Agreement for the REIT Portfolio, which
became effective January 1, 1999, Pacific Life pays a monthly fee to MSAM
based on an annual percentage of the average daily net assets of the REIT
Portfolio according to the following schedule:
REIT Portfolio
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- -------------------------
<S> <C>
.60% On first $100 million
.45% On next $150 million
.40% On next $250 million
.35% On next $500 million
.30% On excess over $1 billion
Net fees paid or owed by Pacific Life to MSAM for the REIT Portfolio for
1999 were $168,796. The REIT Portfolio did not begin operations until January
4, 1999.
For the services provided under the Agreement for the International Value
Portfolio, which became effective June 1, 1997, Pacific Life pays a monthly
fee to MSAM at an annual rate of 0.35% based on the average daily net assets
of the International Value Portfolio.
From January 1, 1995 through May 31, 1997, pursuant to a Portfolio
Management Agreement between the Fund, the Adviser, and Templeton Investment
Counsel, Inc. ("Templeton"), Broward Financial Centre, Suite 2100, Fort
Lauderdale, Florida 33394-3091, Templeton served as the Portfolio Manager and
provided investment advisory services to the International Value Portfolio.
For the services provided, for the period January 1, 1997 through May 31,
1997, Pacific Life paid a monthly fee to Templeton based on an annual
percentage of the average daily net assets of the International Value
Portfolio according to the following schedule:
International Value Portfolio
<CAPTION>
Rate (%) Break Point (assets)
-------- -----------------------
<S> <C>
.70% On first $25 million
.55% On next $25 million
.50% On next $50 million
.40% On excess
</TABLE>
Net fees paid or owed by Pacific Life to MSAM for the International Value
Portfolio for 1999 were $4,433,877, for 1998 were $3,222,413, and from June 1,
1997 through December 31, 1997 were $1,478,065. Net fees paid or owed by
Pacific Life to Templeton for the International Value Portfolio from January
1, 1997 to May 31, 1997 were $945,379.
MSAM, together with its affiliated asset management companies, conducts a
worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. As
of December 31, 1999 MSAM, together with its affiliated institutional asset
management companies, had approximately $185 billion in assets under
management as an investment manager or as a fiduciary adviser.
58
<PAGE>
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Pacific Investment Management Company ("PIMCO"), 840 Newport Center Drive,
Suite 300, Newport Beach, California 92660, PIMCO is the Portfolio Manager and
provides investment advisory services to the Government Securities and Managed
Bond Portfolios.
For the services provided, Pacific Life pays a monthly fee to PIMCO based on
an annual percentage of the combined average daily net assets of the
Government Securities and Managed Bond Portfolios according to the following
schedule:
Government Securities and Managed Bond Portfolios
<TABLE>
<CAPTION>
Rate % Break Point (assets)
------ --------------------
<S> <C>
.50% On first $25 million
.375% On next $25 million
.25% On excess
</TABLE>
PIMCO is an investment counseling firm founded in 1971, and had approximately
$186 billion in assets under management as of December 31, 1999. PIMCO is a
subsidiary partnership of PIMCO Advisors L.P. ("PIMCO Advisors"). The general
partners of PIMCO Advisors are PIMCO Partners, G.P. and PIMCO Advisors Holdings
L.P. ("PAH"). PIMCO Partners, G.P. is a general partnership between PIMCO
Holding LLC, a Delaware limited liability company and an indirect wholly-owned
subsidiary of Pacific Life Insurance Company, and PIMCO Partners LLC, a
California limited liability company controlled by the current Managing
Directors and two former Managing Directors of PIMCO. PIMCO Partners, G.P. is
the sole general partner of PAH. PIMCO also provides investment advisory
services to PIMCO Funds and several other mutual fund portfolios and to private
accounts for pension and profit sharing plans. PIMCO is registered as an
investment adviser with the SEC and a commodity trading adviser with the
CFTC.
On October 31, 1999, PIMCO Advisors, PAH and Allianz AG ("Allianz")
announced that they had reached a definitive agreement under which Allianz
would acquire majority ownership of PIMCO Advisors and its subsidiaries (the
"Allianz Transaction"). PIMCO is a subsidiary of PIMCO Advisors. The Allianz
Transaction is expected to be completed on or about May 5, 2000, although
there is no assurance that the Allianz Transaction will be completed. Under
the terms of the transaction, Allianz would acquire all of PAH, the publicly
traded general partner of PIMCO Advisors. Pacific Life would retain an
approximate 30% interest in PIMCO Advisors. After the Allianz Transaction is
completed, the Allianz Group (which includes Allianz and PIMCO) would
collectively have over $650 billion in assets under management.
Once the Transaction is consummated, absent an order from the SEC or other
relief, the Government Securities and Managed Bond Portfolios generally cannot
engage in principal transactions with "Affiliated Brokers" of Allianz,
including Dresdner Bank AG, Deutsche Bank AG, Bankers Trust Company, BT Alex
Brown, Inc., and certain other affiliated entities. As a result, the
Portfolios' ability to purchase securities underwritten by an Affiliated
Broker or to utilize the Affiliated Brokers for agency transactions will be
subject to regulatory restrictions. PIMCO has advised that it does not believe
that the above restrictions on transactions with the Affiliated Brokers would
materially adversely affect its ability to provide services to the Portfolios,
the Portfolios' ability to take advantage of market opportunities, or their
overall performance.
Net fees paid or owed by Pacific Life to PIMCO for 1999 were $817,241 for
the Government Securities Portfolio and $2,463,247 for the Managed Bond
Portfolio, for 1998 were $400,557 for the Government Securities Portfolio and
$1,613,407 for the Managed Bond Portfolio, and for 1997 were $292,079 for the
Government Securities Portfolio and $929,041 for the Managed Bond Portfolio.
59
<PAGE>
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Salomon Brothers Asset Management Inc ("SaBAM"), Seven World Trade Center,
New York, New York 10048, which became effective January 1, 1999, SaBAM is the
Portfolio Manager and provides investment advisory services to the Large-Cap
Value Portfolio. For the services provided, Pacific Life pays a monthly fee to
SaBAM based on an annual percentage of the average daily net assets of the
Large-Cap Value Portfolio according to the following schedule:
Large-Cap Value Portfolio
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- ---------------------
<S> <C>
.45% On first $100 million
.40% On next $100 million
.35% On next $200 million
.30% On next $350 million
.25% On next $250 million
.20% On excess
</TABLE>
SaBAM, a wholly-owned subsidiary of Citigroup, Inc. was incorporated in 1987
and, together with SaBAM affiliates in London, Frankfurt, Tokyo and Hong Kong,
provides a broad range of fixed-income and equity investment advisory services
to various individuals and institutional clients located throughout the world,
and serves as investment adviser to various investment companies. As of
December 31, 1999, SaBAM and such affiliates managed approximately $29 billion
of assets.
Net fees paid or owed by Pacific Life to SaBAM for the Large-Cap Value
Portfolio for 1999 were $376,747. The Large-Cap Value Portfolio did not begin
operations until January 4, 1999.
The Portfolio Management Agreements are not exclusive, and Alliance Capital,
Capital Guardian, Goldman Sachs, J.P. Morgan Investment, Janus, Lazard,
Mercury, MSAM, PIMCO, and SaBam may provide and currently are providing
investment advisory services to other clients, including other investment
companies.
Distribution of Fund Shares
Pacific Select Distributors, Inc. ("PSD") (formerly Pacific Mutual
Distributors, Inc.) serves as the Fund's Distributor pursuant to a
Distribution Contract (the "Distribution Contract") with the Fund. The
Distributor is not obligated to sell any specific amount of Fund shares. PSD
bears all expenses of providing services pursuant to the Distribution Contract
including the costs of sales presentations, mailings, advertising, and any
other marketing efforts by PSD in connection with the distribution or sale of
the shares.
As of March 31, 2000, Pacific Life beneficially owned 0% of the outstanding
shares of the Portfolios of the Fund. Pacific Asset Management LLC ("PAM"), a
wholly-owned subsidiary of Pacific Life, beneficially owned 45.27% of the
outstanding shares of the Diversified Research Portfolio and 17.84% of the
outstanding shares of the International Large-Cap Portfolio, including monies
paid in connection with the initial capital advances made to the Fund, and 0%,
of the outstanding shares of eighteen other Portfolios of the Fund. Pacific
Life and PAM would exercise voting rights attributable to any shares of the
Fund owned by them in accordance with voting instructions received by Owners
of the Policies issued by Pacific Life. To this extent, as of April 30, 2000,
Pacific Life did not exercise control over any Portfolio. As of April 30,
2000, Pacific Life owned 100% of the outstanding shares of the I-Net
Tollkeeper Portfolio.
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Purchases and Redemptions
Shares of the Fund are not sold directly to the general public. Shares of
the Fund are currently offered only for purchase by the Separate Accounts to
serve as an investment medium for the Variable Contracts issued or
administered by Pacific Life or its affiliates. For information on purchase of
a Variable Contract, consult a prospectus for the Separate Account. The shares
of the Large-Cap Value, Mid-Cap Value, Small-Cap Index, Diversified Research,
International Large-Cap, REIT, and I-Net Tollkeeper Portfolios are not
available for Pacific Select variable universal life insurance policies. The
shares of the Large-Cap Value, Mid-Cap Value, Small-Cap Index, REIT, Small-Cap
Equity, Aggressive Equity, Emerging Markets, Diversified Research,
International Large-Cap, and I-Net Tollkeeper Portfolios are not available for
Pacific Corinthian variable annuity contracts. The shares of the Bond and
Income Portfolio are not available for Pacific Life & Annuity Company variable
annuity contracts and variable life insurance policies, Pacific Innovations
variable annuity contracts, and purchase payments on any variable annuity
contract received after April 30, 2000.
Currently, each Portfolio offers shares of a single class. However, the Fund
is authorized to offer up to four additional classes of shares for each
Portfolio. These classes may be offered in the future to investors in
connection with individual retirement accounts, and certain other types of
qualified plans.
Shares of any Portfolio may be redeemed on any business day upon receipt of
a request for redemption from the insurance company whose separate account
owns the shares. Redemptions are effected at the per share net asset value
next determined after receipt of the redemption request. Redemption proceeds
will ordinarily be paid within seven days following receipt of instructions in
proper form, or sooner, if required by law. The right of redemption may be
suspended by the Fund or the payment date postponed beyond seven days when the
New York Stock Exchange is closed (other than customary weekend and holiday
closings) or for any period during which trading thereon is restricted because
an emergency exists, as determined by the SEC, making disposal of portfolio
securities or valuation of net assets not reasonably practicable, and whenever
the SEC has by order permitted such suspension or postponement for the
protection of shareholders. If the Board of Trustees should determine that it
would be detrimental to the best interests of the remaining shareholders of a
Portfolio to make payment wholly or partly in cash, the Portfolio may pay the
redemption price in whole or part by a distribution in kind of securities from
the Portfolio, in lieu of cash, in conformity with applicable rules of the
SEC. If shares are redeemed in kind, the redeeming shareholder might incur
brokerage costs in converting the assets into cash. Under the Investment
Company Act of 1940, the Fund is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1 percent of its net assets during any 90-day
period for any one shareholder. The Fund may suspend the right of redemption
of shares of any Portfolio and may postpone payment for more than seven days
for any period: (i) during which the New York Stock Exchange is closed other
than customary weekend and holiday closings or during which trading on the New
York Stock Exchange is restricted; (ii) when the SEC determines that a state
of emergency exists which may make payment or transfer not reasonably
practicable; (iii) as the SEC may by order permit for the protection of the
security holders of the Fund; or (iv) at any other time when the Fund may,
under applicable laws and regulations, suspend payment on the redemption of
its shares. If the Board of Trustees should determine that it would be
detrimental to the best interests of the remaining shareholders of a Portfolio
to make payment wholly or partly in cash, the Portfolio may pay the redemption
price in whole or in part by a distribution in kind of securities from the
portfolio of the Portfolio, in lieu of cash, in conformity with applicable
rules of the SEC. If shares are redeemed in kind, the redeeming shareholder
might incur brokerage costs in converting the assets into cash.
Exchanges Among the Portfolios
Variable Contract Owners do not deal directly with the Fund to purchase,
redeem, or exchange shares of a Portfolio, and Variable Contract Owners should
refer to the Prospectus for the applicable Separate Account for information on
the allocation of premiums and on transfers of accumulated value among options
available under the contract.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions
Investment decisions for the Fund and for the other investment advisory
clients of the Adviser, or applicable Portfolio Manager, are made with a view
to achieving their respective investment objectives. Investment decisions are
the product of many factors in addition to basic suitability for the
particular client involved (including the Fund). Thus, a particular security
may be bought or sold for certain clients even though it could have been
bought or sold for other clients at the same time. It also sometimes happens
that two or more clients simultaneously purchase or sell the same security, in
which event each day's transactions in such security are, insofar as possible,
averaged as to price and allocated between such clients in a manner which in
the opinion of the Adviser or Portfolio Manager is equitable to each and in
accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients.
Brokerage and Research Services
The Adviser or Portfolio Manager for a Portfolio places all orders for the
purchase and sale of portfolio securities, options, and futures contracts and
other investments for a Portfolio through a substantial number of brokers and
dealers or futures commission merchants selected at its discretion. In
executing transactions, the Adviser or Portfolio Manager will attempt to
obtain the best net results for a Portfolio taking into account such factors
as price (including the applicable brokerage commission or dollar spread),
size of order, the nature of the market for the security, the timing of the
transaction, the reputation, experience and financial stability of the broker-
dealer involved, the quality of the service, the difficulty of execution and
operational facilities of the firms involved, and the firm's risk in
positioning a block of securities. In transactions on stock exchanges in the
United States, payments of brokerage commissions are negotiated. In effecting
purchases and sales of portfolio securities in transactions on United States
stock exchanges for the account of the Fund, the Adviser or Portfolio Manager
may pay higher commission rates than the lowest available when the Adviser or
Portfolio Manager believes it is reasonable to do so in light of the value of
the brokerage and research services provided by the broker effecting the
transaction. In the case of securities traded on some foreign stock exchanges,
brokerage commissions may be fixed and the Adviser or Portfolio Manager may be
unable to negotiate commission rates for these transactions. In the case of
securities traded on the over-the-counter markets, there is generally no
stated commission, but the price includes an undisclosed commission or markup.
Consistent with the policy of obtaining the best net results, a portion of a
Portfolio's brokerage and futures transactions, including transactions on a
national securities exchange, may be conducted through an affiliated broker.
There is generally no stated commission in the case of fixed-income
securities, which are traded in the over-the-counter markets, but the price
paid by the Fund usually includes an undisclosed dealer commission or mark-up.
In underwritten offerings, the price paid by the Fund includes a disclosed,
fixed commission or discount retained by the underwriter or dealer.
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Fund of negotiated brokerage commissions. Such commissions vary
among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. In the case of securities traded on some foreign stock exchanges,
brokerage commissions may be fixed and the Adviser or Portfolio Manager may be
unable to negotiate commission rates for these transactions.
Some securities considered for investment by the Fund's Portfolios may also
be appropriate for other clients served by the Adviser or Portfolio Manager.
If a purchase or sale of securities consistent with the investment policies of
a Portfolio and one or more of these clients served by the Adviser or
Portfolio Manager is considered at or about the same time, transactions in
such securities will be allocated among the Portfolio and clients in a manner
deemed fair and reasonable by the Adviser or Portfolio Manager. Although there
is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser or Portfolio Manager, and the results
of such allocations, are subject to periodic review by the Fund's Adviser and
Board of Trustees.
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It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive research services from broker-dealers which execute
portfolio transactions for the clients of such advisers. Consistent with this
practice, the Adviser or Portfolio Manager for a Portfolio may receive
research services from many broker-dealers with which the Adviser or Portfolio
Manager places the Portfolio's portfolio transactions. These services, which
in some cases may also be purchased for cash, include such matters as general
economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services may be of value to the Adviser or Portfolio
Manager in advising its various clients (including the Portfolio), although
not all of these services are necessarily useful and of value in managing a
Portfolio. The advisory fee paid by the Portfolio is not reduced because the
Adviser or Portfolio Manager and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Adviser or Portfolio Manager may cause a Portfolio to pay a broker-dealer,
which provides "brokerage and research services" (as defined in the Act) to
the Adviser or Portfolio Manager, an amount of disclosed commission for
effecting a securities transaction for the Portfolio in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.
During the years 1999, 1998, and 1997, respectively, the following
Portfolios incurred brokerage commissions as follows: the Aggressive Equity
Portfolio--$1,119,434, $855,826 and $296,940, the Emerging Markets Portfolio--
$600,207, $373,834 and $712,505, the Small-Cap Equity Portfolio--$268,990,
$251,753 and $225,232, the Bond and Income Portfolio--$42,627, $14,193 and $0,
of which $41,823 (100%) and $14,193 (100%) was paid to Goldman, Sachs & Co. in
1999 and 1998 respectively, an affiliate of Goldman Sachs Asset Management,
the Equity Portfolio--$368,208, $725,654 and $706,250 of which $18,733 (5.1%)
and $8,633 (1.2%) was paid to Goldman, Sachs & Co. in 1999 and 1998
respectively, an affiliate of Goldman Sachs Asset Management, and $6,900
(0.95%) and $61,512 (8.71%) was paid to Smith Barney Inc. and $4,500 (0.62%)
and $23,700 (3.36%) was paid to Robinson Humphrey Co., Inc., in 1998 and 1997
respectively, affiliates of Greenwich Street Advisors, the Multi-Strategy
Portfolio--$671,967, $455,757 and $283,791, the Equity Income Portfolio--
$2,018,844, $1,529,206 and $1,162,083, the Growth LT Portfolio--$4,255,430,
$1,517,836 and $1,057,621, the Equity Index Portfolio--$215,322, $140,167 and
$157,624, the International Value Portfolio--$3,194,813, $2,177,935 and
$1,606,247 of which $30,863 (0.97%), $41,033 (1.88%) and $39,617 (2.47%) was
paid to Morgan Stanley & Co., respectively, an affiliate of Morgan Stanley
Asset Management, the Government Securities Portfolio--$89,603, $29,467 and
$21,349, the Managed Bond Portfolio--$255,937, $122,103 and $41,315, the High
Yield Bond Portfolio--$5,250, $2,720 and $2,500. During the year ended 1999,
the following Portfolios incurred brokerage commissions as follows: the Mid-
Cap Value Portfolio--$280,370, the Small-Cap Index Portfolio--$124,792, the
REIT Portfolio--$144,524 and the Large-Cap Value Portfolio--$283,668 of which
$114 (0.04%) was paid to Salomon Smith Barney Inc., an affiliate of Salomon
Brothers Asset Management Inc.
During the fiscal year ended December 31, 1999, the Government Securities
Portfolio, the Managed Bond Portfolio, the Equity Income Portfolio, the Multi-
Strategy Portfolio, the Large-Cap Value Portfolio, and the Bond and Income
Portfolio acquired and sold securities of its regular broker-dealers. On
December 31, 1999, the Government Securities Portfolio held securities of
Merrill Lynch & Co., Morgan Stanley Dean Witter, and J.P. Morgan valued at
$2,900,389, $3,590,692, and $3,800,840, respectively; the Managed Bond
Portfolio held securities of Donaldson Lufkin & Jenrette, Bear Stearns, Lehman
Brothers, Inc. and Goldman, Sachs & Co. valued at $2,152,456, $24,817,987,
$19,461,587, and $9,612,636, respectively; the Equity Income Portfolio held
securities of Goldman, Sachs & Co. and BankAmerica Corp. valued at $18,168,769
and $14,003,718, respectively; the Multi-Strategy Portfolio held securities of
Goldman, Sachs & Co. valued at $4,634,025; and the Large-Cap Value Portfolio
held securities of Morgan Stanley Dean Witter valued at $4,782,125, each of
which is a broker or dealer regularly used for brokerage transactions by that
Portfolio.
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Portfolio Turnover
For reporting purposes, each Portfolio's portfolio turnover rate is
calculated by dividing the value of the lesser of purchases or sales of
portfolio securities for the fiscal year by the monthly average of the value
of portfolio securities owned by the Portfolio during the fiscal year. In
determining such portfolio turnover, long-term U.S. Government securities are
included. Short-term U.S. Government securities and all other securities whose
maturities at the time of acquisition were one year or less are excluded. A
100% portfolio turnover rate would occur, for example, if all of the
securities in the portfolio (other than short-term securities) were replaced
once during the fiscal year. The portfolio turnover rate for each of the
Portfolios will vary from year to year, depending on market conditions.
The portfolio turnover rates are not expected to exceed: 0% for the Money
Market Portfolio; 400% for the Managed Bond and Government Securities
Portfolios; 200% for the Multi-Strategy Portfolio; and 150% for all other
Portfolios. For the Portfolios other than the Money Market Portfolio,
portfolio turnover could be greater in periods of unusual market movement and
volatility.
NET ASSET VALUE
Shares of each Portfolio are sold at their respective net asset values
(without a sales charge) computed after receipt of a purchase order. Net asset
value of a share is determined by dividing the value of a Portfolio's net
assets by the number of its shares outstanding. That determination is made
once each business day, Monday through Friday, exclusive of federal holidays
usually at or about 4:00 p.m. Eastern time, on each day that the New York
Stock Exchange is open for trading. The New York Stock Exchange and other
exchanges usually close for trading at 4:00 p.m. Eastern time. In the event
that the New York Stock Exchange or other exchanges close early, the Fund
normally will deem the closing price of each Portfolio's assets to be the
price of those assets at 4:00 p.m., Eastern time. Net asset value will not be
determined on the following holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. To calculate a Portfolio's net asset
value, a Portfolio's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. In general, the value of assets is based on actual or
estimated market value, with special provisions for assets not having readily
available market quotations and short-term debt securities. With respect to
the Portfolios that invest in foreign securities, the value of foreign
securities that are traded on stock exchanges outside the United States are
based upon the price on the exchange as of the close of business of the
exchange immediately preceding the time of valuation. Securities traded in
over-the-counter markets outside the United States are valued at the last
available price in the over-the-counter market prior to the time of valuation.
Trading in securities on exchanges and over-the-counter markets in European
and Pacific Basin countries is normally completed well before 4:00 p.m.,
Eastern time. In addition, European and Pacific Basin securities trading may
not take place on all business days in New York. Furthermore, trading takes
place in Japanese markets on certain Saturdays and in various foreign markets
on days which are not business days in New York and on which the Fund's net
asset value is not calculated. Quotations of foreign securities in foreign
currencies are converted to U.S. dollar equivalents using the foreign exchange
quotation in effect at the time net asset value is computed. The calculation
of the net asset value of any Portfolio which invests in foreign securities
which are principally traded in a foreign market may not take place
contemporaneously with the determination of the prices of portfolio securities
of foreign issuers used in such calculation. Further, under the Fund's
procedures, the prices of foreign securities are determined using information
derived from pricing services and other sources every day that the Fund values
its shares. Prices derived under these procedures will be used in determining
net asset value. Information that becomes known to the Fund or its agents
after the time that net asset value is calculated on any business day (which
may be after 4:00 p.m. Eastern time) may be assessed in determining net asset
value per share after the time of receipt of the information, but will not be
used to retroactively adjust the price of the security so determined earlier
or on a prior day. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the time a Portfolio's
net asset value is determined may not be reflected in the calculation of net
asset value. If events materially affecting net asset value occur during such
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period, the securities would be valued at fair market value as determined by
the management and approved in good faith by the Board of Trustees of the
Fund. In determining the fair value of securities, the Fund may consider
available information including information that becomes known after 4:00 p.m.
Eastern time, and the values that are determined will be deemed to be the
price at 4:00 p.m. Eastern time.
The Money Market Portfolio's portfolio securities are valued using the
amortized cost method of valuation. This involves valuing a security at cost
on the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if it sold the instrument. During such periods the
yield to investors in the Portfolio may differ somewhat from that obtained in
a similar investment company which uses available market quotations to value
all of its portfolio securities.
The Commission's regulations require the Money Market Portfolio to adhere to
certain conditions. The Portfolio is required to maintain a dollar-weighted
average portfolio maturity of 90 days or less, to limit its investments to
instruments having remaining maturities of 13 months or less (except
securities held subject to repurchase agreements having 13 months or less to
maturity) and to invest only in securities that meet specified quality and
credit criteria.
All other Portfolios are valued as follows:
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last
reported sales price, or, if no sales are reported, the mean between
representative bid and asked quotations obtained from a quotation reporting
system or from established market makers. In other cases, securities are
valued at their fair value as determined in good faith by the Board of
Trustees of the Fund, although the actual calculations may be made by persons
acting under the direction of the Board. Money market instruments are valued
at market value, except that instruments maturing in sixty days or less are
valued using the amortized cost method of valuation.
The value of a foreign security is determined in its national currency based
upon the price on the foreign exchange as of its close of business immediately
preceding the time of valuation. Securities traded in over-the-counter markets
outside the United States are valued at the last available price in the over-
the-counter market prior to the time of valuation.
Debt securities, including those to be purchased under firm commitment
agreements (other than obligations having a maturity of sixty days or less at
their date of acquisition), are normally valued on the basis of quotes
obtained from brokers and dealers or pricing services, which take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data. Debt obligations having a maturity of
sixty days or less are generally valued at amortized cost unless the amortized
cost value does not approximate market value. Certain debt securities for
which daily market quotations are not readily available may be valued,
pursuant to guidelines established by the Board of Trustees, with reference to
debt securities whose prices are more readily obtainable and whose durations
are comparable to the securities being valued.
When a Portfolio writes a put or call option, the amount of the premium is
included in the Portfolio's assets and an equal amount is included in its
liabilities. The liability thereafter is adjusted to the current market value
of the option. The premium paid for an option purchased by the Portfolio is
recorded as an asset and subsequently adjusted to market value. The values of
futures contracts are based on market prices. Quotations of foreign securities
in foreign currency are converted to U.S. dollar equivalents at the prevailing
market rates quoted by the custodian on the morning of valuation.
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PERFORMANCE INFORMATION
The Fund may, from time to time, include the yield and effective yield of
its Money Market Portfolio, the yield of the remaining Portfolios, and the
total return of all Portfolios in advertisements, sales literature, or reports
to shareholders or prospective investors. Total return information for the
Fund will not be advertised or included in sales literature unless accompanied
by comparable performance information for a Separate Account to which the Fund
offers its shares.
Current yield for the Money Market Portfolio will be based on the change in
the value of a hypothetical investment (exclusive of capital charges) over a
particular 7-day period, less a pro-rata share of Portfolio expenses accrued
over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The
base period return is then annualized by multiplying by 365/7, with the
resulting yield figure carried to at least the nearest hundredth of one
percent. "Effective yield" for the Money Market Portfolio assumes that all
dividends received during an annual period have been reinvested. Calculation
of "effective yield" begins with the same "base period return" used in the
calculation of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:
Effective Yield = [(Base Period Return + 1) (To the power of 365/7)]-1
For the 7-day period ending December 31, 1999, the current yield of the
Money Market Portfolio was 5.62% and the effective yield of the Portfolio was
5.77%.
Quotations of yield for the remaining Portfolios will be based on all
investment income per share earned during a particular 30-day period
(including dividends and interest), less expenses accrued during the period
("net investment income"), and are computed by dividing net investment income
by the maximum offering price per share on the last day of the period,
according to the following formula:
2[(a-b + 1) (to the power of 6) - 1]
---
cd
where
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period.
For the 30 day period ended December 31, 1999, the yield of the remaining
Portfolios that had commenced operations on or before that date was as
follows: (0.10)% for the Aggressive Equity Portfolio, 2.49% for the Emerging
Markets Portfolio, 0.32% for the Small-Cap Equity Portfolio, 7.15% for the
Bond and Income Portfolio, 0.15% for the Equity Portfolio, 2.84% for the
Multi-Strategy Portfolio, 1.08% for the Equity Income Portfolio, (0.17)% for
the Growth LT Portfolio, 0.59% for the Mid-Cap Value Portfolio, 1.04% for the
Equity Index Portfolio, 0.60% for the Small-Cap Index Portfolio, 5.99% for the
REIT Portfolio, 0.90% for the International Value Portfolio, 5.47% for the
Government Securities Portfolio, 6.31% for the Managed Bond Portfolio, 9.77%
for the High Yield Bond Portfolio, and 0.94% for the Large-Cap Value
Portfolio. The Diversified Research and International Large-Cap Portfolios did
not begin operations until January 3, 2000 and the I-Net Tollkeeper Portfolio
did not begin operations until May 1, 2000.
Quotations of average annual total return for a Portfolio will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in the Portfolio over certain periods that will include a period of
one year (or, if less, up to the life of the Portfolio), calculated pursuant
to the following formula: P(1 + T)(to the power of n) = ERV (where P = a
hypothetical initial payment of $1,000, T = the total return for the period, n =
the
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number of periods, and ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period). Quotations of total
return may also be shown for other periods. All total return figures reflect
the deduction of a proportional share of Portfolio expenses on an annual
basis, and assume that all dividends and distributions are reinvested when
paid.
For the one year period ended December 31, 1999, the total return for each
Portfolio that had commenced operations on or before that date was as follows:
27.35% for the Aggressive Equity Portfolio, 53.56% for the Emerging Markets
Portfolio, 47.52% for the Small-Cap Equity Portfolio, (7.34)% for the Bond and
Income Portfolio, 38.54% for the Equity Portfolio, 7.04% for the Multi-
Strategy Portfolio, 13.26% for the Equity Income Portfolio, 98.08% for the
Growth LT Portfolio, 5.22% for the Mid-Cap Value Portfolio, 20.59% for the
Equity Index Portfolio, 19.36% for the Small-Cap Index Portfolio, (0.01)% for
the REIT Portfolio, 22.82% for the International Value Portfolio, (1.95)% for
the Government Securities Portfolio, (1.91)% for the Managed Bond Portfolio,
4.94% for the Money Market Portfolio, 2.90% for the High Yield Bond Portfolio,
and 11.46% for the Large-Cap Value Portfolio. The Diversified Research and
International Large-Cap Portfolios did not begin operations until January 3,
2000 and the I-Net Tollkeeper Portfolio did not begin operations until May 1,
2000.
For the five year period ended December 31, 1999, the average annual total
return for each Portfolio that had commenced operations on or before that date
was as follows: 25.13% for the Small-Cap Equity Portfolio, 9.27% for the Bond
and Income Portfolio, 27.59% for the Equity Portfolio, 16.36% for the Multi-
Strategy Portfolio, 23.25% for the Equity Income Portfolio, 41.17% for the
Growth LT Portfolio, 28.11% for the Equity Index Portfolio, 13.81% for the
International Value Portfolio, 7.48% for the Government Securities Portfolio,
7.88% for the Managed Bond Portfolio, 5.23% for the Money Market Portfolio,
and 8.83% for the High Yield Bond Portfolio. The Aggressive Equity and
Emerging Markets Portfolios did not begin operations until April 1, 1996. The
Large-Cap Value, Mid-Cap Value, Small-Cap Index and REIT Portfolios did not
begin operations until January 4, 1999. The Diversified Research and
International Large-Cap Portfolios did not begin operations until January 3,
2000 and the I-Net Tollkeeper Portfolio did not begin operations until May 1,
2000.
For the ten year period ended December 31, 1999, the average annual total
returns for each Portfolio was as follows: 16.59% for the Small-Cap Equity
Portfolio, 8.99% for the Bond and Income Portfolio, 17.73% for the Equity
Portfolio, 11.47% for the Multi-Strategy Portfolio, 14.67% for the Equity
Income Portfolio, 8.28% for the International Value Portfolio, 7.41% for the
Government Securities Portfolio, 7.97% for the Managed Bond Portfolio, 4.93%
for the Money Market Portfolio, and 10.39% for the High Yield Bond Portfolio.
Based upon the period from the commencement of operations of the Growth LT
Portfolio on January 4, 1994 until December 31, 1999, the average annual total
return for the Growth LT Portfolio was 36.12%. Based upon the period from the
commencement of operations of the Equity Index Portfolio on January 30, 1991
until December 31, 1999, the average annual total return for the Equity Index
Portfolio was 20.01%. Based upon the period from the commencement of
operations of the Aggressive Equity and Emerging Markets Portfolios on April
1, 1996 until December 31, 1999, the average annual total return for each of
these Portfolios was 13.60% and 1.79%, respectively. The Large-Cap Value,
Mid-Cap Value, Small-Cap Index, and REIT Portfolios did not begin operations
until January 4, 1999. The Diversified Research and the International Large-
Cap Portfolios did not begin operations until January 3, 2000 and the I-Net
Tollkeeper Portfolio did not begin operations until May 1, 2000.
The performance results for the Aggressive Equity, Equity Income, Multi-
Strategy, Equity, Bond and Income, and International Value Portfolios are
based, in part, on performance results when these Portfolios were advised by
different Portfolio Managers. Alliance Capital began serving as Portfolio
Manager to the Aggressive Equity Portfolio on May 1, 1998, J.P. Morgan
Investment began serving as Portfolio Manager to the Equity Income and Multi-
Strategy Portfolios on January 1, 1994, Morgan Stanley began serving as
Portfolio Manager to the International Value Portfolio on June 1, 1997, and
Goldman Sachs began serving as Portfolio Manager to the Equity and Bond and
Income Portfolios on May 1, 1998. The performance results for the Equity
Portfolio and Bond and Income Portfolio are based, in part, on the performance
results of the predecessor series of Pacific Corinthian Variable Fund, the
assets of which were acquired by the Fund on December 31, 1994. The
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performance results for the Emerging Markets, Equity Index, and Small-Cap
Index Portfolios are based on performance results when these Portfolios were
advised by different Portfolio Managers. Alliance Capital began serving as
Portfolio Manager to the Emerging Markets Portfolio on January 1, 2000 and
Mercury began serving as Portfolio Manager to the Equity Index and Small-Cap
Index Portfolios on January 1, 2000.
Performance information for a Portfolio may be compared, in advertisements,
sales literature, and reports to shareholders to (i) various indices so that
investors may compare a Portfolio's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services Inc., a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in the Portfolio. Unmanaged indexes may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Quotations of yield or total return for the Fund will not take into account
charges and deductions against any Separate Accounts to which the Fund shares
are sold or charges and deductions against the Contracts issued or
administered by Pacific Life or its subsidiaries. The Portfolio's yield and
total return should not be compared with mutual funds that sell their shares
directly to the public since the figures provided do not reflect charges
against the Separate Accounts or the Contracts. Performance information for
any Portfolio reflects only the performance of a hypothetical investment in
the Portfolio during the particular time period on which the calculations are
based. Performance information should be considered in light of the
Portfolio's investment objectives and policies, characteristics and quality of
the portfolios and the market conditions during the given time period, and
should not be considered as a representation of what may be achieved in the
future.
TAXATION
Each Portfolio intends to qualify annually and to elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986 (the
"Code").
To qualify as a regulated investment company, each Portfolio generally must,
among other things: (i) derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
and gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing
in such stock, securities or currencies; (ii) diversify its holdings so that,
at the end of each quarter of the taxable year, (a) at least 50% of the market
value of the Portfolio's assets is represented by cash, U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Portfolio's total assets and 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies); and
(iii) distribute at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest, and net short-term capital
gains in excess of any net long-term capital losses) each taxable year.
As a regulated investment company, a Portfolio generally will not be subject
to U.S. federal income tax on its investment company taxable income and net
capital gains (any net long-term capital gains in excess of the sum of net
short-term capital losses and capital loss carryovers from prior years), if
any, that it distributes to shareholders. Each Portfolio intends to distribute
to its shareholders, at least annually, substantially all of its investment
company taxable income and any net capital gains. In addition, amounts not
distributed by a Portfolio on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
avoid the tax, a Portfolio must distribute (or be deemed to have distributed)
during each calendar year, (i) at least 98% of its ordinary income (not taking
into account any capital gains or losses) for the calendar year, (ii) at least
98% of its capital gains in excess of its capital losses for the twelve month
period ending on October 31 of the calendar year (adjusted for certain
ordinary losses), and (iii) all ordinary income and capital
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<PAGE>
gains for previous years that were not distributed during such years. To avoid
application of the excise tax, each Portfolio intends to make its
distributions in accordance with the calendar year distribution requirement. A
distribution will be treated as paid on December 31 of the calendar year if it
is declared by a Portfolio during October, November, or December of that year
to shareholders of record on a date in such a month and paid by the Portfolio
during January of the following calendar year. Such distributions will be
taxable to shareholders (the Separate Accounts) for the calendar year in which
the distributions are declared, rather than the calendar year in which the
distributions are received.
Each Portfolio also intends to comply with diversification regulations under
Section 817(h) of the Code, that apply to mutual funds underlying variable
contracts. Generally, a Portfolio will be required to diversify its
investments so that on the last day of each quarter of a calendar year no more
than 55% of the value of its total assets is represented by any one
investment, no more than 70% is represented by any two investments, no more
than 80% is represented by any three investments, and no more than 90% is
represented by any four investments. For this purpose, securities of a given
issuer generally are treated as one investment, but each U.S. Government
agency and instrumentality is treated as a separate issuer. Compliance with
the diversification rules under Section 817(h) of the Code generally will
limit the ability of any Portfolio, and in particular, the Government
Securities Portfolio, to invest greater than 55% of its total assets in direct
obligations of the U.S. Treasury (or any other issuer) or to invest primarily
in securities issued by a single agency or instrumentality of the
U.S. Government.
If a Portfolio invests in shares of a foreign investment company, the
Portfolio may be subject to U.S. federal income tax on a portion of an "excess
distribution" from, or of the gain from the sale of part or all of the shares
in, such company. In addition, an interest charge may be imposed with respect
to deferred taxes arising from such distributions or gains. The Portfolio may
be eligible to elect alternative tax treatment that would mitigate the effects
of owning foreign investment company stock.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Portfolio accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time that Portfolio actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of debt securities denominated in a foreign
currency and on disposition of certain futures contracts, forward contracts,
and options, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract
and the date of disposition also are treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of a Portfolio's investment company
taxable income to be distributed to its shareholders as ordinary income.
The Treasury Department announced that it would issue future regulations or
rulings addressing the circumstances in which a variable contract owner's
control of the investments of a separate account may cause the contract owner,
rather than the insurance company, to be treated as the owner of the assets
held by the separate account. If the contract owner is considered the owner of
the securities underlying the separate account, income and gains produced by
those securities would be included currently in the contract owner's gross
income. It is not known what standards will be set forth in the regulations or
rulings.
In the event that the rules or regulations are adopted there can be no
assurance that the Portfolios will be able to operate as currently described
in the Prospectus, or that the Trust will not have to change any Portfolio's
investment objective or investment policies. While each Portfolio's investment
objective is fundamental and may be changed only by a vote of a majority of
its outstanding shares, the Trustees have reserved the right to modify the
investment policies of the Portfolios as necessary to prevent any such
prospective rules and regulations from causing the contract owners to be
considered the owners of the shares of the Portfolios underlying the Separate
Accounts.
Distributions
Distributions by a Portfolio of any investment company taxable income (which
includes, among other items, dividends, interest, and any net realized short-
term capital gains in excess of net realized long-term capital
69
<PAGE>
losses), whether received in cash or reinvested in additional Portfolio
shares, will be treated as ordinary income for tax purposes in the hands of a
shareholder (a Separate Account). Distributions of net capital gains (the
excess of any net long-term capital gains over net short-term capital losses),
whether received in cash or reinvested in additional Portfolio shares, will
generally be treated by a Separate Account as either "20% Rate Gain" or "28%
Rate Gain," depending upon the Portfolio's holding period for the assets sold,
regardless of the length of time a Separate Account has held Portfolio shares.
Hedging Transactions
The diversification requirements applicable to a Portfolio's assets may
limit the extent to which a Portfolio will be able to engage in transactions
in options, futures contracts, or forward contracts.
OTHER INFORMATION
Concentration Policy
Under each Portfolio's investment restrictions, except the REIT Portfolio's,
a Portfolio may not invest in a security if, as a result of such investment,
more than 25% of its total assets (taken at market value at the time of such
investment) would be invested in the securities of issuers in any particular
industry, except securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (or repurchase agreements with respect thereto).
Mortgage-related securities, including CMOs, that are issued or guaranteed by
the U.S. Government, its agencies or instrumentalities ("government issued")
are considered government securities. The Portfolios take the position that
mortgage-related securities, whether government issued or privately issued, do
not represent interests in any particular "industry" or group of industries,
and therefore, the concentration restriction noted above does not apply to
such securities. For purposes of complying with this restriction, the Fund, in
consultation with its Portfolio Managers, utilizes its own industry
classifications.
Brokerage Enhancement Plan
The Fund has adopted a Brokerage Enhancement Plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act, under which the Fund may enter into agreements
or arrangements with brokers or dealers, pursuant to which brokerage
transactions can be directed on behalf of a Portfolio to the participating
broker-dealer to execute the transaction in return for credits, other
compensation or other types of benefits to be awarded to the Fund.
The credits, compensation or benefits earned as a result of directed
brokerage can be used in a number of ways to promote the distribution of the
Fund's shares. These ways include paying for all or part of the expenses for:
(i) PSD to participate in or sponsor seminars, sales meetings, conferences,
and other events held by the broker-dealer; (ii) broker/dealers to conduct due
diligence on the Fund or the variable contracts (to help that broker-dealer
defray the expenses of its due diligence); (iii) disseminating sales
literature about the Fund or the variable contracts (to help defray its
related expenses); or (iv) placing the Fund or the variable contracts on a
list of eligible funds or variable contracts that may be offered by that
broker-dealer's registered representatives (to help compensate it for the
associated expenses).
PSD can indirectly benefit from the Plan in that securities brokerage
allocated to a broker-dealer may help defray, in whole or in part,
distribution expenses that otherwise would be borne by PSD or an affiliate.
The Plan also permits credits generated by securities transactions from one
Portfolio to inure to the benefits of that Portfolio, of any other Portfolio,
or to the Fund as a whole.
The Plan provides that it is subject to annual renewal by the Board,
including those Trustees of the Fund who are not "interested persons" of the
Fund (as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the
"Rule 12b-1 Trustees"), and that PSD provide the Trustees with a written
report of securities transactions directed under the Plan, currently on a
quarterly basis. The Plan also provides that it may be terminated at any time
by the vote of a majority of the Rule 12b-1 Trustees, and that all material
Plan amendments must be approved by a vote of the Rule 12b-1 Trustees.
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<PAGE>
Capitalization
The Fund is a Massachusetts business trust established under a Declaration
of Trust dated May 4, 1987. The capitalization of the Fund consists solely of
an unlimited number of shares of beneficial interest with a par value of
$0.001 each. The Board of Trustees may establish additional Portfolios (with
different investment objectives and fundamental policies) at any time in the
future. Establishment and offering of additional Portfolios will not alter the
rights of the Fund's shareholders. When issued, shares are fully paid,
redeemable, freely transferable, and non-assessable by the Fund. Shares do not
have preemptive rights or subscription rights. In liquidation of a Portfolio
of the Fund, each shareholder is entitled to receive his pro rata share of the
net assets of that Portfolio.
Under Massachusetts law, shareholders could under certain circumstances, be
held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees, or
officers of the Fund for acts or obligations of the Fund, which are binding
only on the assets and property of the Fund and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Fund or the Trustees. The Declaration of Trust provides for
indemnification out of Fund property for all loss and expense of any
shareholder held personally liable for the obligations of the Fund. The risk
of a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the Fund itself would be unable to meet
its obligations and thus should be considered remote.
Expenses incurred in connection with the Fund's organization and
establishment of the Aggressive Equity Portfolio and Emerging Markets
Portfolio in 1996 and the public offering of the shares of those Portfolios,
aggregated approximately $23,410 per Portfolio. These costs have been deferred
by the Aggressive Equity and Emerging Markets Portfolios and are being
amortized by them over a period of five years from the beginning of operations
of each of those Portfolios. These costs have been deferred and are being
amortized over a period of five years at the rates of 10%, 15%, and 25% in
years one, two, and three through five, respectively. At December 31, 1999,
the unamortized balance of such expenses amounted to $5,856 each for the
Aggressive Equity Portfolio and the Emerging Markets Portfolio.
Expenses incurred in connection with the Fund's organization and
establishment of the Diversified Research and International Large-Cap
Portfolios in 1999 and the public offering of the shares of those Portfolios,
aggregated approximately $19,733 per Portfolio. Expenses incurred in
connection with the Fund's organization and establishment of the I-Net
Tollkeeper Portfolio in 2000 and the public offering of the shares of the
Portfolio aggregated approximately $40,804. These costs will be expensed and
charged separately to each of the Portfolios during each Portfolio's first
period of operations.
Voting Rights
Shareholders of the Fund are given certain voting rights. Each share of each
Portfolio will be given one vote, unless a different allocation of voting
rights is required under applicable law for a mutual fund that is an
investment medium for variable insurance products.
Under the Declaration of Trust and Massachusetts business trust law, the
Fund is not required to hold annual meetings of Fund shareholders to elect
Trustees or for other purposes. It is not anticipated that the Fund will hold
shareholders' meetings unless required by law, although special meetings may
be called for a specific Portfolio, or for the Fund as a whole, for purposes
such as electing or removing Trustees, changing fundamental policies, or
approving a new or amended advisory contract or portfolio management
agreement. In this regard, the Fund will be required to hold a meeting to
elect Trustees to fill any existing vacancies on the Board if, at any time,
fewer than a majority of the Trustees have been elected by the shareholders of
the Fund. In addition, the Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares or other voting interests
of the Fund may remove a person serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of a person serving
as Trustee, if requested in writing to do so by the holders of not less than
10% of the outstanding shares or other voting interests of the Fund. In
accordance with current laws, it is anticipated that an
71
<PAGE>
insurance company issuing a Variable Contract that participates in the Fund
will request voting instructions from Variable Contract Owners and will vote
shares or other voting interests in the Separate Account in proportion to the
voting instructions received. The Fund's shares do not have cumulative voting
rights.
Custodian and Transfer Agency and Dividend Disbursing Services
Investors Fiduciary Trust Company ("IFTC") serves as Custodian for assets of
the Fund. The address of IFTC is 801 Pennsylvania, Kansas City, MO 64105-1716.
Pursuant to a sub-custody agreement between IFTC and Chase, Chase serves as
subcustodian of the Fund for the custody of the foreign securities acquired by
the Fund. Under the agreement, and in accordance with applicable regulations,
Chase may hold the foreign securities at its principal office at 270 Park
Avenue, New York, New York 10081, at Chase's branches, at a foreign branch of
a qualified U.S. bank, an eligible foreign subcustodian, or an eligible
foreign securities depository. Pursuant to rules or other exemptions under the
1940 Act, the Fund may maintain foreign securities and cash for the Fund in
the custody of certain eligible foreign banks and securities depositories.
Pacific Life provides dividend disbursing and transfer agency services to
the Fund.
Financial Statements
The financial statements of the Fund as of December 31, 1999, including the
notes thereto, are incorporated by reference in this Statement of Additional
Information from the Annual Report of the Fund dated as of December 31, 1999.
The financial statements have been audited by Deloitte & Touche LLP,
independent auditors.
Independent Auditors
Deloitte & Touche LLP serves as the independent auditors for the Fund. The
address of Deloitte & Touche LLP is 695 Town Center Drive, Suite 1200, Costa
Mesa, California 92626.
Counsel
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006-2401,
passes upon certain legal matters in connection with the shares offered by the
Fund and also acts as outside counsel to the Fund.
Code of Ethics
The Fund and each of its Portfolio Managers have adopted codes of ethics
which have been approved by the Fund's Board of Trustees. Subject to certain
limitations and procedures, these codes permit personnel that they cover,
including employees of the Investment Adviser or Portfolio Managers who
regularly have access to information about securities purchased for the Fund,
to invest in securities for their own accounts. This could include securities
that may be purchased by Portfolios of the Fund. The codes are intended to
prevent these personnel from taking inappropriate advantage of their positions
and to prevent fraud upon the Fund. The Fund's Code of Ethics requires
reporting to the Board of Trustees on compliance violations.
Registration Statement
This Statement of Additional Information and the Prospectus do not contain
all the information included in the Fund's Registration Statement filed with
the SEC under the Securities Act of 1933 with respect to the securities
offered hereby, certain portions of which have been omitted pursuant to the
rules and regulations of the SEC. The Registration Statement, including the
exhibits filed therewith, (and including specifically all applicable Codes of
Ethics), are on file with and may be examined at the offices of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
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APPENDIX
Description of Bond Ratings
Corporate Bonds: Bonds rated Aa by Moody's are judged by Moody's to be of
high quality by all standards. Together with bonds rated Aaa (Moody's highest
rating) they comprise what are generally known as high-grade bonds. Aa bonds
are rated lower than Aaa bonds because margins of protection may not be as
large as those of Aaa bonds, 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 those applicable to Aaa securities.
Bonds which are rated A by Moody's 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.
Moody's Baa rated bonds 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.
Bonds rated AA by Standard & Poor's are judged by Standard & Poor's to be
high-grade obligations and in the majority of instances differ only in small
degree from issues rated AAA (Standard & Poor's highest rating). Bonds rated
AAA are considered by Standard & Poor's to be the highest grade obligations
and possess the ultimate degree of protection as to principal and interest.
With AA bonds, as with AAA bonds, prices move with the long-term money market.
Bonds rated A by Standard & Poor's, regarded as upper medium grade, have a
strong capacity and interest, although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions.
Standard & Poor's BBB rated bonds, or medium-grade category bonds, are
borderline between definitely sound obligations and those where the
speculative element begins to predominate. These bonds have adequate asset
coverage and normally are protected by satisfactory earnings. Their
susceptibility to changing conditions, particularly to depressions,
necessitates constant watching. These bonds generally are more responsive to
business and trade conditions than to interest rates. This group is the lowest
which qualifies for commercial bank investment.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the rating categories.
Moody's Ba rated bonds 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 rated Ba. Bonds which are rated B by Moody's 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.
Bonds rated Caa by Moody's are considered to be of poor standing. Such
issues may be in default or there may be elements of danger with respect to
principal or interest. Bonds rated Ca are considered by Moody's to be
speculative in a high degree, often in default. Bonds rated C, the lowest
class of bonds under Moody's bond ratings, are regarded by Moody's as having
extremely poor prospects.
Moody's also applies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; 2 indicates a mid-range ranking; and 3 indicates a ranking toward
the lower end of the category.
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A bond rated BB, B, CCC, and CC by Standard & Poor's 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 bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
Commercial Paper: The Prime rating is the highest commercial paper rating
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and customer acceptance;
(4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management
of obligations which may be present or may arise as a result of public
interest questions and preparations to meet such obligations. Issuers with
this Prime category may be given ratings 1, 2 or 3, depending on the relative
strengths of these factors.
Commercial paper rated A by Standard & Poor's has the following
characteristics: (i) liquidity ratios are adequate to meet cash requirements;
(ii) long-term senior debt rating should be A or better, although in some
cases BBB credits may be allowed if other factors outweigh the BBB rating,
(iii) the issuer should have access to at least two additional channels of
borrowing; (iv) basic earnings and cash flow should have an upward trend with
allowances made for unusual circumstances; and (v) typically the issuer's
industry should be well established and the issuer should have a strong
position within its industry and the reliability and quality of management
should be unquestioned. Issuers rated A are further referred to by use of
numbers 1, 2 and 3 to denote relative strength with this highest
classification.
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Form No. 15-17595-16
Form No. 484-0A
<PAGE>
PACIFIC SELECT FUND
Part C: OTHER INFORMATION
Item 23. Exhibits
--------
(a)(1) Agreement and Declaration of Trust/7/
(a)(2) Establishment and Designation of Shares of
Beneficial Interest in the Equity Index Series/1/
(b) By-Laws of Registrant/7/
(c) Instruments Defining Rights of Holders of
Securities/1/
(d)(1) Investment Advisory Agreement/1/
(d)(2) Portfolio Management Agreement - Capital Guardian
Trust Company/1/
(d)(3) Addendum to Goldman Sachs Portfolio Management
Agreement
(d)(4) Portfolio Management Agreement - J.P. Morgan
Investment Management Inc./1/
(d)(5) Portfolio Management Agreement - Janus Capital
Corporation/1/
(d)(6) Portfolio Management Agreement - Morgan Stanley
Asset Management/4/
(d)(7) Portfolio Management Agreement - Alliance Capital
Management L.P./5/
(d)(8) Portfolio Management Agreement - Goldman Sachs
Asset Management/5/
II-1
<PAGE>
(d)(9) Portfolio Management Agreement - Pacific
Investment Management Company/1/
(d)(10) Addendum to Advisory Agreement - Large-Cap,
Mid-Cap, Small-Cap Index, REIT/6/
(d)(11) Addendum to Portfolio Management Agreement -
Janus Capital Corporation/3/
(d)(12) Addendum to Portfolio Management Agreement -
J.P. Morgan Investment Management Inc./3/
(d)(13) Addendum to Portfolio Management Agreement -
Pacific Investment Management Company/3/
(d)(14) Addendum to Advisory Agreement - International
Large-Cap and Diversified Research/7/
(d)(15) Portfolio Management Agreement - Salomon Brothers
Asset Management Inc./6/
(d)(16) Portfolio Management Agreement - Lazard Asset
Management/6/
(d)(17) Addendum to Portfolio Management Agreement -
Morgan Stanley Asset Management/6/
(d)(18) Addendum to Advisory Agreement - I-Net
Tollkeeper
(d)(19) Portfolio Management Agreement - Capital Guardian
Trust Company/7/
(d)(20) Portfolio Management Agreement - Mercury
Asset Management US/7/
(d)(21) Addendum to Portfolio Management
Agreement - Alliance Capital Management L.P./7/
(e)(1) Distribution Agreement/7/
(e)(2) Addendum to Distribution Agreement - I-Net
Tollkeeper Portfolio
(f) Not Applicable
(g)(1) Custodian Agreement/1/
(g)(2) Custodian Agreement Fee Schedule/3/
(g)(3) Addendum to Custodian Agreement - Large-Cap,
Mid-Cap, Small-Cap Index, REIT/6/
(g)(4) Addendum to Custodian Agreement - International
Large-Cap and Diversified Research/7/
(g)(5) Addendum to Custodian Agreement - I-Net
Tollkeeper
(h)(1) Agency Agreement/1/
(h)(2) Participation Agreement
(h)(3) Agreement for Support Services/2/
(h)(4) Addendum to Agency Agreement - Large-Cap,
Mid-Cap, Small-Cap Index, REIT/6/
(h)(5) Addendum to Agency Agreement - International
Large-Cap and Diversified Research/7/
(h)(6) Addendum to Agency Agreement - I-Net Tollkeeper
(h)(7) Addendum to Participation Agreement - I-Net
Tollkeeper
(i) Opinion and Consent of Counsel/1/
(j) Independent Auditor's Consent
(k) Not Applicable
(l) Not Applicable
(m) Brokerage Enhancement Plan
(n) Not Applicable
(o) Not Applicable
(p)(1) Code of Ethics - Pacific Select Fund/7/
(p)(2) Form of Code of Ethics - Alliance Capital
Management L.P.
(p)(3) Form of Code of Ethics - Capital Guardian Trust
Company
(p)(4) Form of Code of Ethics - Goldman Sachs Asset
Management
(p)(5) Form of Code of Ethics - J.P. Morgan Investment
Management Inc.
(p)(6) Form of Code of Ethics - Janus Capital
Corporation
(p)(7) Form of Code of Ethics - Lazard Asset Management
(p)(8) Form of Code of Ethics - Mercury Asset Management
US
(p)(9) Form of Code of Ethics - Morgan Stanley Asset
Management
(p)(10) Form of Code of Ethics - Pacific Investment
Management Company
(p)(11) Form of Code of Ethics - Salomon Brothers Asset
Management Inc
- ------------
/1/ Included in Registrant's Form Type N1A/A, Accession No. 0000898430-95-
002464 filed on November 22, 1995 and incorporated by reference herein.
/2/ Included in Registrant's Form Type N1A/A, Accession No. 0000898430-96-
000275 filed on February 1, 1996 and incorporated by reference herein.
/3/ Included in Registrant's Form Type N1A/B, Accession No. 0001017062-97-
000728 filed on April 25, 1997 and incorporated by reference herein.
/4/ Included in Registrant's Form Type N1A/A, Accession No. 0001017062-97-
001012 filed on May 16, 1997 and incorporated by reference herein.
/5/ Included in Registrant's Form Type N1A/A, Accession No. 0001017062-98-
000424 filed on March 2, 1998 and incorporated by reference herein.
/6/ Included in Registrant's Form Type N1A/A, Accession No. 0001017062-98-
001954 filed on September 4, 1998 and incorporated by reference herein.
/7/ Included in Registrant's Form Type NIA/A, Accession Number 0001017062-99-
000474 filed on February 16, 2000 and incorporated by reference herein.
Item 24. Persons Controlled by or Under Common Control with the Fund
-----------------------------------------------------------
Pacific Life Insurance Company ("Pacific Life"), on its own behalf and on
behalf of its Separate Account A, Separate Account B, Pacific Select Variable
Annuity, Pacific Select Exec, Pacific COLI, Pacific COLI II, Pacific COLI III,
Pacific Select, and Pacific Corinthian Variable Account Separate Accounts
("Separate Accounts"), owns of record the outstanding shares of the Series of
Registrant. Pacific Life Insurance Company will vote fund shares in accordance
with instructions received from Policy Owners having interests in the Variable
Accounts of its Separate Accounts.
Item 25. Indemnification
---------------
II-2
<PAGE>
Reference is made to Article V of the Registrant's Declaration of
Trust.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Act") may be permitted to trustees, officers and controlling persons
of the Registrant by the Registrant pursuant to the Declaration of Trust or
otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers or controlling
persons of the Registrant in connection with the successful defense of any act,
suit or proceeding) is asserted by such trustees, officers or controlling
persons in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
Item 26. Business and Other Connections of the Investment Adviser
--------------------------------------------------------
Each investment adviser, and the trustees or directors and officers of each
investment adviser and their business and other connections are as follows:
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Pacific Life Insurance Company
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Pacific Life Thomas C. Sutton Director, Chairman of the Board and Chief
Executive Officer of Pacific Life Insurance
Company, January 1990 to present; Director,
Chairman of the Board and Chief Executive
Officer of Pacific Mutual Holding Company and
Pacific LifeCorp, August 1997 to present;
Director of: Mutual Service Corporation,
Director (March 1989 to present) and Chairman
(July 1989 to present) of Pacific Life & Annuity
Company (formerly PM Group Life Insurance Co.);
PM Realty Advisors, Inc., Pacific Financial
Products, Inc., and similar positions with
various affiliated companies of Pacific Life
Insurance Company; Director of: Newhall Land &
Farming; Edison International; The Irvine Company
and Former Chairman of the American Council of
Life Insurance; and Former Director of: Pacific
Corinthian Life Insurance Company, Cadence
Capital Management Corporation, NFJ Investment
Group, Inc., Pacific Financial Asset Management
Corporation, Pacific Investment Management
Company, Pacific Select Distributors, Inc.
(formerly Pacific Mutual Distributors, Inc.), and
Management Board member of PIMCO Advisors L.P.
Pacific Life Glenn S. Schafer Director (November 1994 to present) and President
(January 1995 to present) of Pacific Life Insurance
Company; Director and President of Pacific Mutual
Holding Company and Pacific LifeCorp, August 1997
to present; Director of: Pacific Life & Annuity
Company (formerly PM Group Life Insurance Company);
Mutual Service Corporation; PM Realty Advisors, Inc.;
and similar positions with various affiliated companies
of Pacific Life Insurance Company; Former Director
of Pacific Corinthian Life Insurance Company; Pacific
Select Distributors, Inc. (formerly Pacific Mutual
Distributors, Inc.); and Management Board member of
PIMCO Advisors L.P.
Pacific Life David R. Carmichael Director (since August 1997), Senior Vice President
and General Counsel of Pacific Life Insurance
Company, April 1992 to present; Senior Vice
President and General Counsel of Pacific Mutual
Holding Company and Pacific LifeCorp, August 1997
to present; Senior Vice President and General
Counsel of Pacific Life & Annuity Company (formerly
PM Group Life Insurance Company), July 1998 to present;
Director of Pacific Life & Annuity (formerly PM Group
Life Insurance Company); Association of California
Health and Life Insurance Companies; and Association
of Life Insurance Counsel; Former Director of Pacific
Corinthian Life Insurance Company
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Pacific Life Audrey L. Milfs Director (since August 1997), Vice President
and Corporate Secretary of Pacific Life
Insurance Company, March 1991 to present;
Vice President and Secretary of Pacific
Mutual Holding Company and Pacific LifeCorp,
August 1997 to present; Director of Pacific
Life & Annuity Company (formerly PM Group Life
Insurance Company); Pacific Financial Products,
Inc.; PM Realty Advisors, Inc.; Vice President
and Secretary to several affiliated companies
of Pacific Life Insurance Company
Pacific Life Khanh T. Tran Director (since August 1997), Senior Vice President
and Chief Financial Officer of Pacific Life
Insurance Company, June 1996 to present; Vice
President and Treasurer of Pacific Life Insurance
Company, November 1991 to June 1996; Senior Vice
President and Chief Financial Officer to several
affiliated companies of Pacific Life Insurance
Company, 1990 to present
Pacific Life Edward R. Byrd Vice President and Controller of Pacific
Life Insurance Company, August 1992 to present;
Director (since January 1998), CFO and
Treasurer of Pacific Select Distributors, Inc.
(formerly Pacific Mutual Distributors, Inc.);
Vice President and Controller of Pacific Mutual
Holding Company and Pacific LifeCorp, August
1997 to present; and similar positions with
various affiliated companies of Pacific Life
Insurance Company.
Pacific Life Brian D. Klemens Vice President and Treasurer of Pacific Life
Insurance Company, December 1998 to Present; and
Assistant Vice President and Assistant Controller
of Pacific Life Insurance Company, April 1994 to
December 1998; Vice President and Treasurer of
several affiliated companies of Pacific Life
Insurance Company (February 1999 to present)
Pacific Life Larry J. Card Executive Vice President of Pacific Life Insurance
Company, January 1995 to present; Executive Vice
President of Pacific Mutual Holding Company and
Pacific LifeCorp, August 1997 to present and
similar positions with various affiliated
companies of Pacific Life Insurance Company.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ---------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Pacific Investment Investment Adviser
Management
Company
("PIMCO")
PIMCO Augustine Ariza, Jr. Vice President
PIMCO Michael R. Asay Senior Vice President
PIMCO George C. Allan Senior Vice President
PIMCO Tamara J. Arnold, CFA Senior Vice President
PIMCO Brian P. Baker Vice President (SINGAPORE)
PIMCO Leslie A. Barbi Executive Vice President
PIMCO Stephen B. Beaumont Vice President
PIMCO William R. Benz, CFA Managing Director
PIMCO Gregory A. Bishop Vice President
PIMCO Andrew Brick Senior Vice President
PIMCO John B. Brynjolfsson Senior Vice President
PIMCO Robert W. Burns Managing Director
PIMCO Sabrina C. Callin Vice President
PIMCO Marcia K. Clark Vice President
PIMCO Jerry L. Coleman Vice President
PIMCO Cyrille Conseil Vice President
PIMCO Douglas Cummings Vice President
PIMCO Wendy W. Cupps Senior Vice President
PIMCO Chris P. Dialynas Managing Director
PIMCO David J. Dorff Vice President
PIMCO Michael G. Dow Senior Vice President
PIMCO Anita Dunn Vice President
PIMCO Sandra Durn Vice President
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ---------------------- ----------------------- --------------------------------------------
<S> <C> <C>
PIMCO A. Benjamin Ehlert, CFA, Executive Vice President
CIC
PIMCO Mohamed A. El-Erian Managing Director
PIMCO Robert A. Ettl Executive Vice President
PIMCO Stephanie D. Evans Vice President
PIMCO Robert M. Fitzgerald Chief Financial Officer, Treasurer (PALP)
PIMCO Teri Frisch Vice President
PIMCO Steve A. Foulke Vice President
PIMCO Yuri P. Garbuzov Vice President
PIMCO William H. Gross, CFA Managing Director
PIMCO John L. Hague Managing Director
PIMCO Gordon C. Hally, CIC Executive Vice President
PIMCO Pasi M. Hamalainen Managing Director
PIMCO John P. Hardaway Senior Vice President
PIMCO Brent R. Harris, CFA Managing Director
PIMCO Joseph Hattesohl Vice President
PIMCO Raymond C. Hayes Vice President
PIMCO David C. Hinman Senior Vice President
PIMCO Lisa Hocson Vice President
PIMCO Douglas M. Hodge, CFA Executive Vice President
PIMCO Brent L. Holden, CFA Managing Director
PIMCO Dwight F. Holloway, Jr., Senior Vice President (LONDON)
CFA, CIC
PIMCO Mark T. Hudoff Senior Vice President
PIMCO Margaret E. Isberg Managing Director
PIMCO Thomas J. Kelleher Vice President
PIMCO James M. Keller Senior Vice President
PIMCO Raymond G. Kennedy, CFA Senior Vice President
PIMCO Mark R. Kiesel Vice President
PIMCO Sharon K. Kilmer Executive Vice President
PIMCO Steven Kirkbaumer Vice President
PIMCO John S. Loftus, CFA Managing Director
PIMCO David Lown Vice President
PIMCO Joseph McDevitt Executive Vice President
PIMCO Andre J. Mallegol Vice President
PIMCO Scott W. Martin Vice President
PIMCO Michael E. Martini Vice President
PIMCO Scott A. Mather Senior Vice President
PIMCO Benjamin L. Mayer Vice President
PIMCO Dean S. Meiling, CFA Managing Director
PIMCO Jonathan D. Moll Vice President
PIMCO Mark E. Metsch Vice President
PIMCO Kristen M. Monson Senior Vice President
PIMCO James F. Muzzy, CFA Managing Director
PIMCO Doris Nakamura Vice President
PIMCO Mark D. Nellemann Vice President
PIMCO Vinh T. Nguyen Controller (PALP)
PIMCO Douglas J. Ongaro Vice President
PIMCO Thomas J. Otterbein, CFA Senior Vice President
PIMCO Kumar N. Palghat Vice President
PIMCO Keith Perez Vice President
PIMCO Mohan V. Phansalkar Senior Vice President, Senior
Legal Counsel
PIMCO Elizabeth M. Philipp Vice President
PIMCO David J. Pittman Vice President
PIMCO William F. Podlich III Managing Director
PIMCO William C. Powers Managing Director
PIMCO Terry A. Randall Vice President
PIMCO Mark Romano Vice President
PIMCO Scott L. Roney, CFA Senior Vice President (JAPAN)
PIMCO Michael J. Rosborough Senior Vice President
PIMCO Cathy T. Rowe Vice President
PIMCO Seth R. Ruthen Vice President
PIMCO Jeffrey M. Sargent Vice President
PIMCO Ernest L. Schmider Managing Director, Secretary,
Chief Administrative and Legal Officer
PIMCO Leland T. Scholey, CFA Senior Vice President
PIMCO Stephen O. Schulist Vice President
PIMCO Iwona E. Scibisz Vice President
PIMCO Denise C. Seliga Vice President
PIMCO Rita J. Seymour Vice President
PIMCO Christopher Sullivan, CFA Vice President
PIMCO Kyle J. Theodore Vice President
PIMCO Lee Thomas Managing Director
PIMCO William S. Thompson, Chief Executive Officer and Managing
Jr. Director
PIMCO Ronaele K. Trinidad Vice President
PIMCO Benjamin L. Trosky, CFA Managing Director
PIMCO Richard E. Tyson Vice President
PIMCO Peter A. Van de Zilver Vice President
PIMCO Koichi Watanabe Vice President (JAPAN)
PIMCO Marilyn Wegener Vice President
PIMCO Richard M. Weil Assistant Secretary, General Counsel
PIMCO Paul C. Westhead Vice President, Managing Director,
Director of Corporate Services and General Counsel
PIMCO George H. Wood, CFA Executive Vice President
PIMCO Michael A. Yetter Senior Vice President
PIMCO David Young Vice President (LONDON)
PIMCO Changhong Zhu Vice President
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Capital Guardian Trust Investment Adviser
Company
Capital Guardian Trust Timothy D. Amour Director, Capital Guardian Trust Company,
Company Capital Research and Management Company and
Capital Management Services, Inc.; Chairman
and Chief Executive Officer, Capital Research
Company.
Capital Guardian Trust Donnalisa Barnum Senior Vice President, Capital
Company Guardian Trust Company; Vice
President, Capital International
Limited and Capital International, Inc.
Capital Guardian Trust Andrew F. Barth Director, Capital Guardian Trust Company and
Company Capital Research and Management Company;
Director and Research Director, Capital
International Research, Inc.; President, Capital
Guardian Research Company; Formerly Director and
Executive Vice President, Capital Guardian
Research Company.
Capital Guardian Trust Michael D. Beckman Senior Vice President, Treasurer and Director,
Company Capital Guardian Trust Company; Director,
Capital Guardian Trust Company of Nevada;
Treasurer, Capital International Research, Inc.
and Capital Guardian Research Company; Director
and Treasurer, Capital Guardian (Canada), Inc.;
Formerly Chairman and Director, Capital
International Asia Pacific Management Company.
Capital Guardian Trust Michael A. Burik Senior Counsel, The Capital Group Companies,
Company Inc.; Senior Vice President, Capital Guardian
Trust Company.
Capital Guardian Trust Elizabeth A. Burns Senior Vice President, Capital Guardian
Company Trust Company
Capital Guardian Trust Larry P. Clemmensen Director of Capital Guardian Trust
Company Company, American Funds Distributors, Inc.;
Chairman of the Board, and Director of American
Funds Service Company; Director and President,
The Capital Group Companies, Inc. and Capital
Management Services, Inc.; Senior Vice
President and Director, Capital Research and
Management Company; Treasurer, Capital
Strategy Research, Inc.;
Capital Guardian Trust Kevin G. Clifford Director and President, American Funds
Company Distributors, Inc.; Director, Capital
Guardian Trust Company
Capital Guardian Trust Roberta A. Conroy Senior Vice President, Director and Counsel,
Company Capital Guardian Trust Company; Senior Vice
President and Secretary, Capital
International, Inc.; Assistant General
Counsel, The Capital Group Companies, Inc.,
Secretary, Capital Guardian International,
Inc.; Formerly, Secretary, Capital Management
Services, Inc.
Capital Guardian Trust John B. Emerson Senior Vice President, Capital Guardian Trust
Company Company; Director, Capital Guardian Trust
Company, a Nevada Corporation.
Capital Guardian Trust Michael R. Ericksen Senior Vice President, Capital Guardian
Company Trust Company; Senior Vice President and
Director, Capital International, Limited
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- ----------------------------------------------
<S> <C> <C>
Capital Guardian Trust David I. Fisher Vice Chairman and Director, Capital
Company International, Inc., Capital International
Limited and Capital International K.K.;
Chairman and Director, Capital International
S. A. and Capital Guardian Trust Company;
Director and President, Capital International
Limited (Bermuda); Director, The Capital Group
Companies, Inc., Capital International
Research, Inc., Capital Group Research, Inc.
and Capital Research and Management Company.
Capital Guardian Trust Richard N. Havas Senior Vice President, Capital Guardian Trust
Company, Capital International, Inc. and
Capital International Limited; Director and
Senior Vice President, Capital International
Research, Inc.; Director and Senior Vice
President Capital Guardian (Canada), Inc.
Capital Guardian Trust Frederick M. Hughes, Jr. Senior Vice President, Capital
Company Guardian Trust Company
Capital Guardian Trust William H. Hurt Senior Vice President and Director, Capital
Company Guardian Trust Company; Chairman and Director,
Capital Guardian Trust Company, a Nevada
Corporation and Capital Strategy Research,
Inc.; Formerly, Director, The Capital Group
Companies, Inc.
Capital Guardian Trust Peter C. Kelly Senior Vice President, Capital Guardian Trust
Company Company; Assistant General Counsel, The
Capital Group Companies, Inc.; Director and
Senior Vice President, Capital International,
Inc.
Capital Guardian Trust Robert G. Kirby Chairman Emeritus, Capital Guardian Trust
Company; Senior Partner, The Capital Group
Companies, Inc.
Capital Guardian Trust Nancy J. Kyle Senior Vice President and Director,
Company Capital Guardian Trust Company; President, and
Director, Capital Guardian (Canada), Inc.
Capital Guardian Trust Karin L. Larson Director, The Capital Group Companies, Inc.,
Company Capital Group Research, Inc., Capital Guardian
Trust Company, Director and Chairman, Capital
Guardian Research Company and Capital
International Research, Inc., Formerly,
Director and Senior Vice President, Capital
Guardian Research Company.
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Capital Guardian Trust James R. Mulally Senior Vice President and Director,
Company Capital Guardian Trust Company; Senior
Vice President, Capital International
Limited; Vice President, Capital Research
Company; Formerly, Director, Capital Guardian
Research Company
Capital Guardian Trust Shelby Notkin Senior Vice President, Capital
Company Guardian Trust Company; Director, Capital
Guardian Trust Company, a Nevada Corporation
Capital Guardian Trust Mary M. O'Hern Senior Vice President, Capital
Company Guardian Trust Company and Capital
International Limited; Vice President,
Capital International, Inc.
Capital Guardian Trust Jeffrey C. Paster Senior Vice President, Capital Guardian
Company Trust Company
Capital Guardian Trust Robert V. Pennington Senior Vice President, Capital Guardian
Company Trust Company; President and Director, Capital
Guardian Trust Company, a Nevada Corporation
Capital Guardian Trust Jason M. Pilalas Director, Capital Guardian Trust Company; Senior
Company Vice President and Director, Capital
International Research, Inc.; Formerly,
Director and Senior Vice President, Capital
Guardian Research Company.
Capital Guardian Trust Robert Ronus President and Director, Capital Guardian Trust
Company Company; Chairman and Director, Capital
Guardian (Canada), Inc., Director, Capital
International, Inc. and Capital Guardian
Research Company; Senior Vice President,
Capital International, Inc.; Capital
International Limited and Capital
International S.A.; Formerly, Chairman,
Capital Guardian International Research
Company and Director, Capital International,
Inc.
Capital Guardian Trust James F. Rothenberg Director, American Funds Distributors, Inc.,
Company American Funds Service Company, The Capital
Group Companies, Inc., Capital Group Research,
Inc., Capital Guardian Trust Company and
Capital Management Services, Inc.; Director
and President, Capital Research and
Management, Inc.; Formerly, Director of
Capital Guardian Trust Company, a Nevada
Corporation, and Capital Research Company.
Capital Guardian Trust Theodore R. Samuels Senior Vice President and Director, Capital
Company Guardian Trust Company; Director, Capital
International Research, Inc.; Formerly,
Director, Capital Guardian Research Company
Capital Guardian Trust Lionel A. Sauvage Senior Vice President, Capital Guardian
Company Trust Company; Vice President,
Capital International Research, Inc.;
Formerly, Director, Capital Guardian
Research Company
Capital Guardian Trust John H. Seiter Executive Vice President and Director,
Company Capital Guardian Trust Company; Senior Vice
President, Capital Group International, Inc.;
Vice President, The Capital Group Companies,
Inc.
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Capital Guardian Trust Eugene P. Stein Executive Vice President and Director,
Company Capital Guardian Trust Company; Formerly,
Director, Capital Guardian Research
Company
Capital Guardian Trust Karen Skinner-Twoney Vice President, Capital Guardian Trust
Company Company; Director, Vice President and
Treasurer, Capital Guardian Trust Company, a
Nevada Corporation.
Capital Guardian Trust Philip A. Swan Senior Vice President, Capital Guardian
Company Trust Company
Capital Guardian Trust Shaw B. Wagener Director, Capital Guardian Trust Company,
Company Capital International Asia Pacific Management
Company S.A., Capital Research and Management
Company and Capital International Management
Company S.A.; President and Director, Capital
International, Inc.; Senior Vice President,
Capital Group International, Inc.
Capital Guardian Trust Eugene M. Waldron Senior Vice President, Capital Guardian Trust
Company Company
Capital Guardian Trust Joanne Weckbacher Senior Vice President, Capital Guardian Trust
Company Company.
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
J.P. Morgan Investment Adviser
Investment
Management Inc.
J.P. Morgan Keith M. Schappert President, Chairman, Director and Managing
Investment Director, J.P. Morgan Investment Management
Management Inc. Inc.; Managing Director, Morgan Guaranty
Trust Company of New York
J.P. Morgan Isabel H. Sloane Director and Managing Director, J.P. Morgan
Investment Investment Management Inc.; Managing Director,
Management Inc. Morgan Guaranty Trust Company of New York
J.P. Morgan Hendrik Van Riel Director and Managing Director,
Investment J.P. Morgan Investment Management Inc.;
Management Inc. Managing Director, Morgan Guaranty
Trust Company of New York
J.P. Morgan Kenneth W. Anderson Director and Managing Director, J.P. Morgan
Investment Investment Management Inc.; Managing
Management Inc. Director, Morgan Guaranty Trust Company
of New York
J.P. Morgan John W. Schmidlin Director, Managing Director, J.P. Morgan
Investment Investment Management Inc.; Managing Director,
Management Inc. Morgan Guaranty Trust Company of New York
J.P. Morgan Anthony Della Pietra Chief Legal Officer and Managing Director,
Investment J.P. Morgan Investment Management Inc.;
Management Inc. Managing Director, Morgan Guaranty Trust
Company of New York
J.P. Morgan Thomas J. Smith Chief Compliance Officer, Vice President;
Investment Vice President, Morgan Guaranty Trust
Management Inc. Company of New York
J.P. Morgan Ronald R. Dewhurst Director and Managing Director, J.P. Morgan
Investment Investment Management Inc.; Managing Director,
Management Inc. Morgan Guaranty Trust Company of New York
J.P. Morgan Gerard W. Lillis Director and Managing Director, J.P. Morgan
Investment Investment Management Inc.; Managing Director,
Management Inc. Morgan Guaranty Trust Company of New York
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Janus Capital Investment Adviser
Corporation
Janus Capital Thomas H. Bailey President, Director, Chairman of the
Corporation Board and Chief Executive Officer
Janus Capital James P. Craig, III Director, Vice Chairman and Chief Investment
Corporation Officer
Janus Capital Thomas A. Early Vice President, General Counsel and
Corporation Secretary
Janus Capital Michael E. Herman Director
Corporation
Janus Capital Thomas A. McDonnell Director
Corporation
Janus Capital Landon H. Rowland Director
Corporation
Janus Capital Michael Stolper Director
Corporation
Janus Capital Mark B. Whiston Vice President and Chief Marketing
Corporation Officer
Janus Capital Marjorie G. Hurd Vice President and Chief Operations Officer
Corporation
Janus Capital Steven R. Goodbarn Treasurer and Chief Financial
Corporation Officer, 1992 to present, Vice
President of Finance, June 1995
to present
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ----------------------- ---------------------- ------------------------------
<S> <C> <C>
Morgan Stanley Asset Investment Adviser
Management
Morgan Stanley Asset Barton M. Biggs Director, Chairman and
Management Managing Director
Morgan Stanley Asset Peter Dominic Managing Director and Member
Management Caldecott of Executive Committee
Morgan Stanley Asset Marna C. Whittington Chief Operating Officer,
Management Managing Director, and Member
of Executive Committee
Morgan Stanley Asset Donald P. Ryan Principal and Compliance Officer
Management
Morgan Stanley Asset Harold J. Schaaff, Jr. Managing Director, General Counsel
Management and Secretary
Morgan Stanley Asset Alexander C. Frank Treasurer
Management
Morgan Stanley Asset Richard B. Worley President, Director, Portfolio
Management Manager and Member of Executive
Committee
Morgan Stanley Asset Thomas L. Bennett Member of Executive Committee
Management and Portfolio Manager
Morgan Stanley Asset Alan E. Goldberg Member of Executive Committee
Management
</TABLE>
II-14
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- ---------------------------------------------
<S> <C> <C>
Goldman Sachs Asset Investment Adviser
Management
Goldman Sachs Asset Robert J. Hurst Vice Chairman, Goldman, Sachs & Co.
Management
Goldman Sachs Asset Henry M. Paulson, Jr. Chief Executive Officer and Chairman,
Management Goldman, Sachs & Co.
Goldman Sachs Asset John A. Thain President and Co-Chief Operating Officer,
Management Goldman, Sachs & Co.
Goldman Sachs Asset John L. Thornton President and Co-Chief Operating Officer,
Management Goldman, Sachs & Co.
</TABLE>
II-15
<PAGE>
<TABLE>
<CAPTION>
Adviser and Governing
Board of Directors Name of Individual Business and Other Connections
- -------------------------------- ------------------------------- ---------------------------------------------------------
<S> <C> <C>
Alliance Capital Management L.P. Investment Adviser
Alliance Capital Management L.P. Dave H. Williams Director; Chairman of the Board, Alliance Capital
Management Corporation; Director of The Equitable
Companies Incorporated; Director of The Equitable Life
Assurance Society of the United States; Senior Vice
President of AXA (husband of Reba W. Williams)
Alliance Capital Management L.P. Michael Hegarty Director; Vice Chairman and Chief Operating Officer;
The Equitable Companies Incorporated; President, Chief
Operating Officer and Director, The Equitable Life
Assurance Society of the U.S.
Alliance Capital Management L.P. Benjamin D. Holloway Director; Consultant to the Continental Companies;
Director Emeritus of the Duke University Management
Corporation, Chairman of the Touro National Heritage
Trust, a Regent of The Cathedral of St. John the Divine
and a Trustee of Duke University (Emeritus) and the
American Academy in Rome
Alliance Capital Management L.P. Denis Duverne Director; Senior Vice President - International Life,
AXA; Director of various subsidiaries of the AXA Group;
Director of Donaldson Lufkin & Jenrette and The
Equitable Life Assurance Society of the United States
Alliance Capital Management L.P. Herve Hatt Director; Senior Vice President, AXA
Alliance Capital Management L.P. Frank Savage Director; Chairman of Alliance Capital Management
International, a division of Alliance Capital Management
LP; Director of Alliance Capital Finance Group
Incorporated, a subsidiary of the Partnership; Senior
Vice President of The Equitable Life Assurance Society
of the United States
Alliance Capital Management L.P. Luis J. Bastida Director; Chief Financial Officer and Member of the
Executive Committee of Banco Bilbao Vizcaya, S.A.
Alliance Capital Management L.P. Henri de la Croix de la Castries Director; Senior Executive Vice President - Financial
Services and Life Insurance Activities of AXA
Alliance Capital Management L.P. Kevin C. Dolan Director; Chief Executive Officer, AXA Investment
Managers Paris
Alliance Capital Management L.P. Reba W. Williams Director; Director of Special Projects at Alliance
Capital Management Corporation (wife of Dave H. Williams)
Alliance Capital Management L.P. Peter D. Noris Director; Executive Vice President and Chief Investment
Officer of The Equitable Companies Incorporated,
Executive Vice President and Chief Investment Officer of
The Equitable Life Assurance Society of the U.S.
Alliance Capital Management L.P. Robert B. Zoellick Director; President and CEO of the Center for Strategic
and International Studies, an independent non-profit
public policy institute; Director of Janus Intercable,
Said Holdings, the Advisory Council of Enron Corp., and
several non-profit entities, including the Council on
Foreign Relations, the German Marshall Fund, the Eurasia
Foundation, the European Institute, the American Council
on Germany, the National Bureau of Asian Research and the
Overseas Development Council
Alliance Capital Management L.P. Donald H. Brydon Director; Chairman and Chief Executive Officer, AXA
Investment Managers S.A.
Alliance Capital Management L.P. Edward D. Miller Director; President, Chief Executive Officer and Director
of The Equitable Companies Incorporated; Chairman of the
Board and Chief Executive Officer of The Equitable Life
Assurance Society of the United States; Senior Executive
Vice President, AXA
Alliance Capital Management L.P. Stanley B. Tulin Director; Executive Vice President and Chief Financial
Officer, The Equitable Companies Incorporated; Vice
Chairman and Chief Financial Officer, The Equitable Life
Assurance Society of the U.S.; Director of Donaldson,
Lufkin & Jenrette and the Jewish Theological Seminary;
Fellow of the Society of Actuaries, member and Treasurer
of the American Academy of Actuaries
Alliance Capital Management L.P. John D. Carifa Director, President and Chief Operating Officer
Alliance Capital Management L.P. Bruce W. Calvert Director and Chief Executive Officer
Alliance Capital Management L.P. Alfred Harrison Director and Vice Chairman
Alliance Capital Management L.P. David R. Brewer, Jr. Senior Vice President and General Counsel
Alliance Capital Management L.P. Robert H. Joseph, Jr. Senior Vice President and Chief Financial Officer
Alliance Capital Management L.P. Mark R. Manley Senior Vice President, Counsel, Compliance Officer and
Assistant Secretary
</TABLE>
Salomon Brothers Asset Management Inc. ("SABAM")
SABAM, an indirect, wholly-owned subsidiary of Citigroup, is an investment
adviser registered under the Investment Advisers Act of 1940 (the "Advisers
Act") and renders investment advice to a wide variety of individual,
institutional and investment advisory clients.
The list required by this Item 26 of officers and directors of SABAM, together
with information as to any other business, profession, vocation or employment of
a substantial nature engaged in by such officers and directors during the past
two years, is hereby incorporated by reference to Schedules A and D of Form ADV
filed by SABAM pursuant to the Advisers Act (SEC File No. 801-32046).
II-16
<PAGE>
<TABLE>
<CAPTION>
Adviser and Governing
Board of Directors Name of Individual Business and Other Connections
- ----------------------- -------------------------- ---------------------------------------------------------
<S> <C> <C>
Lazard Asset Management Investment Adviser
("Lazard")
Lazard John C. Adams General Member
Lazard Eileen D. Alexanderson General Member
Lazard William Araskog General Member
Lazard Robert A. Baer, Jr. General Member
Lazard F. Harlan Batrus General Member; Director of Mutual of America Capital Management Corp.;
Director of Ryan Labs, Inc.; owner of A.J. Technologies
Lazard Gerardo Braggiotti General Member; Managing Director of Lazard SpA; Managing Director of Lazard
Brothers & Co. Ltd.; Former director Centrale, Sec Generale of Centrale of
Mediobanca S.P.A.; Vice President, Lazard Vitale Borghesi SPA; General
Partner, Lazard Freres et Cie; General Partner, Maison Lazard et Cie; General
Partner, Partena
Lazard Patrick J. Callahan, Jr. General Member; Director of Berry Metal Co.; Director of Michigan Wheel Corp.;
Director of Rotation Dynamics Corp.; Director of BT Capital Corp.
Lazard Michel David-Weill General Member; Director of The Dannon Company, Inc.; President and Chairman
of the Board of Eurafrance; Director of Exor Group; Director of Euralux;
Director of Group Danone; Director of ITT Industries, Inc.; Director of La
France S.A.; Deputy Chairman of Lazard Brothers & Co., Limited; Former
Director of Pearson plc; Director of Publicis S.A.; Director of S.A. de la Rue
Imperiale de Lyon; Chairman of Lazard Freres & Co. LLC; General Partner of
Lazard Freres & Cie; Chairman of Lazard Partners L.P.; Member of Investment
Advisory Board of Corporate Advisers, L.P.; Permanent rep. of LFC (Director)
of Compagnie De Credit; Director of Maison Lazard S.A.; General Partner of
Maison Lazard & Cie; Chairman of Maison Lazard Developpement; Gerant (Partner)
of Parteger; Gerant (Partner) of Parteman; General Partner of Partemiel;
General Partner of Partena; Former Director of IFI SpA; Director of IFIL SpA;
Director of Fonds Partenaires - Gestion Investments
Lazard John V. Doyle General Member
Lazard Thomas F. Dunn General Member
Lazard Norman Eig General Member; Vice Chairman of Lazard Freres & Co. LLC; Chairman and
Director of The Lazard Funds, Inc.; Chairman and Director of Lazard Retirement
Series, Inc.; Director of Lazard Investment Funds Limited; Director and Chief
Investment Officer and Treasurer of Lazard Pension Management, Inc.; Director
of Lazard Asset Management Holdings Limited; Director of Lazard Asset
Management Pacific Co.; Director of Lazard Asset Management Limited; Member of
the Supervisory Board of Lazard Asset Management (Deutschland) GmbH; Managing
Director of Lazard Asset Management (Deutschland) Gesellschaft; Director of
Lazard Asset Management (CI) Holdings Ltd.
Lazard Richard P. Emerson General Member
Lazard Peter R. Ezersky General Member; Board Member of Cakewalk LLC
Lazard Eli H. Fink General Member; Former Partner & Vice Chairman of Deloitte & Touche LLP
Lazard Jonathan F. Foster General Member; Director, Cakewalk LLC
Lazard Albert H. Garner General Member
Lazard James S. Gold General Member; Director of Smart & Final Inc.; Director of The Hain Food
Group
Lazard Jeffrey A. Golman General Member
Lazard Steven J. Golub General Member; Chief Financial Officer of Lazard Freres & Co. LLC; Director
of Mineral Technologies Inc.
Lazard Robert L. Goodman General Member
Lazard Herbert W. Gullquist General Member; Vice Chairman of Lazard Freres & Co. LLC; President and
Director of The Lazard Funds, Inc.; President and Director of Lazard
Retirement Series, Inc.; Director of Lazard Far East Investors Limited;
President and Director of Lazard Pension Management, Inc.; Director of Lazard
Asset Management Holdings Limited; Director and President of Lazard Asset
Management (Canada), Inc.; Director and Chairman of Lazard Asset Management
Pacific Co.; Director of Lazard Asset Management Limited; Member of the
Supervisory Board of Lazard Asset Management (Deutschland) GmbH; Managing
Director of Lazard Asset Management (Deutschland) Gesallschaft); Member of the
Advisory Board of The Egypt Trust; Board Member of Lazard Asset Management
Egypt
Lazard Thomas R. Haack General Member
Lazard Paul J. Haigney Managing Director
Lazard Ira O. Handler General Member
Lazard Yasushi Hatakeyama General Member
Lazard Melvin L. Heineman General Member; Director of Lazard Freres & Co., Ltd; Director of Lazard
Asset Management Pacific Co.; Director & Vice President of Lazard Pension
Management, Inc.
Lazard Scott D. Hoffman General Member
Lazard Robert E. Hougie General Member
Lazard Kenneth M. Jacobs General Member; Director of ARV Assisted Living, Inc.
Lazard James L. Kempner General Member
Lazard Larry A. Kohn General Member
Lazard Lee O. Kraus General Member
Lazard Sandra A. Lamb Director, Fortress Group, Inc.; General Member
Lazard Robert C. Larson General Member; Chairman, Lazard Real Estate Investors LLC; Non-Executive
Director, Bass plc.; Non-Executive Director, Lifestyle Furnishings
International Ltd.; Non-Executive Director, Commonwealth Atlantic Properties,
Inc.
Lazard William R. Loomis, Jr. General Member; Director of Englehard Corp.; Former Director of Minorco S.A.;
Former Director of Minorco (U.S.A.) Inc.; Director & Chairman of Terra
Industries, Inc.; Director of Ripplewood Holdings LLC
Lazard J. Robert Lovejoy General Member
Lazard Matthew J. Lustig Board Member, Brandywine Realty Trust; General Member
Lazard Thomas E. Lynch General Member
Lazard Mark T. McMaster General Member
Lazard Michael G. Medzigian General Member; President and CEO, Lazard Real Estate Investors LLC; Director,
Arnold Palmer Golf Management; Director, President and CEO, Park Plaza Hotels
& Resorts
Lazard Richard W. Moore Jr. General Member
Lazard Robert P. Morgenthau General Member; Director and Vice President of Lazard Asset Management
(Canada) Inc.; Director of Lazard Investment Funds limited; Director of Lazard
Fund Manager (CI) Limited; Director of Lazard Global Bond Fund plc; Director
of Lazard Global Equity Fund plc; Director of Lazard Global Liquidity Fund
plc; Director of Lazard Strategic Yield Fund plc; Director of Global Funds
Management Plc; Director of Lazard Asset Management (CI) Holdings Ltd;
Director of Lazard Asset Management (CI) Ltd.; Director of Lazard Investment
Funds (CI) Ltd.; Director of Lazard Funds Administration Services (CI) Ltd.;
Director of Lazard Fund Managers (CI) Ltd. Guernsey; Director of Lazard Global
Bond Fund; Director of Lazard Investment Funds Ltd. Guernsey; Director of
Bitterroot Enterprises
Lazard Steven J. Niemczyk General Member
Lazard Hamish W. M. Norton General Member
Lazard James A. Paduano General Member; Director of Donovan Data Systems, Inc.; Director of Secure
Products Inc.
Lazard Louis Perlmutter General Member
Lazard Russell E. Planitzer General Member; Former Director of Intensolv, Inc.
Lazard Steven L. Ratner Director, Lazard Asia Limited; Chairman, Educational Broadcasting Corp.;
Director, New York Outward Bound Center; General Member
Lazard John R. Reinsberg General Member; Executive Vice President and Director of Lazard Asset
Management Pacific Co.; Member of the Supervisory Board of Lazard Asset
Management (Deutschland) GmbH
Lazard Louis G. Rice General Member
Lazard Barry W. Ridings General Member; Director, Noodle Kidoodle; Director, Furr's Bishop's Inc.;
Director, New Valley Corp.; Director, Siem Industries; Director, Seaman's
Furniture
Lazard Luis E. Rinaldini General Member
Lazard Bruno M. Roger Director, Sovaciux S.A., Board Member, Thomson S.A.; General Member;
Supervisory Board Member of AXA; Supervisory Board Member of CAP Gemini
Sogeti; Board Member of Compaigne De Credit; Board Member of Compagnie De
Saint-Gobain; Vice Chairman & CEO of Eurafrance; Chairman & CEO of Financiere
et Industrelle Gaz at Eaux; Director, Fonds Partenaires Gestion (F.P.G.);
General Partner of Lazard Freres & Cie; Director without Power of vote of
LVMH-Moet hennesy Louis Vuitton; Director, Permanent Representative of Marine-
Wendel; Supervisory Board Member of Pinault-Printemps-Redoute; Director,
Permanent Representative of Sidel; Board Member of Sofina (Belgique); Board
Member of Thomson CSF; Director, Permanent Representative of Societe Francoise
Generale Immobiliere (S.F.G.I.)
Lazard Michael S. Rome General Member
Lazard Stephen H. Sands Director and Co-Chairman, National Imaging Associates, Inc.; General Member;
Director of Isogen LLC; Former Director of Skila, Inc.
Lazard Frank A. Savage General Member
Lazard Gary S. Shedlin General Member
Lazard David A. Tanner Director, Scientific Learning Corp.; Director, Container and Pallet Services,
Inc.; Director, Children First, Inc.; Director, Employment Law Training, Inc.;
General Member; Former Managing Director of E.M. Warburg, Pincus & Co. LLC;
Former Director of Golden Books Family Entertainment Inc.; Former Director of
Renaissance Re Holdins Ltd.; Director of Poseidon Resources Inc.; Director of
Charter Financial, Inc.; Former Director of Classic Sports, Inc.; Former
Director of Information Ventures LLC
Lazard David L. Tashjian General Member
Lazard J. Mikesell Thomas General Member
Lazard Michael P. Triguboff General Member; Managing Director of Lazard Asset Management Pacific Co.;
Director of Lazard Japan Asset Management K.K.; Director, Triguboff Management
Pty Ltd.
Lazard Donald A. Wagner General Member
Lazard Ali E. Wambold General Member; Former Director of The Albert Fisher Group plc; Director of
Lazard Freres & Co., Ltd.; Director of Tomkins PLC; Member of Investment
Advisory Board of Corporate Advisors L.P.; Former Director of Lazard S.P.A.;
Director of Lazard & Co. GmbH
Lazard Michael A. Weinstock General Member
Lazard Antonio F. Weiss General Member; Director, Lazard Vitale Borghesi SPA
Lazard Alexander E. Zagoreos General Member; Director of The Egypt Trust; Director of Flemings Continental
European Investment Trust plc; Director of Gartmore Emerging Pacific
Investment Trust plc; Director of Greek Progress Fund; Director of Jupiter
International Green Investment Trust plc; Director of New Zealand Investment
Trust plc; Director of Taiwan Opportunities Fund Ltd; Director of The World
Trust Fund; Director of Lazard Select Investment Trust Ltd.; Director of
Ermitage Selz Fund; Director of Lazard Asset Management Egypt; Director of
Latin American Investment Trust, plc; Director of Taiwan American Fund Limited
Mercury Asset Jeffrey M. Peek President of Mercury; President of Merrill Lynch Asset Management, L.P.
Management US ("MLAM"); President and Director of Princeton Services; Executive Vice
President of ML & Co.; Managing Director and Co-Head of the Investment Banking
Division of Merrill Lynch in 1997
Mercury Asset Terry K. Glenn Executive Vice President of Mercury; Executive Vice President of MLAM;
Management US Executive Vice President and Director of Princeton Services; President and
Director of Princeton Funds Distributor, Inc.; Director of FDS; President of
Princeton Administrators, L.P.
Mercury Asset Gregory A. Bundy Chief Operating Officer and Managing Director of Mercury; Chief Operating
Management US Officer and Managing Director of MLAM; Chief Operating Officer and Managing
Director of Princeton Services; Co-CEO of Merrill Lynch Australia from 1997 to
1999
Mercury Asset Donald C. Burke Senior Vice President and Treasurer of Mercury; Senior Vice President and
Management US Treasurer of MLAM since 1999; Senior Vice President and Treasurer of Princeton
Services; Vice President of Princeton Funds Distributor, Inc.; First Vice
President of MLAM from 1997 to 1999; Vice President of MLAM from 1990 to 1997;
Director of Taxation of MLAM since 1990
Mercury Asset Michael G. Clark Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services; Director and Treasurer of Princeton Funds
Distributor, Inc.
Mercury Asset Robert C. Doll Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services; Chief Investment Officer of Oppenheimer
Funds, Inc. in 1999 and Executive Vice President thereof from 1991 to 1999
Mercury Asset Linda L. Federici Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services
Mercury Asset Vincent R. Giordano Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services
Mercury Asset Michael J. Hennewinkel Senior Vice President, Secretary and General Counsel of Mercury; Senior Vice
Management US President, Secretary and General Counsel of MLAM; Senior Vice President of
Princeton Services
Mercury Asset Philip L. Kirstein Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President, General Counsel, Director and Secretary of Princeton Services
Mercury Asset Debra W. Landsman-Yaros Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services; Vice President of Princeton Funds
Distributor, Inc.
Mercury Asset Joseph T. Monagle, Jr. Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services
Mercury Asset Brian A. Murdock Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services; Director of Princeton Funds Distributor, Inc.
Mercury Asset Gregory D. Upah Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services
</TABLE>
II-17
<PAGE>
Item 27. Principal Underwriters
----------------------
(a) Pacific Select Distributors, Inc. ("PSD") (formerly Pacific Mutual
Distributors, Inc.) member, NASD & SIPC serves as Distributor of
Shares of Pacific Select Fund. PSD is a subsidiary of Pacific
Life.
(b)
<TABLE>
<CAPTION>
Name and Principal/8/ Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------------- ------------------------- ---------------------
<S> <C> <C>
Audrey L. Milfs Vice President and Secretary
Secretary
Edward R. Byrd Director, Vice President, None
Chief Financial Officer,
and Treasurer
Gerald W. Robinson Director, Chairman and CEO None
John L. Dixon Director and President None
Thomas H. Oliver Director None
John W. Poff Vice President None
Patricia A. Thompson Assistant Vice President None
Jane M. Guon Assistant Secretary Assistant Secretary
Adrian S. Griggs Vice President None
Kathleen Hunter Vice President None
Alyce E. Peterson Assistant Vice President None
</TABLE>
Item 28. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940
and the rules under that section will be maintained by Pacific Life at
700 Newport Center Drive, Newport Beach, California 92660.
Item 29. Management Services
-------------------
Not applicable
Item 30. Undertakings
------------
The registrant hereby undertakes:
Not applicable
- -----------------
/8/ Principal business address for all individuals listed is 700 Newport
Center Drive, Newport Beach, California 92660
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement under Rule
485(b) under the Securities Act and has duly caused this Post-Effective
Amendment No. 28 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Newport Beach, and State
of California, on this 26th day of April, 2000.
PACIFIC SELECT FUND
By:
__________________________________
Glenn S. Schafer*
President
*By: /s/ DIANE N. LEDGER
_______________________________
Diane N. Ledger
as attorney-in-fact
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 28 to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman and Trustee , 2000
- ------------------------------------ (Chief Executive Officer) -----------
Thomas C. Sutton*
Vice President and Treasurer , 2000
- ------------------------------------ (Vice President and Treasurer) -----------
Brian D. Klemens*
President , 2000
- ------------------------------------ (President) -----------
Glenn S. Schafer*
Trustee , 2000
- ------------------------------------ ----------
Richard L. Nelson*
Trustee , 2000
- ------------------------------------ ----------
Lyman W. Porter*
Trustee , 2000
- ------------------------------------ ----------
Alan Richards*
Trustee , 2000
- ------------------------------------ ----------
Lucie H. Moore*
* By: /s/ DIANE N. LEDGER April 26, 2000
- ------------------------------------
Diane N. Ledger
as attorney-in-fact
</TABLE>
PART C
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
above constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Jane A. Kanter, Keith T. Robinson, and Robin Yonis
Sandlaufer his or her true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution for him or her in his or her name,
place and stead, in any and all Registration Statements applicable to Pacific
Select Fund and any amendments or supplements thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Dated: March 13, 2000 /s/ THOMAS C. SUTTON
-------------------------------
Thomas C. Sutton
Chairman, Trustee and President
Dated: March 13, 2000 /s/ BRIAN D. KLEMENS
-------------------------------
Brian D. Klemens
Vice President and Treasurer
Dated: March 13, 2000 /s/ GLENN S. SCHAFER
-------------------------------
Glenn S. Schafer
President
Dated: March 13, 2000 /s/ RICHARD L. NELSON
-------------------------------
Richard L. Nelson
Trustee
Dated: March 13, 2000 /s/ LYMAN W. PORTER
-------------------------------
Lyman W. Porter
Trustee
Dated: March 13, 2000 /s/ ALAN RICHARDS
-------------------------------
Alan Richards
Trustee
Dated: March 13, 2000 /s/ LUCIE H. MOORE
-------------------------------
Lucie H. Moore
Trustee
II-20
<PAGE>
EXHIBIT (d)(3)
ADDENDUM TO THE PORTFOLIO MANAGEMENT AGREEMENT
The Portfolio Management Agreement ("Agreement") made the 1st day of May,
1998, between Pacific Life Insurance Company ("Pacific Life"), a life insurance
company domiciled in California, Goldman Sachs Asset Management, a separate
operating division of Goldman Sachs & Co. ("Goldman Sachs", "Portfolio
Manager"), a partnership organized and existing under the laws of the State of
New York, and Pacific Select Fund (the "Fund"), a Massachusetts Business Trust,
is hereby amended as set forth in this Addendum to the Portfolio Management
Agreement, which is dated as of January 28, 2000.
WHEREAS, the Fund is registered with the Securities and Exchange Commission
as an open-end management investment company; and
WHEREAS, the Fund will offer shares in the I-Net Tollkeeper Portfolio,
effective May 1, 2000,
NOW THEREFORE, in consideration of the mutual premises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. The Portfolio Manager is appointed to furnish investment advisory
services to the I-Net Tollkeeper Portfolio, which is designated as a
separate portfolio as described in the Portfolio Management Agreement.
2. Paragraph 2 of the Agreement is amended by the addition of the
following:
(l) Will: (i) use its best efforts, relying on current industry
data as provided by the Investment Company Institute, to identify each
position in the Portfolio that constitutes stock in a Passive Foreign
Investment Company ("PFIC"), as that term is defined in Section 1296
of the IRC; and (ii) make such determinations and inform the Adviser
at least annually, (or more often and by such date(s) as the Adviser
shall request), of any stock in a PFIC.
3. The Fee Schedule of the Agreement is amended by the addition of the
following:
<PAGE>
PACIFIC SELECT FUND
FEE SCHEDULE
Portfolio: I-Net Tollkeeper Portfolio
The Adviser will pay to the Portfolio Manager a monthly fee based on the average
daily net assets of the Portfolio at the following annual rate:
I-Net Tollkeeper Portfolio:
.95% of the first $1 billion
.90% on excess
These fees for services shall be prorated for any portion of a year in which the
Agreement is not effective.
This Addendum shall take effect on May 1, 2000.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the date first indicated above.
PACIFIC LIFE INSURANCE COMPANY
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- ---------------------------------- -----------------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and Chief
Executive Officer
GOLDMAN SACHS ASSET MANAGEMENT, A
DIVISION OF GOLDMAN SACHS & COMPANY
Attest: /s/ Howard B. Surloff By: /s/ David B. Ford
- ---------------------------------- -----------------------------------
Name: Howard B. Surloff Name: David B. Ford
Title: Vice President Title: Managing Director
PACIFIC SELECT FUND
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- ---------------------------------- -----------------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and
Trustee
3
<PAGE>
EXHIBIT (d)(18)
ADDENDUM TO ADVISORY AGREEMENT
The Advisory Agreement made the 9th day of November, 1987, and subsequently
amended on January 17, 1989, January 4, 1994, August 15, 1994, November 20,
1995, December 18, 1998, and December 15, 1999 between the PACIFIC SELECT FUND
(the "Fund"), a Massachusetts business trust, and PACIFIC LIFE INSURANCE COMPANY
(the "Adviser"), a corporation organized under the laws of California, (the
"Agreement") is hereby amended by the addition of the provisions set forth in
this Addendum to the Agreement ("Addendum"), which is made this 28th day of
January 2000, and effective May 1, 2000.
WITNESSETH:
WHEREAS, the Fund is authorized to issue an unlimited number of shares of
beneficial interest ("Beneficial Interest") in separate series with each such
series representing interests in a separate portfolio of securities and other
assets; and
WHEREAS, the Fund currently consists of twenty series designated as the
Money Market Portfolio, Managed Bond Portfolio, High Yield Bond Portfolio,
Government Securities Portfolio, Growth Portfolio, Equity Income Portfolio,
Multi-Strategy Portfolio, International Portfolio, Equity Index Portfolio,
Growth LT Portfolio, Equity Portfolio, Bond and Income Portfolio, Emerging
Markets Portfolio, Aggressive Equity Portfolio, Mid-Cap Value Portfolio, Large-
Cap Value Portfolio, Small-Cap Index Portfolio, REIT Portfolio, Diversified
Research Portfolio, and International Large-Cap Portfolio (each referred to as a
"Series" in the Agreement, and hereinafter referred to as a "Portfolio"); and
WHEREAS, the Fund intends to add the I-Net Tollkeeper Portfolio as a new
series representing interests in a separate portfolio of securities and assets;
and
WHEREAS, the Fund and the Adviser wish to add the I-Net Tollkeeper
Portfolio as a series for which the Adviser serves as Adviser under the
Agreement;
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. The Adviser is appointed to act as manager and investment adviser to
the I-Net Tollkeeper Portfolio, which is designated as a Series as
described in Section 1 under the terms under the Advisory Agreement;
and
2. Section six (6) ("Compensation") of the Agreement is amended by
replacing the first paragraph with the following language:
<PAGE>
"6. Compensation. For the services provided and the expenses
------------
borne by the Adviser pursuant to this Agreement, the Fund will pay to
the Adviser a fee at an annual rate on the Money Market Portfolio of
.40% of the first $250 million of the average daily net assets of the
Portfolio, .35% of the next $250 million of the average daily net
assets of the Portfolio, and .30% of the average daily net assets of
the Portfolio in excess of $500 million; on the Managed Bond, High
Yield Bond, Bond and Income, and Government Securities Portfolios, of
.60% of the average daily net assets of the Portfolios; on the Growth,
Equity Income, Equity and Multi-Strategy Portfolios of .65% of the
average daily net assets of the Portfolios; on the Growth LT Portfolio
of .75% of the average daily net assets of the Portfolio; on the
International, Large-Cap Value and Mid-Cap Value Portfolios of .85% of
the average daily net assets of the Portfolios; on the Equity Index
Portfolio of .25% of the average daily net assets of the Portfolio; on
the Emerging Markets and REIT Portfolios of 1.10% of the average daily
net assets of the Portfolio; on the Aggressive Equity Portfolio of
.80% of the average daily net assets of the Portfolio; on the Small-
Cap Index Portfolio of .50% of the average daily net assets of the
Portfolio; on the Diversified Research Portfolio of .90% of the
average daily net assets of the Portfolio; on the International Large-
Cap Portfolio of 1.05% of the average daily net assets of the
Portfolio; and on the I-Net Tollkeeper Portfolio of 1.50% of the
average daily net assets of the Portfolio. This fee shall be computed
and accrued daily and paid monthly."
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
PACIFIC SELECT FUND
Attest: /s/ AUDREY L. MILFS By: /s/ THOMAS C. SUTTON
---------------------- ------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and Trustee
PACIFIC LIFE INSURANCE COMPANY
Attest: /s/ AUDREY L. MILFS By: /s/ THOMAS C. SUTTON
---------------------- ------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and Chief
Executive Officer
<PAGE>
EXHIBIT (e)(2)
ADDENDUM TO DISTRIBUTION AGREEMENT
The Distribution Agreement, made the 15th day of December 1999, by and
between PACIFIC SELECT FUND ("Fund"), a Massachusetts business trust having its
principal place of business at 700 Newport Center Drive, Newport Beach, CA
92660, and PACIFIC MUTUAL DISTRIBUTORS, INC., a California corporation, having
its principal place of business at 700 Newport Center Drive, Newport Beach,
California 92660, (the "Agreement") is hereby amended by the addition of the
provisions set forth in this Addendum to the Agreement ("Addendum"), which is
made this 28th day of January, 2000.
1. Effective May 1, 2000, Exhibit A attached to the Agreement is amended
as shown on the Exhibit A attached to this Addendum.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
PACIFIC SELECT FUND
Attest: /s/ AUDREY L. MILFS By: /s/ THOMAS C. SUTTON
----------------------- ----------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and Trustee
PACIFIC MUTUAL DISTRIBUTORS, INC.
Attest: /s/ AUDREY L. MILFS By: /s/ GERALD W. ROBINSON
----------------------- ---------------------------
Name: Audrey L. Milfs Name: Gerald W. Robinson
Title: Secretary Title: Chairman and CEO
<PAGE>
Exhibit A
Pacific Select Fund
Effective: May 1, 2000
Series
- ------
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Small-Cap Equity Portfolio
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Value Portfolio
Emerging Markets Portfolio
International Large-Cap Portfolio
Diversified Research Portfolio
I-Net Tollkeeper Portfolio
<PAGE>
EXHIBIT (g)(5)
ADDENDUM TO CUSTODY AGREEMENT
The Custody Agreement, made the 1st day of December, 1987, and subsequently
amended on January 17, 1989, January 4, 1994, August 15, 1994, November 20,1995,
May 15, 1997, and December 18, 1998 between PACIFIC SELECT FUND (the "Fund") a
Massachusetts business trust having its principal place of business at 700
Newport Center Drive, Newport Beach, CA 92660, and Investors Fiduciary Trust
Company ("IFTC"), a state chartered trust company organized and existing under
the laws of the state of Missouri, having its principal place of business at 801
Pennsylvania, Kansas City, Missouri 64105 (the "Agreement") is hereby amended by
the addition of the provisions set forth in this Addendum to the Agreement
("Addendum"), which is made this 28th day of January 2000.
WITNESSETH:
WHEREAS, pursuant to the Agreement, the Fund has appointed IFTC as
Custodian and IFTC has accepted such appointment; and
WHEREAS, the Fund currently consists of 20 separate series designated as
the Money Market Portfolio, Managed Bond Portfolio, High Yield Bond Portfolio,
Government Securities Portfolio, Small-Cap Equity Portfolio, Equity Income
Portfolio, Multi-Strategy Portfolio, International Value Portfolio, Equity Index
Portfolio, Growth LT Portfolio, Equity Portfolio, Bond and Income Portfolio,
Aggressive Equity Portfolio, Emerging Markets Portfolio, Mid-Cap Value
Portfolio, Large-Cap Value Portfolio, Small-Cap Index Portfolio, REIT Portfolio,
Diversified Research Portfolio, and International Large-Cap Portfolio (each
referred to as a "Series" in the Agreement, and hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund intends to establish an additional Portfolio to be
designated as the I-Net Tollkeeper Portfolio; and
WHEREAS, the Fund desires to appoint IFTC as Custodian for the I-Net
Tollkeeper Portfolio on the terms set forth in the Agreement and this Addendum;
and
WHEREAS, IFTC is willing to accept such appointment;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows
that:
In addition to its responsibilities as specified in the Agreement, the Fund
hereby constitutes and appoints IFTC as custodian with respect to the I-Net
Tollkeeper Portfolio, which, in addition to all other Portfolios previously
established by the Fund, shall be deemed as a Portfolio under the Agreement and
this Addendum, including the compensation provisions in section seven (7)
("Compensation") of the Agreement and in the Fee Schedule to the Addendum to the
Custody Agreement made November 20, 1995.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
PACIFIC SELECT FUND
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
---------------------- ------------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board
and Trustee
INVESTORS FIDUCIARY TRUST COMPANY
Attest: /s/ Angie M. Keough By: /s/ Robert G. Novellano
---------------------- ------------------------------
Name: Angie M. Keough Name: Robert G. Novellano
Title: Legal Assistant Title: Senior Vice President
<PAGE>
EXHIBIT (h)(2)
FUND PARTICIPATION AGREEMENT
----------------------------
This Agreement is made the 1st day of January, 2000, by and among PACIFIC
LIFE INSURANCE COMPANY (formerly Pacific Mutual Life Insurance Company)
("Pacific Life"), a life insurance company domiciled in California, on its
behalf and on behalf of its segregated asset accounts listed on Exhibit A to
this Agreement; PACIFIC LIFE & ANNUITY COMPANY (formerly PM Group Life Insurance
Company) ("PL&A", and, together with Pacific Life, the "Companies"), a life
insurance company domiciled in Arizona, on its behalf and on behalf of its
segregated asset accounts listed on Exhibit A to this Agreement (the segregated
asset accounts of the Companies are referred to collectively as the "Separate
Accounts"); PACIFIC SELECT FUND (the "Fund"), a Massachusetts business trust;
and PACIFIC MUTUAL DISTRIBUTORS, INC. (formerly Pacific Equities Network )
("Distributor"), a California corporation.
W I T N E S S E T H
-------------------
WHEREAS, the Fund is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act") and the Fund is authorized to issue
separate classes of shares of beneficial interests ("shares"), each representing
an interest in a separate portfolio of assets known as a "series" and each
series has its own investment objective, policies, and limitations; and
WHEREAS, Pacific Life, the Fund and the Distributor are currently parties
to a Fund Participation Agreement dated November 6, 1992, as amended by an
Addendum to the Agreement dated January 4, 1994, an
<PAGE>
Addendum to the Agreement dated August 15, 1994, an Addendum to the Agreement
dated November 20, 1995, and an Addendum to the Agreement dated December 18,
1998 (the "Current Agreement"), pursuant to which Fund shares are offered and
sold to certain segregated asset accounts of Pacific Life; and
WHEREAS, the Fund is available to offer shares of one or more of its series
to separate accounts of insurance companies that fund variable life insurance
policies and variable annuity contracts ("Variable Contracts") and to serve as
an investment medium for Variable Contracts offered by insurance companies that
have entered into participation agreements ("Participating Insurance Companies")
substantially similar to the Current Agreement, and the Fund is currently
comprised of multiple separate series, and other series may be established in
the future; and
WHEREAS, the Fund has obtained an order from the SEC, granting
Participating Insurance Companies, separate accounts funding Variable Contracts
of Participating Insurance Companies, and the Fund, inter alia, exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
paragraph (b)(15) of Rule 6e-3(T) under the 1940 Act, to the extent necessary
to permit such persons to rely on the exemptive relief provided under paragraph
(b)(15) of Rule 6e-3(T), even though shares of the Fund may be offered to and
held by separate accounts funding variable annuity contracts or scheduled or
flexible premium variable life insurance contracts of both affiliated and
unaffiliated life insurance companies (the "Shared Funding Exemptive Order");
and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
2
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Companies wish to purchase shares of one or more of the Fund's
series on behalf of their Separate Accounts to serve as an investment medium for
Variable Contracts funded by the Separate Accounts, and the Distributor is
authorized to sell shares of the Fund's series; and
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree to amend and
restate the Current Agreement as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Distributor agrees to sell to the Companies those shares of the
series offered and made available by the Fund and identified in Exhibit B
("Series"), that a Company orders on behalf of its Separate Accounts, and agrees
to execute such orders on each day on which the Fund calculates its net asset
value pursuant to rules of the SEC ("business day") at the net asset value next
computed after receipt and acceptance by the Fund or its agent of the order for
the shares of the Fund.
1.2. The Fund agrees to make available on each business day shares of the
Series for purchase at the applicable net asset value per share by the Companies
on behalf of their Separate Accounts; provided, however, that the Board of
Trustees of the Fund may refuse to sell shares of any Series to any person, or
suspend or terminate the offering of shares of any Series, if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole
3
<PAGE>
discretion of the Trustees, acting in good faith and in light of the Trustees'
fiduciary duties under applicable law, necessary in the best interests of the
shareholders of any Series.
1.3. The Fund and Distributor agree that shares of the Series of the Fund
will be sold only to Participating Insurance Companies, their separate accounts,
and other persons consistent with each Series being adequately diversified
pursuant to Section 817(h) of the Internal Revenue Code of 1986, as amended
("Code") and the regulations thereunder.
1.4. The Fund and the Distributor will not sell shares of the Series to any
insurance company other than the Companies or to the separate account of any
such other insurance company unless an agreement containing provisions
substantially the same as those in Article IV and Sections 5.5 and 5.6 of
Article V of this Agreement is in effect to govern such sales.
1.5. Upon receipt of a request for redemption in proper form from a
Company, the Fund agrees to redeem any full or fractional shares of the Series
held by the Company, ordinarily executing such requests on each business day at
the net asset value next computed after receipt and acceptance by the Fund or
its agent of the request for redemption, except that the Fund reserves the right
to suspend the right of redemption, consistent with Section 22(e) of the 1940
Act and any rules thereunder. Such redemption shall be paid consistent with
applicable rules of the SEC and procedures and policies of the Fund as described
in the current prospectus.
1.6. Each Company agrees to purchase and redeem the shares of each Series
in accordance with the provisions of the current prospectus for the Fund.
4
<PAGE>
1.7. Each Company shall pay for shares of the Series in federal funds
transmitted by wire no later than 11:00 a.m. Eastern time the next following
business day after it places an order to purchase shares.
1.8. Issuance and transfer of shares of the Series will be by book entry
only unless otherwise agreed by the Fund. Stock certificates will not be issued
to the Companies or the Separate Accounts unless otherwise agreed by the Fund.
Shares ordered from the Fund will be recorded in an appropriate title for the
Separate Accounts or the appropriate subaccounts of the Separate Accounts.
1.9. The Fund shall promptly furnish notice (by wire or telephone, followed
by written confirmation) to each Company of any income dividends or capital gain
distributions payable on the shares of the Series. Each Company hereby elects to
reinvest in the Series all such dividends and distributions as are payable on a
Series' shares and to receive such dividends and distributions in additional
shares of that Series. Each Company reserves the right to revoke this election
in writing and to receive all such dividends and distributions in cash. The Fund
shall notify each Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall instruct its recordkeeping agent to advise each
Company on each business day of the net asset value per share for each Series as
soon as reasonably practicable after the net asset value per share is
calculated.
5
<PAGE>
ARTICLE II. Representations and Warranties
------------------------------
2.1. Pacific Life represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it is taxed as
an insurance company under Subchapter L of the Code.
2.2. PL&A represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it is taxed as an
insurance company under Subchapter L of the Code.
2.3. Pacific Life represents and warrants that it has legally and validly
established each of its Separate Accounts as a segregated asset account under
the California Insurance Code, and that each of its Separate Accounts is a
validly existing segregated asset account under applicable federal and state
law.
2.4. PL&A represents and warrants that it has legally and validly
established each of its Separate Accounts as a segregated asset account under
the Arizona Insurance Code, and that each of the Separate Accounts is a validly
existing segregated asset account under applicable federal and state law.
2.5. Pacific Life represents and warrants that the Variable Contracts
issued by it or interests in its Separate Accounts under such Variable Contracts
(1) are or, prior to issuance, will be registered as securities under the
Securities Act of 1933 ("1933 Act") or, alternatively (2) are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act.
6
<PAGE>
2.6. PL&A represents and warrants that the Variable Contracts issued by it
or interests in its Separate Accounts under such Variable Contracts (1) are or,
prior to issuance, will be registered as securities under the Securities Act of
1933 ("1933 Act") or, alternatively (2) are not registered because they are
properly exempt from registration under the 1933 Act or will be offered
exclusively in transactions that are properly exempt from registration under the
1933 Act.
2.7. Each Company represents and warrants that each of its Separate
Accounts (1) has been registered as a unit investment trust in accordance with
the provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.8. Each Company represents that it believes, in good faith, that the
Variable Contracts issued by that Company are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.9. The Fund represents and warrants that it is duly organized as a
business trust under the laws of the Commonwealth of Massachusetts, and is in
good standing under applicable law.
2.10. The Fund represents and warrants that the shares of the Series are
duly authorized for issuance in accordance with applicable law and that the Fund
is registered as an open-end management investment company under the 1940 Act.
7
<PAGE>
2.11. The Fund represents that it believes, in good faith, that the Series
currently comply with the diversification provisions of Section 817(h) of the
Code and the regulations issued thereunder relating to the diversification
requirements for variable life insurance policies and variable annuity
contracts.
2.12. The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. General Duties
--------------
3.1. The Fund shall take all such actions as are necessary to permit the
sale of the shares of each Series to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registering the shares of the 1933 Act for so long as required by applicable
law. The Fund shall amend its Registration Statement filed with the SEC under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of the shares of the Series. The Fund shall register and
qualify the shares for sale in accordance with the laws of the various states to
the extent deemed necessary by the Fund or the Distributor.
3.2. The Fund shall make every effort to maintain qualification of each
Series as a Regulated Investment Company under Subchapter M of the Code (or any
successor or similar provision) and shall notify the Companies immediately upon
having a reasonable basis for believing that a Series has ceased to so qualify
or that it might not so qualify in the future.
8
<PAGE>
3.3. The Fund shall make every effort to enable each Series to comply with
the diversification provisions of Section 817(h) of the Code and the regulations
issued thereunder relating to the diversification requirements for variable life
insurance policies and variable annuity contracts and any prospective amendments
or other modifications to Section 817 or regulations thereunder, and shall
notify the Companies immediately upon having reasonable basis for believing that
any Series has ceased to comply.
3.4. The Fund shall be entitled to receive and act upon advice of its
General Counsel or its outside counsel in meeting the requirements specified in
Section 3.2 and 3.3 hereof.
3.5. Each Company shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by that Company, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners.
3.6. Each Company shall make every effort to maintain the treatment of the
Variable Contracts issued by that Company as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code, and
shall notify the Fund and the Distributor immediately upon having a reasonable
basis for believing that such Variable Contracts have ceased to be so treated or
that they might not be so treated in the future.
9
<PAGE>
3.7. Each Company shall offer and sell the Variable Contracts issued by
that Company in accordance with applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Conduct Rules, and state law respecting the offering
of variable life insurance policies and variable annuity contracts.
3.8. The Distributor shall sell and distribute the shares of the Series of
the Fund in accordance with the applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Conduct Rules, and state law.
3.9. A majority of the Board of Trustees of the Fund shall consist of
persons who are not "interested persons" of the Fund, as defined by Section
2(a)(19) of the 1940 Act ("disinterested Trustees"), except that if this
provision of this Section 3.9 is not met by reason of the death,
disqualification, or bona fide resignation of any Trustee or Trustees, then the
operation of this provision shall be suspended (a) for a period of 45 days if
the vacancy or vacancies may be filled by the Fund's Board; (b) for a period of
60 days if a vote of shareholders is required to fill the vacancy or vacancies;
or (c) for such longer period as the SEC may prescribe by order upon
application.
3.10. Each Company agrees to provide, as promptly as possible, notice to
the Fund and to the Distributor if that Company has reason to know about a
meeting of some or all of the owners of the Variable Contracts or shareholders
of the Fund, where the agenda or purpose of the meeting relates, in whole or in
part, to the Fund, and that has not been called by the Fund's Board of Trustees
(and which shall not include a vote of Variable Contract Owners having an
interest in a Separate Account to substitute shares of another investment
company for
10
<PAGE>
corresponding shares of the Fund or a Series, as described in Section 9.1(e) and
to which the notice provision of Section 9.2 shall apply). In such an event,
that Company agrees to distribute proxy statements and any additional
solicitation materials upon the request of the Fund or the Distributor to the
owners of the Variable Contracts issued by that Company at least 30 days prior
to the meeting. That Company further agrees that it shall take no action,
directly or indirectly, in furtherance of shareholders of the Fund or Contract
Owners taking any action with respect to the Fund by written consent and without
a meeting.
3.11. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
ARTICLE IV. Potential Conflicts
-------------------
4.1. The Fund's Board of Trustees shall monitor the Fund for the existence
of any material irreconcilable conflict: (1) between the interests of owners of
scheduled premium variable life insurance policies and owners of flexible
premium variable life insurance policies; (2) between the interests of owners of
variable annuity contracts and owners of scheduled premium or flexible premium
variable life insurance policies, and (3) between the interests of owners of
Variable Contracts ("Variable Contract Owners") issued by different
Participating Insurance Companies that invest in the Fund. An irreconcilable
material conflict may arise for a variety of reasons, including: (a) an action
by any state insurance regulatory authority; (b) a
11
<PAGE>
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Fund or any
Series are being managed; (e) a decision by a Participating Insurance Company to
disregard the voting instructions of Variable Contract Owners.
4.2. Each Company agrees that it shall be responsible for reporting any
potential or existing conflict to the Fund's Board of Trustees. Each Company
will be responsible for assisting the Board of Trustees of the Fund in carrying
out its responsibilities under this Agreement, by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
This includes, but is not limited to, an obligation by each Company to inform
the Board whenever Variable Contract Owner voting instructions are disregarded.
Each Company shall carry out its responsibility under this Section 4.2 with a
view only to the interests of its Variable Contract Owners.
4.3. Each Company agrees that in the event that it is determined by a
majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, that
Company shall, to the extent reasonably practicable (as determined by a majority
of the disinterested Trustees of the Board of the Fund), take whatever steps are
necessary to eliminate the irreconcilable material conflict, including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Series and reinvesting such assets in a different investment
medium, which may include another Series of
12
<PAGE>
the Fund, or submitting the question of whether such segregation should be
implemented to a vote of all affected Variable Contract Owners and, as
appropriate, segregating the assets of any appropriate group (i.e., Contract
---
Owners of Variable Contracts issued by one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Variable Contract Owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account. If a material irreconcilable conflict arises because of a Company's
decision to disregard Variable Contract Owners' voting instructions and that
decision represents a minority position or would preclude a majority vote, that
Company shall be required, at the Fund's election, to withdraw its Separate
Accounts' investment in the Fund, and no charge or penalty will be imposed as a
result of such withdrawal. The Fund shall neither be required to bear the costs
of remedial actions taken to remedy a material irreconcilable conflict nor shall
it be requested to pay a higher investment advisory fee for the sole purpose of
covering such costs. In addition, no Variable Contract Owner shall be required
directly or indirectly to bear the direct or indirect costs or remedial actions
taken to remedy a material irreconcilable conflict. A new funding medium for any
Variable Contract need not be established pursuant to this Section 4.3, if an
offer to do so has been declined by vote of a majority of Variable Contract
Owners materially adversely affected by the irreconcilable material conflict.
All reports received by the Fund's Board of Trustees of potential or existing
conflicts, and all Board action with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and the Fund's investment
adviser of a conflict, and determining whether any proposed action adequately
remedies a conflict, shall be properly recorded in the minutes of the Board of
Trustees of the Fund or other appropriate
13
<PAGE>
records, and such minutes or other records shall be made available to the SEC
upon request. Each Company and the Fund shall carry out their responsibilities
under this Section 4.3 with a view only to the interests of the Variable
Contract Owners.
4.4. The Board of Trustees of the Fund shall promptly notify each Company
in writing of its determination of the existence of an irreconcilable material
conflict and its implications.
ARTICLE V. Prospectuses and Proxy Statements; Voting
-----------------------------------------
5.1. Each Company shall distribute such prospectuses, proxy statements and
periodic reports of the Fund to the owners of Variable Contracts issued by that
Company as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
5.2. The Distributor shall provide each Company with as many copies of the
current prospectus of the Fund as that Company may reasonably request. If
requested by a Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type,
electronic file or in camera-ready copy) and other assistance as is reasonably
necessary in order for the Company to print together in one document the current
prospectus for the Variable Contracts issued by the Company and the current
prospectus for the Fund. The Fund shall bear the expense of printing copies of
its current prospectus that will be distributed to existing Variable Contract
Owners, and each Company shall bear the expense of printing copies of the Fund's
prospectus that are used in connection with offering those Variable Contracts
issued by that Company.
14
<PAGE>
5.3. The Fund and the Distributor shall provide (1) at the Fund's expense,
one copy of the Fund's current Statement of Additional Information ("SAI") to
each Company and to any owner of a Variable Contract issued by a Company who
requests such SAI, (2) at a Company's expense, such additional copies of the
Fund's current SAI as that Company shall reasonably request and that that
Company shall require in accordance with applicable law in connection with
offering the Variable Contracts issued by that Company.
5.4. The Fund, at its expense, shall provide a Company with copies of its
proxy material, periodic reports to shareholders and other communications to
shareholders in such quantity as that Company shall reasonably require for
purposes of distributing to owners of Variable Contracts issued by that Company.
The Fund, at a Company's expense, shall provide that Company with copies of its
periodic reports to shareholders and other communications to shareholders in
such quantity as that Company shall reasonably request for use in connection
with offering the Variable Contracts issued by that Company. If requested by a
Company in lieu thereof, the Fund shall provide such documentation (including a
final copy of the Fund's proxy materials, periodic reports to shareholders and
other communications to shareholders, as set in type or in camera-ready copy)
and other assistance as reasonably necessary in order for that Company to print
such shareholder communications for distribution to owners of Variable Contracts
issued by that Company.
5.5. For so long as the SEC interprets the 1940 Act to require pass-through
voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act, each Company shall vote
shares of each Series of the Fund held
15
<PAGE>
in a Separate Account or a subaccount thereof that is registered as an
investment company under the 1940 Act, at regular and special meetings of the
Fund in accordance with instructions timely received by that Company (or its
designated agent) from owners of Variable Contracts funded by such Separate
Account or subaccount thereof having a voting interest in the Series. Each
Company shall vote shares of a Series of the Fund held in a such a registered
Separate Account or a subaccount thereof that are attributable to its Variable
Contracts as to which no timely instructions are received, as well as shares
held in such Separate Account or subaccount thereof that are not attributable to
its Variable Contracts and owned beneficially by the Company (resulting from
charges against the Variable Contracts or otherwise), in the same proportion as
the votes cast by owners of the Variable Contracts funded by that Separate
Account or subaccount thereof having a voting interest in the Series from whom
instructions have been timely received. Each Company shall vote shares of each
Series of the Fund held in its general account, if any, in the same proportion
as the votes cast with respect to shares of the Series held in all Separate
Accounts of that Company or subaccounts thereof, whether or not registered, in
the aggregate.
5.6. The Fund shall disclose in its prospectus or Statement of Additional
Information, to the extent pertinent, that (1) shares of the Series of the Fund
are offered to affiliated or unaffiliated insurance company separate accounts
which fund both annuity and life insurance contracts and, (2) due to differences
in tax treatment or other considerations, the interests of various Variable
Contract Owners participating in the Fund or a Series might at some time be in
conflict, and (3) the Board of Trustees of the Fund will monitor for any
material conflicts and determine what action, if any, should be taken. The Fund
hereby notifies the Companies that
16
<PAGE>
prospectus disclosure may be appropriate, to the extent pertinent, regarding
potential risks of offering shares of the Fund to separate accounts funding both
variable annuity contracts and variable life insurance policies, to separate
accounts funding Variable Contracts of unaffiliated life insurance companies.
ARTICLE VI. Sales Material and Information
------------------------------
6.1. Each Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund (or any Series thereof) or its investment advisers or
the Distributor is named, and no such sales literature or other promotional
material shall be used without the approval of the Fund and the Distributor or
the designee of either.
6.2. Each Company agrees that neither it nor any of its affiliates or
agents shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund other than the information or
representations contained in the Registration Statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Distributor or its designee, except with the permission of
the Fund or its designee or the Distributor or its designee.
6.3. The Fund or the Distributor or the designee of either shall furnish to
each Company or its designee, each piece of sales literature or other
promotional material in which
17
<PAGE>
that Company or its Separate Accounts are named, and no such material shall be
used without the approval of that Company or its designee.
6.4. The Fund and the Distributor agree that each, and the affiliates and
agents of each, shall not give any information or make any representations on
behalf of a Company or concerning that Company, its Separate Accounts, or the
Variable Contracts issued by that Company, other than the information or
representations contained in a registration statement or prospectus for such
Variable Contracts, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports for the Separate Accounts or
prepared for distribution to owners of such Variable Contracts, or in sales
literature or other promotional material approved by that Company or its
designee, except with the permission of that Company.
6.5. The Fund will provide to each Company at least one complete copy of
all prospectuses, Statements of Additional Information, reports, proxy
statements and other voting solicitation materials, and all amendments and
supplements to any of the above, that relate to the Fund or its shares, promptly
after the filing of such document with the SEC or other regulatory authorities.
6.6. Each Company will provide to the Fund at least one complete copy of
all prospectuses (which shall include an offering memorandum if the Variable
Contracts issued by that Company or interests therein are not registered under
the 1933 Act), Statements of Additional Information, reports, solicitations for
voting instructions, and all amendments or supplements to any of the above, that
relate to the Variable Contracts issued by that Company or
18
<PAGE>
its Separate Accounts promptly after the filing of such document with the SEC or
other regulatory authority.
6.7. For purposes of this Article VI, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, computerized media, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, seminar texts, reprints or excerpts of any
other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees.
ARTICLE VII. Indemnification
---------------
7.1. Indemnification By Pacific Life
-------------------------------
7.1(a). Pacific Life agrees to indemnify and hold harmless the Fund,
each of its Trustees and officers, any affiliated person of the Fund within the
meaning of Section 2(a)(3) of the 1940 Act, and the Distributor (collectively,
the "Indemnified Parties" for purposes of this Section 7.1 and Section 7.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Pacific Life) or litigation expenses
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages,
19
<PAGE>
liabilities or litigation expenses are related to the sale or acquisition of the
Fund's shares or the Variable Contracts issued by Pacific Life and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement or
prospectus (which shall include an offering memorandum) for the Variable
Contracts issued by Pacific Life or sales literature for such Variable Contracts
(or any amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to Pacific Life by or on behalf of the Fund for use in the registration
statement or prospectus for the Variable Contracts issued by Pacific Life or
sales literature (or any amendment or supplement) or otherwise for use in
connection with the sale of such Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or representation
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts not
supplied by Pacific Life or persons under its control) or wrongful conduct of
Pacific Life or any of its affiliates, employees or agents with respect to the
sale or distribution of the Variable Contracts issued by Pacific Life or the
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of Pacific Life;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof.
7.1(b). Pacific Life shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations or
duties under this Agreement or to the Fund.
20
<PAGE>
7.1(c). Pacific Life shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified Pacific Life in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify Pacific Life of any such claim shall not relieve Pacific Life
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, Pacific Life
shall be entitled to participate, at its own expense, in the defense of such
action. Pacific Life also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from Pacific
Life to such party of Pacific Life's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and Pacific Life will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.1(d). The Indemnified Parties shall promptly notify Pacific Life of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Variable Contracts issued by
Pacific Life or the operation of the Fund.
21
<PAGE>
7.2. Indemnification By PL&A
-----------------------
7.2(a). PL&A agrees to indemnify and hold harmless the Indemnified
Parties against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of PL&A) or litigation
expenses (including legal and other expenses), to which the Indemnified Parties
may become subject under any statue, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or litigation expenses are
related to the sale or acquisition of the Fund's shares or the Variable
Contracts issued by PL&A and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement or
prospectus (which shall include an offering memorandum) for the Variable
Contracts issued by PL&A or sales literature for such Variable Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to PL&A by or on behalf of the Fund for use in the registration statement or
prospectus for the Variable Contracts issued by PL&A or sales literature (or any
amendment or supplement) or otherwise for use in connection with the sale of
such Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or representation
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts not
supplied by PL&A or persons under its control) or wrongful conduct of PL&A or
any of its affiliates, employees or agents with respect to the sale or
distribution of the Variable Contracts issued by PL&A or the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of PL&A;
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
22
<PAGE>
7.2(b). PL&A shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation expenses
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his or her
duties or by reason of his or her reckless disregard of obligations or duties
under this Agreement or to the Fund.
7.2(c). PL&A shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such Party
shall have notified PL&A in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Party shall have
received notice of such service on any designated agent), but failure to notify
PL&A of any such claim shall not relieve PL&A from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, PL&A shall be entitled to participate, at its
own expense, in the defense of such action. PL&A also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from PL&A to such party of PL&A's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and PL&A will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
23
<PAGE>
7.2(d). The Indemnified Parties shall promptly notify PL&A of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Variable Contracts issued by PL&A
or the operation of the Fund.
7.3. Indemnification By the Distributor
----------------------------------
7.3(a). The Distributor agrees to indemnify and hold harmless the Fund
and each Company and each of their trustees, directors and officers and each
person, if any, who is an affiliated person of the Fund or that Company within
the meaning of Section 2(a)(3) the 1940 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Distributor) or litigation expenses (including legal and other
expenses) to which the Indemnified parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or litigation expenses are related to the sale or acquisition of the Fund's
shares or the Variable Contracts issued by that Company and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Distributor or the Fund
or the designee or either by or on behalf of that Company for use in the
registration statement or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the sale of the
Variable Contracts issued by that Company or Fund shares; or
(ii) arise out of or as a result of any statement or representation
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts not
supplied by the Distributor or any employees or agents
24
<PAGE>
thereof) or wrongful conduct of the Fund or Distributor, or the affiliates,
employees, or agents of the Fund or the Distributor with respect to the sale or
distribution of the Variable Contracts issued by that Company or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts issued by that Company, or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to that Company by or
on behalf of the Fund;
except to the extent provided in Sections 7.3(b) and 7.3(c) hereof.
7.3(b). The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations and
duties under this Agreement or to a Company or its Separate Accounts.
7.3(c). The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Distributor in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Party shall have received notice of such service on any designated agent),
but failure to notify the Distributor of any such claim shall not relieve the
Distributor from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
Indemnification Provision. In case any such
25
<PAGE>
action is brought against the Indemnified Parties, the Distributor will be
entitled to participate, at its own expense, in the defense thereof. The
Distributor also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Distributor
to such party of the Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Distributor will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.3(d). The Company shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Variable Contracts
issued by the Company or the operation of the Separate Accounts.
ARTICLE VIII. Applicable Law
--------------
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California.
8.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Amended Shared Funding Order) and the terms
hereof shall be interpreted and construed in accordance therewith.
26
<PAGE>
ARTICLE IX. Termination
-----------
9.1. This Agreement shall terminate:
(a) at the option of any party upon 180 days advance written notice to
the other parties; or
(b) as to a Company, at the option of that Company if shares of the
Series are not reasonably available to meet the requirements of the Variable
Contracts issued by that Company, as determined by that Company, and upon prompt
notice by that Company to the other parties; or
(c) as to a Company, at the option of the Fund or the Distributor upon
institution of formal proceedings against that Company or its agent by the NASD,
the SEC, or any state securities or insurance department or any other regulatory
body regarding that Company's duties under this Agreement or related to the sale
of the Variable Contracts issued by that Company, the operation of the Separate
Accounts, or the purchase of the Fund shares; or
(d) as to a Company, at the option of that Company upon institution of
formal proceedings against the Fund or the Distributor by the NASD, the SEC, or
any state securities or insurance department or any other regulatory body; or
(e) as to a Company, upon requisite vote of the Variable Contract
Owners having an interest in its Separate Accounts (or any subaccounts thereof)
to substitute the shares of another investment company for the corresponding
shares of the Fund or a Series in
27
<PAGE>
accordance with the terms of the Variable Contracts for which those shares had
been selected to serve as the underlying investment media; or
(f) in the event any of the shares of a Series are not registered,
issued or sold in accordance with the applicable state and/or federal law, or
such law precludes the use of such shares as the underlying investment media of
the Variable Contracts issued or to be issued by a Company; or
(g) by any party to the Agreement upon a determination by a majority
of the Trustees of the Fund, or a majority of its disinterested Trustees, that
an irreconcilable conflict exists; or
(h) as to any Company, at the option of that Company if the Fund or a
Series fails to meet the diversification requirements specified in Section 3.3
hereof.
9.2. Each party to this Agreement shall promptly notify the other parties
to the Agreement of the institution against such party of any such formal
proceedings as described in Sections 8.1(c) and (d) hereof. Each Company shall
give 60 days prior written notice to the Fund of the date of any proposed vote
of its Variable Contract Owners to replace the Fund's shares as described in
Section 9.1(e) hereof.
9.3. If this Agreement terminates, any provision of this Agreement
necessary to the orderly windup of business under it will remain in effect as to
that business, after termination.
28
<PAGE>
ARTICLE X. Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund: If to PL&A:
Pacific Select Fund Pacific Life and Annuity Company
Attn: Variable Regulatory Attn: Variable Regulatory Compliance
Compliance Department Department
700 Newport Center Drive 700 Newport Center Drive
P.O. Box 7500 P.O. Box 7500
Newport Beach, CA 92660 Newport Beach, CA 92660
If to the Distributor: If to Pacific Life:
Pacific Mutual Distributors Pacific Life Insurance Company
Attn: Compliance Officer Attn: Variable Regulatory
700 Newport Center Drive, NB-4 Compliance Department
Newport Beach, CA 92660 700 Newport Center Drive
P.O. Box 7500
Newport Beach, CA 92660
ARTICLE XI. Miscellaneous
-------------
11.1. The Fund and the Company agree that if and to the extent Rule 6e-2 or
Rule 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in final
form, to the extent applicable, the Fund and the Company shall each take such
steps as may be necessary to comply with those Rules, as may be applicable, as
amended or adopted in final form.
11.2. A copy of the Fund's Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that the Agreement has been executed on behalf of the Fund by a Trustee of
the Fund in his or her capacity as
29
<PAGE>
Trustee and not individually. The obligations of this Agreement shall only be
binding upon the assets and property of the Fund and shall not be binding upon
any Trustee, officer or shareholder of the Fund individually.
11.3. Nothing in this Agreement shall impede the Fund's Trustee or
shareholders of the shares of the Fund's Series from exercising any of the
rights provided to such Trustees or shareholders in the Fund's Agreement and
Declaration of Trust, as amended, a copy of which will be provided to the
Company upon request.
11.4. It is understood that the name "Pacific", "Pacific Life", "Pacific
Select" or any derivative thereof or logo associated with that name is the
valuable property of Pacific Life, and that the Fund has the right to use such
name (or derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Companies shall forthwith cease to use such
name (or derivative or logo).
11.5. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.6. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.7. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
30
<PAGE>
11.8. This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
PACIFIC SELECT FUND
ATTEST: /s/ AUDREY L. MILFS BY: /s/ THOMAS C. SUTTON
------------------------ ------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and Trustee
PACIFIC MUTUAL DISTRIBUTORS, INC.
ATTEST: /s/ AUDREY L. MILFS BY: /s/ GERALD W. ROBINSON
------------------------ ------------------------
Name: Audrey L. Milfs Name: Gerald W. Robinson
Title: Secretary Title: Chairman and Chief Executive
Officer
PACIFIC LIFE INSURANCE COMPANY
ATTEST: /s/ AUDREY L. MILFS BY: /s/ THOMAS C. SUTTON
------------------------ ------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and Chief
Executive Officer
ATTEST: /s/ AUDREY L. MILFS BY: /s/ GLENN S. SCHAFER
------------------------ ------------------------
Name: Audrey L. Milfs Name: Glenn S. Schafer
Title: Secretary Title: President
PACIFIC LIFE & ANNUITY COMPANY
ATTEST: /s/ AUDREY L. MILFS BY: /s/ LYNN C. MILLER
------------------------ ------------------------
Name: Audrey L. Milfs Name: Lynn C. Miller
Title: Secretary Title: Executive Vice President
31
<PAGE>
Exhibit A
Separate Accounts of Pacific Life Insurance Company:
Pacific Select Separate Account
Pacific Select Exec Separate Account
Pacific Select COLI Separate Account
Pacific Select Variable Annuity Separate Account
Separate Account A
Separate Account B
Pacific Select Value Separate Account
Pacific Corinthian Variable Separate Account
Pacific COLI Separate Account II
Pacific COLI Separate Account III
Separate Accounts of Pacific Life and Annuity Company:
Pacific Select Exec Separate Account
Separate Account A
32
<PAGE>
Exhibit B
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Small-Cap Equity Portfolio
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Value Portfolio
Emerging Markets Portfolio
International Large-Cap Portfolio
Diversified Research Portfolio
Internet Toll Keeper Portfolio*
*Effective 05/01/2000
33
<PAGE>
EXHIBIT (h)(6)
ADDENDUM TO AGENCY AGREEMENT
The Agency Agreement, made the 1st day of July, 1990 and subsequently
amended on January 4, 1994, August 15, 1994, November 20, 1995, December 18,
1998, and August 27, 1999, by and between PACIFIC SELECT FUND ("Fund"), a
Massachusetts business trust having its principal place of business at 700
Newport Center Drive, Newport Beach, CA 92660, and PACIFIC LIFE INSURANCE
COMPANY ("Pacific Life"), a California corporation, having its principal place
of business at 700 Newport Center Drive, Newport Beach, California 92660, (the
"Agreement") is hereby amended by the addition of the provisions set forth in
this Addendum to the Agreement ("Addendum"), which is made this 28th day of
January, 2000.
1. Effective May 1, 2000, the Schedule of Portfolios attached to the
Agreement is amended as shown on the Schedule of Portfolios attached
to this Addendum.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
PACIFIC SELECT FUND
Attest: /s/ AUDREY L. MILFS By: /s/ THOMAS C. SUTTON
---------------------- ------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and Trustee
PACIFIC LIFE INSURANCE COMPANY
Attest: /s/ AUDREY L. MILFS By: /s/ THOMAS C. SUTTON
---------------------- ------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman and CEO
Attest: /s/ AUDREY L. MILFS By: /s/ GLENN S. SCHAFER
---------------------- -------------------------
Name: Audrey L. Milfs Name: Glenn S. Schafer
Title: Secretary Title: President
<PAGE>
Schedule of Portfolios
Portfolios for which services are rendered:
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Small-Cap Equity Portfolio
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Value Portfolio
Emerging Markets Portfolio
International Large-Cap Portfolio
Diversified Research Portfolio
I-Net Tollkeeper Portfolio
<PAGE>
EXHIBIT (h)(7)
ADDENDUM TO FUND PARTICIPATION AGREEMENT
The Fund Participation Agreement, made the 1st day of January, 2000, by and
among PACIFIC LIFE INSURANCE COMPANY (formerly Pacific Mutual Life Insurance
Company) ("Pacific Life"), a life insurance company domiciled in California, on
its behalf and on behalf of its segregated asset accounts listed on Exhibit A to
the Agreement; PACIFIC LIFE & ANNUITY COMPANY (formerly PM Group Life Insurance
Company) ("PL&A", and, together with Pacific Life, the "Companies"), a life
insurance company domiciled in Arizona, on its behalf and on behalf of its
segregated asset accounts listed on Exhibit A to the Agreement (the segregated
asset accounts of the Companies are referred to collectively as the "Separate
Accounts"); PACIFIC SELECT FUND (the "Fund"), a Massachusetts business trust;
and PACIFIC MUTUAL DISTRIBUTORS, INC. (formerly Pacific Equities Network )
("Distributor"), a California corporation, is hereby amended by the addition of
the provisions set forth in this Addendum to the Agreement ("Addendum"), which
is made this 28th day of January, 2000.
1. Effective May 1, 2000, Exhibit B attached to the Agreement, is amended
as shown on Exhibit B attached to this Addendum.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
PACIFIC SELECT FUND
ATTEST: /s/ AUDREY L. MILFS BY: /s/ THOMAS C. SUTTON
---------------------- -----------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and Trustee
PACIFIC MUTUAL DISTRIBUTORS, INC.
ATTEST: /s/ AUDREY L. MILFS BY: /s/ GERALD W. ROBINSON
---------------------- -----------------------
Name: Audrey L. Milfs Name: Gerald W. Robinson
Title: Secretary Title: Chairman and Chief Executive
Officer
<PAGE>
PACIFIC LIFE INSURANCE COMPANY
ATTEST: /s/ AUDREY L. MILFS BY: /s/ THOMAS C. SUTTON
---------------------- ------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and
Chief Executive Officer
ATTEST: /s/ AUDREY L. MILFS BY: /s/ GLENN S. SCHAFER
------------------------ ------------------------
Name: Audrey L. Milfs Name: Glenn S. Schafer
Title: Secretary Title: President
PACIFIC LIFE & ANNUITY COMPANY
ATTEST: /s/ AUDREY L. MILFS BY: /s/ LYNN C. MILLER
----------------------- ----------------------
Name: Audrey L. Milfs Name: Lynn C. Miller
Title: Secretary Title: Executive Vice President
<PAGE>
Exhibit B
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Small-Cap Equity Portfolio
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Value Portfolio
Emerging Markets Portfolio
International Large-Cap Portfolio
Diversified Research Portfolio
I-Net Tollkeeper Portfolio
Effective May 1, 2000
<PAGE>
EXHIBIT (J)
INDEPENDENT AUDITORS' CONSENT
Pacific Select Fund:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 28 to Registration Statement No. 33-13954 on Form N-1A of our report dated
February 7, 2000 appearing in the Annual Report of the portfolios comprising the
Pacific Select Fund as of and for the respective periods ended December 31, 1999
and to the reference to us under the headings "Financial Highlights" in the
Prospectus and "Independent Auditors" in the Statement of Additional
Information, which are part of this Registration Statement.
/s/ Deloitte & Touche LLP
Costa Mesa, California
April 26, 2000
<PAGE>
EXHIBIT (M)
Brokerage Enhancement Plan for
Pacific Select Fund
<PAGE>
BROKERAGE ENHANCEMENT PLAN
WHEREAS, Pacific Select Fund (the "Fund") engages in business as an open-
end management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Fund are currently divided into
series, certain of which are listed on Schedule A hereto (the "Portfolios"),
which Schedule can be amended to add or remove series by an amended schedule;
WHEREAS, shares of common stock of the Portfolios are divided into Class A,
Class B, Class C, Class S and Class V shares, and this Plan applies to the Fund
and the Portfolios and the effect of the Plan does not vary based upon a class
of a Portfolio;
WHEREAS, the Fund employs Pacific Mutual Distributors, Inc. (the
"Distributor") as distributor of the securities of which it is the issuer;
WHEREAS, the Fund and the Distributor have entered into a Distribution
Agreement pursuant to which the Fund has employed the Distributor in such
capacity during the continuous offering of shares of the Fund;
WHEREAS, the Board of Trustees of the Fund (the "Board") has determined
that it is appropriate and desirable for the Fund to enter into agreements or
arrangements with broker-dealers (each, a "broker-dealer") that will enable the
Fund to receive, in addition to the execution of brokerage transactions,
credits, benefits or other services ("directed brokerage credits") from a
broker-dealer that the Fund may use to finance activities that are primarily
intended to result in the sale of the Fund's shares, either directly or
indirectly through the sale of variable annuity or variable life insurance
contracts whose proceeds are invested in the Fund ("Variable Contracts");
WHEREAS, any such directed brokerage credits are assets of the Fund, and
the Fund wishes, pursuant to Rule 12b-1 under the Act, to utilize such assets in
furtherance of the distribution of the Fund's shares, either directly or
indirectly through the sale of the Variable Contracts; and
<PAGE>
WHEREAS, the Board has determined that, to the extent that the use of
directed brokerage credits earned by a Portfolio under this Plan results in the
increased distribution of the Fund's shares or the Variable Contracts, a benefit
in the form of potential economies of scale should inure to that Portfolio and
to the other Portfolios offered by the Fund;
NOW, THEREFORE, the Fund hereby adopts this Plan on behalf of the
Portfolios, in accordance with Rule 12b-l under the Act, on the following terms
and conditions:
1. The Fund is authorized to enter into agreements or arrangements with
broker-dealers, pursuant to which the Fund may direct Pacific Life, in its
capacity as the Fund's Adviser, and each of the portfolio managers retained by
Pacific Life and the Fund to manage certain of the Fund's Portfolios ("Portfolio
Managers") to allocate transactions for the purchase or sale of portfolio
securities or other assets to broker-dealers, acting as agent for the Fund or
its Portfolio, and receive, in addition to execution of the transaction,
directed brokerage credits from the broker-dealer that can be used directly or
indirectly to promote the distribution of the Fund's shares, provided that the
--------
Adviser or Portfolio Manager must reasonably believe that the broker-dealer will
execute the transaction in a manner consistent with standards of best execution
as described in the registration statement for the Fund, as amended from time to
time.
2. The directed-brokerage credits received by the Fund or a Portfolio
shall be used by the Fund to compensate broker-dealers for the cost and expense
of certain distribution-related activities or to procure from the broker-dealers
or otherwise induce a broker-dealer to provide services, where such activities
or services are intended to promote the sale of the Fund's shares, either
directly or indirectly through the sale of the Variable Contracts. Such
activities or services may be provided by the broker-dealer to which a purchase
or sale transaction has been allocated or by another broker-dealer or other
party at the direction of the broker-dealer, and may include (i) developing,
preparing, printing, and mailing of advertisements, sales literature and other
promotional material describing and/or relating to the Fund, the Portfolios, or
the Variable Contracts; (ii) participation in seminars and sales meetings
designed to promote the distribution of shares of the Fund, the Portfolios or
the Variable Contracts; (iii) providing information about the Fund, its
Portfolios or the Variable Contracts, or mutual funds or variable contracts in
general, to registered representatives of the broker-dealers; (iv) providing
assistance to broker-dealers that are conducting due diligence on the Fund or
its Portfolios or the Variable Contracts; or (v) financing any other activity
that is intended to result in the sale of Fund shares or the Variable Contracts.
3. The Fund may direct the Distributor to take appropriate actions to
effect the purposes of this Plan, including, but not limited to, (a) directing
on behalf of the Fund or a Portfolio and subject to the standards described
above, the Adviser or a Portfolio Manager to allocate transactions for the
purchase or sale of portfolio securities in the manner described in the Plan;
(b) compensating a broker-dealer for the cost and expense of certain
distribution-related activities or procuring from a broker-dealer or otherwise
inducing a broker-dealer to provide services, where such activities or services
are intended to promote the sale of shares of the Fund or a Portfolio or the
Variable Contracts, all on behalf of the Fund or a Portfolio. Subject to the
standards set forth in Section 1, and subject to applicable law, the Adviser and
a Portfolio Manager may direct brokerage transactions to a broker-dealer that is
an affiliated person of the Distributor, the Adviser, or a Portfolio Manager, or
directly to the Distributor. Provided that any
-2-
<PAGE>
directed brokerage credits derived from a transaction placed with a broker-
dealer, as described in Section 1, inure to the benefit of the Portfolio on
whose behalf the transaction was placed, any such credits may also inure to the
benefit of other Portfolios of the Fund.
4. This Plan shall not take effect with respect to a Portfolio until it
has been approved by (a) a vote of a majority of the outstanding voting
securities of that Portfolio; and, together with any related agreements, has
been approved by (a) the Fund's Board of Trustees, and (b) those Trustees of the
Fund who are not "interested persons" of the Fund (as defined in the Act) and
who have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it (the "Rule 12b-l Trustees"), cast in person at a
meeting (or meetings) called, at least in part, for the purpose of voting on
this Plan and such related agreements. As additional Portfolios of the Fund are
established, this Plan shall not take effect with respect to such Portfolios
until the Plan, together with any related agreements, has been approved by votes
of a majority of both (a) the Fund's Board of Trustees and (b) the Rule 12b-1
Trustees cast in person at a meeting called, at least in part, for the purpose
of voting on such approval.
5. After approval as set forth in paragraph 4, and any other approvals
required pursuant to the Act and Rule 12b-1 thereunder, this Plan shall take
effect at the time specified by the Fund's Board of Trustees, or, if no such
time is specified by the Trustees, at the time that all approvals necessary have
been obtained. The Plan shall continue in full force and effect as to a
Portfolio for so long as such continuance is specifically approved at least
annually by votes of a majority of both (a) the Board of Trustees and (b) the
Rule 12b-1 Trustees of the Trust, cast in person at a meeting called, at least
in part, for the purpose of voting on this Plan.
6. The Distributor shall provide to the Trustees of the Fund a written
report of the amounts expended or benefits received and the purposes for which
such expenditures were made at such frequency as may be required under Rule 12b-
1 of the Act.
7. This Plan may be terminated as to the Fund or each Portfolio at any
time, without payment of any penalty, by vote of the Trustees of the Fund, by
vote of a majority of the Rule 12b-l Trustees, or by a vote of a majority of the
outstanding voting securities of the Portfolios on not more than 30 days'
written notice to any other party to the Plan. In addition, all Agreements shall
provide that such Agreement shall terminate automatically in the event of its
assignment.
8. This Plan may not be amended in any material respect unless such
amendment is approved by (a) a vote of a majority of the outstanding voting
securities of the pertinent Portfolio; and approved by a majority of both (a)
the Fund's Board of Trustees and (b) the Rule 12b-1 Trustees cast in person at a
meeting called, at least in part, for the purpose of voting on such approval.
9. While this Plan is in effect, the selection and nomination of Trustees
who are not "interested persons" (as defined in the Act) of the Fund shall be
committed to the discretion of the Trustees who are not interested persons.
10. The Fund shall preserve copies of this Plan and related agreements for
a period of not less than six years from the date of termination of the Plan or
related agreements, the first
-3-
<PAGE>
two years in an easily accessible place; and shall preserve all reports made
pursuant to paragraph 6 hereof for a period of not less than six, the first two
years in an easily accessible place.
11. The provisions of this Plan are severable as to each Portfolio, and
any action to be taken with respect to this Plan shall be taken separately for
each Portfolio affected by the matter.
August, 1999
-4-
<PAGE>
SCHEDULE A
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Growth Portfolio (to be renamed Small-Cap Equity Portfolio)*
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Portfolio (to be renamed International Value Portfolio)*
Emerging Markets Portfolio
International Large-Cap Portfolio*
Diversified Research Portfolio*
* Effective January 1, 2000
-5-
<PAGE>
EXHIBIT (P)(2)
February 2000
-------------
As Amended and Restated
-----------------------
ALLIANCE CAPITAL MANAGEMENT L.P.
--------------------------------
Code of Ethics and Statement of Policy and Procedures Regarding
Personal Securities Transactions
1. Purposes
--------
(a) Alliance Capital Management L.P. ("Alliance", "we" or "us") is a
registered investment adviser and acts as investment manager or
adviser to investment companies and other Clients. In this capacity,
we serve as fiduciaries and owe our Clients an undivided duty of
loyalty. We must avoid even the appearance of a conflict that may
compromise the trust Clients have placed in us and must insist on
strict adherence to fiduciary standards and compliance with all
applicable federal and state securities laws. Adherence to this Code
of Ethics and Statement of Policy and Procedures Regarding Personal
Securities Transactions (the "Code and Statement") is a fundamental
condition of service with us, any of our subsidiaries or our general
partner (the "Alliance Group").
(b) The Code and Statement is intended to comply with Rule 17j-1 under the
Investment Company Act which applies to us because we serve as an
investment adviser to registered investment companies. Rule 17j-1
specifically requires us to adopt a code of ethics that contains
provisions reasonably necessary to prevent our "access persons"
(defined in Rule 17j-1 to cover persons such as officers, directors,
portfolio managers, traders, research analysts and others) from
engaging in fraudulent conduct, including insider trading. Each
investment company we advise has also adopted a code of ethics with
respect to its access persons. As set forth in Section 3 below, our
Code and Statement applies to all Employees and all other individuals
who are Access Persons. The Code and Statement is also intended to
comply with the provisions of Rule 204-2 under the Investment Advisers
Act of 1940 (the "Advisers Act") which requires us to maintain records
of securities transactions in which certain of our personnel have any
Beneficial Ownership.
(c) All Employees and all other individuals who are Access Persons
(collectively, "you") also serve as fiduciaries with respect to our
Clients and in this capacity you owe an undivided duty of loyalty to
our Clients. As part of this duty and as expressed throughout the
Code and Statement, you must at all times:
(i) Place the interests of our Clients first;
(ii) Conduct all personal securities transactions consistent with
this Code and Statement and in such a manner that avoids any
actual or potential conflict of interest or any abuse of your
responsibility and position of trust; and
(iii) Abide by the fundamental standard that you not take
inappropriate advantage of your position.
-1-
<PAGE>
(d) This Code and Statement does not attempt to identify all possible
conflicts of interests and literal compliance with each of the
specific procedures will not shield you from liability for personal
trading or other conduct which violates your fiduciary duties to our
Clients. In addition to the specific prohibitions contained in this
Code and Statement, you are also subject to a general requirement not
to engage in any act or practice that would defraud our Clients. This
general prohibition includes, in connection with the purchase or sale
of a Security held or to be acquired or sold (as this phrase is
defined below in Section 2(k)) by a Client:
(i) Making any untrue statement of a material fact;
(ii) Creating materially misleading impressions by omitting to state
or failing to provide any information necessary to make any
statements made, in light of the circumstances in which they
are made, not misleading;
(iii) Making investment decisions, changes in research ratings and
trading decisions other than exclusively for the benefit of and
in the best interest of our Clients;
(iv) Using information about investment or trading decisions or
changes in research ratings (whether considered, proposed or
made) to benefit or avoid economic injury to you or anyone
other than our Clients;
(v) Taking, delaying or omitting to take any action with respect to
any research recommendation, report or rating or any investment
or trading decision for a Client in order to avoid economic
injury to you or anyone other than our Clients;
(vi) Purchasing or selling a Security on the basis of knowledge of a
possible trade by or for a Client;
(vii) Revealing to any other person (except in the normal course of
your duties on behalf of a Client) any information regarding
Securities transactions by any Client or the consideration by
any Client of Alliance of any such Securities transactions; or
(viii) Engaging in any manipulative practice with respect to any
Client.
(e) The provisions contained in this Code and Statement must be followed
----
when making a personal securities transaction. These policies and
procedures, which must be followed, are considerably more restrictive
and time-consuming than those applying to investments in the mutual
funds and other Clients we advise. If you are not prepared to comply
with these policies and procedures, you must forego personal trading.
-2-
<PAGE>
2. Definitions
-----------
The following definitions apply for purposes of the Code and Statement in
addition to the definitions contained in the text itself.
(a) "Access Person" means any director or officer of the general
partner of Alliance, as well as any of the following persons:
(i) any Employee who, in connection with his or her regular
functions or duties --
(A) makes, participates in, or obtains information
regarding the purchase or sale of a Security by a
Client, or whose functions relate to the making of any
recommendations with respect to such purchases or
sales;
(B) obtains information from any source regarding any
change, or consideration of any change in Alliance's
internal research coverage, a research rating or an
internally published view on a Security or issuer; or
(C) obtains information from any source regarding the
placing or execution of an order for a Client account;
and
(ii) any natural person having the power to exercise a
controlling influence over the management or policies of
Alliance (unless that power is solely the result of his or
her position with Alliance) who:
(A) obtains information concerning recommendations made to
a Client with regard to the purchase or sale of a
Security;
(B) obtains information from any source regarding any
change, or consideration of any change in research
coverage, research rating or a published view on a
Security or issuer; and
(C) obtains information from any source regarding the
placing or execution of an order for a Client account.
(b) A Security is "being considered for purchase or sale" when:
(i) an Alliance research analyst issues research information
(including as part of the daily morning call) regarding
initial coverage of, or changing a rating with respect to,
a Security;
(ii) a portfolio manager has indicated (during the daily morning
call or otherwise) his or her intention to purchase or sell
a Security;
(iii) a portfolio manager places an order for a Client; or
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<PAGE>
(iv) a portfolio manager gives a trader discretion to execute an
order for a Client over a specified period of time.
(c) "Beneficial Ownership" is interpreted in the same manner as in
determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 ("Exchange
Act"), Rule 16a-1 and the other rules and regulations thereunder
and includes ownership by any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or
otherwise, has or shares a direct or indirect pecuniary interest
in a Security. For example, an individual has an indirect
pecuniary interest in any Security owned by the individual's
spouse. Beneficial Ownership also includes, directly or
indirectly, through any contract, arrangement, understanding,
relationship, or otherwise, having or sharing "voting power" or
"investment power," as those terms are used in Section 13(d) of
the Exchange Act and Rule 13d-3 thereunder.
(d) "Client" means any person or entity, including an investment
company, for which Alliance serves as investment manager or
adviser.
(e) "Compliance Officer" refers to Alliance's Compliance Officer.
(f) "Control" has the same meaning set forth in Section 2(a)(9) of
the Investment Company Act.
(g) "Employee" refers to any person who is an employee of any member
of the Alliance Group, including both part-time employees, as
well as consultants (acting in the capacity of a portfolio
manager, trader or research analyst) under the control of
Alliance who, but for their status as consultants, would
otherwise come within the definition of Access Person.
(h) "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the
reporting requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934.
(i) "Investment Personnel" refers to:
(i) any Employee who acts in the capacity of a portfolio
manager, research analyst or trader;
(ii) any Employee who assists someone acting in the capacity of
a portfolio manager, research analyst or trader and as an
assistant has access to information generated or used by
portfolio managers, research analysts and traders
(including, for example, assistants who have access to the
Alliance Investment Review or the Alliance International
Investment Review);
(iii) any Employee who receives the Alliance Investment Review
or the Alliance International Investment Review; or
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<PAGE>
(iv) any natural person who Controls Alliance and who obtains
information concerning recommendations made to a Client
regarding the purchase or sale of securities by the
Client.
(j) "Limited Offering" means an offering that is exempt from
------------------
registration under the Securities Act of 1933 pursuant to
Sections 4(2) or 4(6) thereof or pursuant to Rules 504, 505 or
506 under the Securities Act of 1933.
(k) "Personal Account" refers to any account (including, without
limitation, a custody account, safekeeping account and an account
maintained by an entity that may act in a brokerage or a
principal capacity) in which an Access Person or Employee has any
Beneficial Ownership and any such account maintained by or for a
financial dependent. For example, this definition includes
Personal Accounts of:
(i) an Access Person's or Employee's spouse, including a
legally separated or divorced spouse who is a financial
dependent,
(ii) financial dependents residing with the Access Person or
Employee, and
(iii) any person financially dependent on an Access Person or
Employee who does not reside with that person, including
financially dependent children away at college.
(l) "Purchase or Sale of a Security" includes, among other
transactions, the writing or purchase of an option to sell a
Security and any short sale of a Security.
(m) "Security" has the meaning set forth in Section 2(a)(36) of the
Investment Company Act and any derivative thereof, commodities,
options or forward contracts, except that it shall not include
shares of open-end investment companies registered under the
Investment Company Act, securities issued by the Government of
the United States, short-term debt securities that are government
securities within the meaning of Section 2(a)(16) of the
Investment Company Act, bankers' acceptances, bank certificates
of deposit, commercial paper, and such other money market
instruments as are designated by the Compliance Officer.
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<PAGE>
(n) "Security held or to be acquired or sold" means:
(i) any Security which, within the most recent 15 days (1) is
or has been held by a Client or (2) is being or has been
considered by a Client (to the extent known by Alliance)
or Alliance for purchase by the Client; and
(ii) any option to purchase or sell, and any Security
convertible into or exchangeable for, a Security.
(o) "Subsidiary" refers to either of the following types of entities
with respect to which Alliance, directly or indirectly, through
the ownership of voting securities, by contract or otherwise has
the power to direct or cause the direction of management or
policies of such entity:
(i) any U.S. entity engaged in money management; and
(ii) any non-U.S. entity engaged in money management for U.S.
accounts.
3. Application
-----------
(a) This Code and Statement applies to all Employees and to all other
individuals who are Access Persons. Please note that certain
provisions apply to all Employees while other provisions apply
only to Access Persons and others apply only to certain
categories of Access Persons who are also Investment Personnel
(e.g., portfolio managers and research analysts).
(b) Alliance will provide a copy of this Code and Statement to all
Employees and all individuals who are Access Persons. In
addition, the Compliance Officer will maintain lists of Access
Persons and Investment Personnel, including a separate list of
portfolio managers and research analysts.
4. Limitations on Personal Securities Transactions
-----------------------------------------------
(a) All Employees
It is the responsibility of each Employee to ensure that all
personal securities transactions are made in strict compliance
with the restrictions and procedures in the Code and Statement
and otherwise comply with all applicable legal and regulatory
requirements.
Employees must hold all Securities in a Personal Account. This
requirement applies to all types of personal securities
transactions including, for example, the purchase of Securities
in a private placement or other direct investment. In addition,
Employees may not take physical possession of certificates or
other formal evidence of ownership.
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<PAGE>
Personal securities transactions for Employees may be effected
only in a Personal Account and in accordance with the following
provisions:
(i) Designated Brokerage Accounts
-----------------------------
All Personal Accounts of an Employee that are maintained
as brokerage accounts must be held only at the following
designated broker-dealers: Donaldson, Lufkin & Jenrette,
Merrill Lynch & Co., and Charles Schwab.
(ii) Securities Being Considered for Client Purchase or Sale
-------------------------------------------------------
An Employee may not purchase or sell a Security, or engage
in any short sale of a Security, in a Personal Account if,
at the time of the transaction, the Security is being
considered for purchase or sale for a Client or is being
purchased or sold for a Client. The following non-
exhaustive list of examples illustrates this restriction:
. An Alliance research analyst issues research
information (including as part of the daily morning
call) regarding initial coverage of, or changing a
rating with respect to, a Security.
. A portfolio manager has, during the daily morning
call, indicated his or her intention to purchase or
sell a Security.
. A portfolio manager places an order in the Security
to purchase or sell the Security for a Client.
. An open order in the Security exists on the trading
desk.
. An open limit order exists on the trading desk, and
it is reasonably likely that the Security will reach
that limit price in the near future.
(iii) Restricted List
---------------
A Security may not be purchased or sold in a Personal
Account if, at the time of the transaction, the Security
appears on the Alliance Daily Restricted List and is
restricted for Employee transactions. The Daily Restricted
List is made available each business day to all Employees
via Lotus Notes and the Alliance Alert.
(iv) Preclearance Requirement
------------------------
An Employee may not purchase or sell, directly or
indirectly, any Security in which the Employee has (or
after such transaction would have) any Beneficial
Ownership unless the Employee obtains the prior written
approval to the transaction from the Compliance Department
and, in the case of Investment Personnel, the head of the
business unit in which the Employee works. A request
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<PAGE>
for preclearance must be made in writing in advance of the
contemplated transaction and must state:
a. the name of the Security involved,
b. the number of shares or principal amount to be
purchased or sold, and
c. a response to all questions contained in the
appropriate pre-clearance form.
Preclearance requests will be acted on only between the
hours of 10:00 a.m. and 3:30 p.m. Any approval given under
this paragraph will remain in effect only until the end of
the trading day on which the approval was granted.
When a Security is being considered for purchase or sale
for a Client or is being purchased or sold for a Client
following the approval on the same day of a personal
trading request form with respect to the same security,
the Compliance Department is authorized to cancel the
personal order if (x) it has not been executed and the
order exceeds a market value of $50,000 or (y) the
Compliance Department determines, after consulting with
the trading desk and the appropriate business unit head
(if available), that the order, based on market
conditions, liquidity and other relevant factors, could
have an adverse impact on a Client or on a Client's
ability to purchase or sell the Security or other
Securities of the issuer involved.
(v) Amount of Trading
-----------------
No more than an aggregate of 20 securities transactions
may occur in an Employee's Personal Accounts in any
consecutive thirty-day period.
(vi) Dissemination of Research Information
-------------------------------------
An Employee may not buy or sell any Security that is the
subject of "significantly new" or "significantly changed"
research during a forty-eight hour period commencing with
the first publication or release of the research. The
terms "significantly new" and "significantly changed"
include:
a. the initiation of coverage by an Alliance research
analysts;
b. any change in a research rating or position by an
Alliance research analyst (unless the research analyst
who makes the change advises the Compliance Department
in writing that the change is the result of an
unanticipated widely disseminated announcement or
market event, e.g., the announcement of a major
earnings warning as opposed to the research analysts
independently rethinking his or her subjective
assessment of the security); and
c. any other rating, view, opinion, or advice from an
Alliance research analyst, the issuance (or
reissuance) of which in the opinion of such
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<PAGE>
research analyst or head of research would be
reasonably likely to have a material effect on the
price of the security.
(b) Access Persons
--------------
In addition to the requirements set forth in paragraph (a) of
this Section 4, the following restrictions apply to all Access
Persons:
(i) Short Sales
-----------
No Access Person shall engage in any short sale of a
Security if, at the time of the transaction, any Client
has a long position in such Security (except that an
Access Person may engage in short sales against the box
and covered call writing provided that these personal
securities transactions do not violate the prohibition
against short-term trading).
(ii) Short-Term Trading
------------------
All Access Persons are subject to a mandatory buy and hold
of all Securities for 60 calendar days. An Access Person
may, however, after 30 calendar days, sell a Security if
the sale price is lower than the original purchase price
(i.e., at a loss on the original investment). Any trade
made in violation of this paragraph shall be unwound, or,
if that is not practicable, all profits from the short-
term trading must be disgorged as directed by the
Compliance Officer.
(iii) Non-Employee Access Persons
---------------------------
Any non-Employee Access Person with actual knowledge that
a Security is being considered for purchase or sale for a
Client may not purchase or sell such Security.
(c) Investment Personnel
--------------------
In addition to the requirements set forth in paragraphs (a) and
(b) of this Section 4, the following restrictions apply to all
Investment Personnel:
(i) Initial Public Offerings
------------------------
No Investment Personnel shall acquire any direct or
indirect Beneficial Ownership in any Securities in any
Initial Public Offering.
(ii) Limited Offerings
-----------------
No Investment Personnel shall acquire any Beneficial
Ownership in any Securities in any Limited Offering of
Securities unless the Compliance Officer and the business
unit head give express prior written approval and document
the basis for granting or denying approval after due
inquiry. The Compliance Officer, in
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<PAGE>
determining whether approval should be given, will take
into account, among other factors, whether the investment
opportunity should be reserved for a Client and whether
the opportunity is being offered to the individual by
virtue of his or her position with the Alliance Group.
Investment Personnel so authorized to acquire Securities
in a Limited Offering must disclose that investment when
they play a part in any Client's subsequent consideration
of an investment in the issuer, and in such a case, the
decision of Alliance to purchase Securities of that issuer
for a Client will be subject to an independent review by
Investment Personnel with no personal interest in such
issuer.
(iii) Board Member or Trustee
-----------------------
No Investment Personnel shall serve on any board of
directors or trustees or in any other management capacity
of any private or public company without prior written
authorization from the Compliance Officer based upon a
determination that such service would not be inconsistent
with the interests of any Client. This prohibition does
not include non-profit corporations, charities or
foundations; however, approval from the Investment
Personnel's supervisor is necessary.
(iv) Receipt of Gifts
----------------
No Investment Personnel shall receive any gift or other
thing of more than de minimis value from any person or
entity, other than a member of the Alliance Group, that
does business with Alliance on behalf of a Client,
provided, however, that receipt of the following shall not
be prohibited:
a. an occasional breakfast, luncheon, dinner or
reception, ticket to a sporting event or the theater,
or comparable entertainment, that is not so frequent,
so costly, nor so extensive as to raise any question
of impropriety;
b. a breakfast, luncheon, dinner, reception or cocktail
party in conjunction with a bona fide business
meeting; and
c. a gift approved in writing by the Compliance Officer.
(d) Portfolio Managers
------------------
In addition to the requirements set forth in paragraphs (a), (b)
and (c) of this Section 4, the following restrictions apply to
all persons acting in the capacity of a portfolio manager of a
Client account:
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<PAGE>
(i) Blackout Periods
----------------
No person acting in the capacity of a portfolio manager shall
buy or sell a Security for a Personal Account within seven
calendar days before and after a Client trades in that
Security. In the case of Client accounts managed by more than
one portfolio manager, this restriction will apply to the
portfolio manager who makes the decision to purchase or sell
the relevant Security. If a portfolio manager engages in such
a personal securities transaction during a blackout period,
the Compliance Officer will break the trade or, if the trade
cannot be broken, the Compliance Officer will direct that any
profit realized on the trade be disgorged.
(ii) Actions During Blackout Periods
-------------------------------
No person acting in the capacity of a portfolio manager shall
delay or accelerate a Client trade due to a previous purchase
or sale of a Security for a Personal Account. In the event
that a portfolio manager determines that it is in the best
interest of a Client to buy or sell a Security for the account
of the Client within seven days of the purchase or sale of the
same Security in a Personal Account, the portfolio manager
should contact the Compliance Officer immediately who may
direct that the trade in the Personal Account be canceled or
take other appropriate relief.
(iii) Transactions Contrary to Client Positions
-----------------------------------------
No person acting in the capacity of a portfolio manager shall
purchase or sell a Security in a Personal Account contrary to
investment decisions made on behalf of a Client, unless the
portfolio manager represents and warrants in the personal
trading request form that (x) it is appropriate for the Client
account to buy, sell or continue to hold that Security and (y)
the decision to purchase or sell the Security for the Personal
Account arises from the need to raise or invest cash or some
other valid reason specified by the portfolio manager and
approved by the Compliance Officer and is not otherwise based
on the portfolio manager's view of how the Security is likely
to perform.
(e) Research Analysts
-----------------
In addition to the requirements set forth in paragraphs (a), (b), (c)
of this Section 4, the following restrictions apply to all persons
acting in the capacity of a research analyst:
(i) Blackout Periods
----------------
No person acting as a research analyst shall buy or sell a
Security within seven calendar days before and after making a
change in a rating or other published view with respect to
that Security. If a research analyst engages in such a
personal securities transaction during a blackout period, the
Compliance Officer
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<PAGE>
will break the trade or, if the trade cannot be broken, the
Compliance Officer will direct that any profit realized on the
trade be disgorged.
(ii) Actions During Blackout Periods
-------------------------------
No person acting as a research analyst shall delay or accelerate
a rating or other published view with respect to any Security
because of a previous purchase or sale of a Security in such
person's Personal Account. In the event that a research analyst
determines that it is appropriate to make a change in a rating
or other published view within seven days of the purchase or
sale of the same Security in a Personal Account, the research
analyst should contact the Compliance Officer immediately who
may direct that the trade in the Personal Account be canceled or
take other appropriate relief.
(iii) Actions Contrary to Ratings
---------------------------
No person acting as a research analyst shall purchase or sell a
Security (to the extent such Security is included in the
research analyst's research universe) contrary to an outstanding
rating or a pending ratings change, unless (x) the research
analyst represents and warrants in the personal trading request
form that (as applicable) there is no reason to change the
outstanding rating and (y) the research analyst's personal trade
arises from the need to raise or invest cash or some other valid
reason specified by the research analyst and approved by the
Compliance Officer and is not otherwise based on the research
analyst's view of how the security is likely to perform.
5. Exempted Transactions
---------------------
(a) The pre-clearance requirements, as described in Section 4(a)(iv) of
this Code and Statement, do not apply to:
(i) Non-Volitional Transactions
---------------------------
Purchases or sales that are non-volitional (including, for
example, any Security received as part of an individual's
compensation) on the part of an Employee (and any Access Person
who is not an Employee) or are pursuant to a dividend
reinvestment plan (up to an amount equal to the cash value of a
regularly declared dividend, but not in excess of this amount).
(ii) Exercise of Pro Rata Issued Rights
----------------------------------
Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of the issuer's
Securities, to the extent such rights were acquired from such
issuer, and sales of such rights so acquired. This exemption
applies only to the exercise or sale of rights that are issued
in connection with a specific upcoming public offering on a
specified date, as opposed to rights acquired from the issuer
(such as warrants or options), which may be exercised
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<PAGE>
from time-to-time up until an expiration date. This exemption
does not apply to the sale of stock acquired pursuant to the
exercise of rights.
(b) The restrictions on effecting transactions in a (1) Security being
considered for purchase or sale, as described in Sections 4(a)(ii) and
4(b)(iii) or (2) that is the subject of "significantly new" or
"significantly changed" research, as described in Section 4(a)(vi) of
this Code and Statement, do not apply to:
(i) Non-Volitional Transactions
---------------------------
Purchases or sales that are non-volitional (including, for
example, any Security received as part of an individual's
compensation) on the part of an Access Person or are pursuant to
a dividend reinvestment plan (up to an amount equal to the cash
value of a regularly declared dividend, but not in excess of
this amount).
(ii) Exercise of Pro Rata Issued Rights
----------------------------------
Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of the issuer's
Securities, to the extent such rights were acquired from such
issuer, and sales of such rights so acquired. This exemption
applies only to the exercise or sale of rights that are issued
in connection with a specific upcoming public offering on a
specified date, as opposed to rights acquired from the issuer
(such as warrants or options), which may be exercised from time-
to-time up until an expiration date. This exemption does not
apply to the sale of stock acquired pursuant to the exercise of
rights.
(iii) De Minimis Transactions -- Fixed Income Securities
--------------------------------------------------
Any of the following Securities, if at the time of the
transaction, the Access Person has no actual knowledge that the
Security is being considered for purchase or sale by a Client,
that the Security is being purchased or sold by the Client or
that the Security is the subject of significantly new or
significantly changed research:
a. Fixed income securities transaction involving no more than
100 units or having a principal amount not exceeding
$25,000; or
b. Non-convertible debt securities and non-convertible
preferred stocks which are rated by at least one nationally
recognized statistical rating organization ("NRSRO") in one
of the three highest investment grade rating categories.
(iv) De Minimis Transactions -- Equity Securities
--------------------------------------------
Any equity Securities transaction, or series of related
transactions, involving shares of common stock and excluding
options, warrants, rights and other derivatives, provided
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<PAGE>
a. any orders are entered after 10:00 a.m. and before 3:00 p.m.
and are not designated as "market on open" or "market on
close";
b. the aggregate value of the transactions do not exceed (1)
$10,000 for securities with a market capitalization of less
than $1 billion; (2) $25,000 for securities with a market
capitalization of $1 billion to $5 billion and (3) $50,000
for securities with a market capitalization of greater than
$5 billion; and
c. the Access Person has no actual knowledge that the Security
is being considered for purchase or sale by a Client, that
the Security is being purchased or sold by or for the Client
or that the Security is the subject of significantly new or
significantly changed research.
(c) Non-Employee Access Persons
---------------------------
The restrictions on Employees and Access Persons, as described in
Sections 4(a) and 4(b) of this Code and Statement, do not apply to
non-Employee Access Persons, if at the time of the transaction
involved, such person has no actual knowledge that the Security
involved is being considered for purchase or sale.
(d) Extreme Hardship
----------------
In addition to the exceptions contained in Section 5(a) and (b), the
Compliance Officer may, in very limited circumstances, grant other
exceptions under any Section of the Code and Statement on a case-by-
case basis, provided:
(i) The individual seeking the exception furnishes to the Compliance
Officer:
a. a written statement detailing the efforts made to comply
with the requirement from which the individual seeks an
exception;
b. a written statement containing a representation and warranty
that (1) compliance with the requirement would impose a
severe undue hardship on the individual and (2) the
exception would not, in any manner or degree, harm or
defraud the Client or compromise the individual's or
Alliance's fiduciary duty to any Client; and
c. any supporting documentation that the Compliance Officer may
request;
(ii) The Compliance Officer conducts an interview with the individual
or takes such other steps the Compliance Officer deems
appropriate in order to verify that granting the exception will
not in any manner or degree, harm or defraud the Client or
compromise the individual's or Alliance's fiduciary duty to any
Client; and
-14-
<PAGE>
(iii) The Compliance Officer maintains, along with statements provided
by the individual, a written record that contains:
a. the name of the individual;
b. the specific requirement of Section 4 from which the
individual sought an exception;
c. the name of the Security involved, the number of shares or
principal amount purchased or sold, and the date or dates
on which the Securities were purchased or sold;
d. the reason(s) the individual sought an exception from the
requirements of Section 4;
e. the efforts the individual made to comply with the
requirements of Section 4 from which the individual sought
to be excepted; and
f. the independent basis upon which the Compliance Officer
believes that the exemption should be granted.
(e) Any Employee or Access Person who acquires an interest in any private
investment fund (including a "hedge fund") or any other Security that
cannot be purchased and held in a Personal Account shall be excepted
from the requirement that all Securities be held in a Personal
Account, as described in Section 4(a) of this Code and Statement.
Such Employee or Access Person shall provide the Compliance Officer
with a written statement detailing the reason why such Security cannot
be purchased and held in a Personal Account. Transactions in these
Securities nevertheless remain subject to all other requirements of
this Code and Statement, including applicable private placement
procedures, preclearance requirements and blackout period trading
restrictions.
6. Reporting
---------
(a) Initial Holdings Reports by All Access Persons
----------------------------------------------
Each Access Person must, at the time of becoming an Access Person,
provide an initial holdings report to the Compliance Officer
disclosing the following:
(i) all Securities beneficially owned by the Access Person
(including the title, number of shares and/or principal amount
of each Security beneficially owned);
(ii) the name of any broker-dealer or financial institution where the
Access Person maintains a Personal Account; and
(iii) the date the report is submitted by the Access Person.
-15-
<PAGE>
This report must be submitted no later than 10 days after a
person becomes an Access Person. In the event that Alliance already
maintains a record of the required information via account statements
received from the Access Person's broker-dealer (because, for example,
a new Access Person is already an Alliance Employee), the Access
Person may satisfy this requirement by (i) confirming in writing
(which may include e-mail) the accuracy of the record within 10 days
after becoming an Access Person and (ii) recording the date of the
confirmation.
(a) Annual Holdings Reports by Access Persons
-----------------------------------------
Each Access Person must, by January 30 of each year, provide an annual
holdings report to the Compliance Officer disclosing the following:
(i) all Securities beneficially owned by the Access Person
(including the title, number of shares and/or principal amount
of each Security beneficially owned);
(ii) the name of any broker-dealer or financial institution where the
Access Person maintains a Personal Account; and
(iii) the date the report is submitted by the Access Person.
The first annual holdings report submitted will be for the year
ending December 31, 2000 and must be provided to the Compliance
Officer by January 30, 2001.
The information must be current as of a date not more than 30
days before the report is submitted. In the event that Alliance
already maintains a record of the required information via account
statements received from the Access Person's broker-dealer, an Access
Person may satisfy this requirement by (i) confirming in writing
(which may include e-mail) the accuracy of the record and (ii)
recording the date of the confirmation.
(b) Disclosure of Personal Accounts and Beneficially Owned Securities
-----------------------------------------------------------------
Upon commencement of employment with a member of the Alliance Group,
an Employee must:
(i) file with the Compliance Officer a list of all Personal Accounts
by completing the Employee Compliance Statement (a copy of which
is attached as Appendix A), and while so employed maintain the
list on a current basis; and
(ii) Disclose to the Compliance Officer all Securities holdings in
which the Employee has any Beneficial Ownership, and thereafter
on an annual basis, to the extent these Securities do not appear
on the Employee's account statements.
(c) Access Persons who are not Employees of Alliance
------------------------------------------------
Every Access Person who is not an Employee of Alliance, shall report
to the Compliance Officer the information described in Section 6(a)
and (b) as well as 6(e) below with
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<PAGE>
respect to transactions in any Security in which such Access Person
has, or by reason of such transaction acquires, any Beneficial
Ownership in the Security; provided, however, that such Access Person
is not required to make a report with respect to transactions effected
in any account over which the Access Person does not have any direct
or indirect influence or control, including such an account in which
an Access Person has any Beneficial Ownership.
(d) Report Contents
---------------
Every report of a non-Employee Access Person required by Section 6(d)
above shall be in writing and shall be delivered not later than ten
days after the end of the calendar quarter in which a transaction to
which the report relates was effected, and shall contain the following
information:
(i) the date of the transaction, the title and the number of shares,
and the principal amount of each Security involved;
(ii) the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(iii) the price at which the transaction was effected; and
(iv) the name of the broker, dealer or bank with or through whom the
transaction was effected.
(e) Report Representations
----------------------
Any such report may contain a statement that the report is not to be
construed as an admission by the person making the report that he or
she has any direct or indirect Beneficial Ownership in the Security to
which the report relates.
(f) Maintenance of Reports
----------------------
The Compliance Officer shall maintain the information required by
Section 6 and such other records, if any, as are required by Rule 17j-
1 under the Investment Company Act and Rule 204-2 under the Advisers
Act. All reports furnished pursuant to this Section will be kept
confidential, subject to the rights of inspection by the Compliance
Officer, the Transaction Compliance Committee, the Securities and
Exchange Commission and by other third parties pursuant to applicable
law.
7. Annual Verifications
--------------------
Each person subject to this Code and Statement must certify annually that
he or she has read and understands this Code and Statement, recognizes that
he or she is subject thereto and has complied with its provisions and
disclosed or reported all personal Securities transactions
-17-
<PAGE>
required to be disclosed or reported by this Code and Statement. Such
certificates and reports are to be given to the Compliance Officer.
8. Sanctions
---------
Upon learning of a violation of this Code and Statement, any member of the
Alliance Group, with the advice of the Compliance Officer, may impose such
sanctions as it deems appropriate, including, among other things, censure,
suspension or termination of service. Individuals subject to this Code and
Statement who fail to comply with this Code and Statement may also be
violating the federal securities laws or other federal and state laws. Any
such person who is suspected of violating this Code and Statement should be
reported immediately to the Compliance Officer.
-18-
<PAGE>
Certification
-------------
I hereby acknowledge receipt of the Code of Ethics and Statement of Policy
and Procedures Regarding Personal Securities Transactions (the "Code and
Statement") of Alliance Capital Management L.P. and its Subsidiaries. I certify
that I have read and understand the Code and Statement and recognize that I am
subject to its provisions. I also certify that I have complied with the
requirements of the Code and Statement and have disclosed or reported all
personal securities transactions required to be disclosed or reported pursuant
to the Code and Statement.
Name _________________________________________
(please print)
Signature __________________________________________
Date _______________________________________
-19-
<PAGE>
APPENDIX A
ALLIANCE CAPITAL MANAGEMENT L.P.
--------------------------------
EMPLOYEE COMPLIANCE STATEMENT
I hereby certify that I have read and understand the Code of
Ethics and Statement of Policy and Procedures Regarding Personal Securities
Transactions (the "Code and Statement"), dated August 1999 and hereby agree, in
consideration of my continued employment by Alliance Capital Management L.P. or
one of its subsidiaries, to comply with the policies and procedures contained in
the Code and Statement.
1. In connection therewith, I agree to:
a. file with the Compliance Officer and maintain on a current basis a
list of all Personal Accounts (as defined in paragraph 2(h) of the
---
Code and Statement);
b. arrange to have duplicate trade confirmations and periodic statements
for each Personal Account submitted to the Compliance Officer directly
----
by the securities firm maintaining the Account(s); and
c. be personally responsible for determining if any security transaction
for my Personal Account(s) is prohibited by the Code and Statement or
any other Alliance policy statement.
2. The following Personal Account(s) are maintained at the broker-dealer(s)
and/or financial institution(s) named below (if none write "none"):
a. registered in my name at the following broker-dealer(s) and/or
financial institution(s):
_____________________________________________________________________
_____________________________________________________________________
____________________________________
b. registered in the name of my spouse at the following broker-dealer(s)
and/or financial institution(s):
_____________________________________________________________________
_____________________________________________________________________
____________________________________
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<PAGE>
c. registered in the name of a family member who resides with me at the
following broker-dealer(s) and/or financial institution(s):
name of family member name of broker-dealer and/or financial
institution(s)
_____________________ ________________________________________
_____________________ ________________________________________
_____________________ ________________________________________
d. registered in the name of any other person who resides with me and is
financially dependent on me at the following broker-dealer(s) and/or
financial institution(s):
name of person name of broker-dealer and/or financial
institution(s)
_____________________ ________________________________________
_____________________ ________________________________________
_____________________ ________________________________________
e. registered in the name of any other person who does not reside with
me, but who is financially dependent on me, at the following broker-
dealer(s) and/or financial institution(s):
name of person name of broker-dealer and/or financial
institution(s)
_____________________ ________________________________________
_____________________ ________________________________________
_____________________ ________________________________________
3. I have investment discretion over the following other account(s) at the
following broker-dealer(s) and/or financial institution(s) (do not list
---
Client accounts):
name and description of name of broker-dealer and/or financial
account institution(s)
_____________________ ________________________________________
_____________________ ________________________________________
_____________________ ________________________________________
4. I will notify the Compliance Officer if a Personal Account is opened or
closed. If the answers to paragraphs a through e of Section 2 above are all
"none", I certify that neither I nor any member of my family who resides
with me, any other person who resides with me currently and is financially
dependent on me, or any other person who is financially dependent on me
maintains a brokerage account or other type of financial account.
________________________ _________________________
Date Employee Signature
_________________________
Type or print name
-21-
<PAGE>
EXHIBIT (P)(3)
The Capital Group Companies
Code of Conduct
JANUARY 2000
All of us within the Capital organization are responsible for maintaining the
very highest ethical standards when conducting business. In keeping with these
standards, we must never allow our own interests to be placed ahead of our
shareholders' and clients' interests.
Over the years we have earned a reputation for the highest integrity.
Regardless of lesser standards that may be followed through business or
community custom, we must observe exemplary standards of honesty and integrity.
REPORTING VIOLATIONS
If you know of any violation of our Code of Conduct, you have a
responsibility to report it. Deviations from controls or procedures that
safeguard the company, including the assets of shareholders and clients,
should also be reported.
You can report confidentially to:
. Your manager or department head
. CGC Audit Committee:
Wally Stern -- CHAIRMAN
Donnalisa Barnum
David Beevers
Jim Brown
Larry P. Clemmensen
Roberta Conroy
Bill Hurt -- (emeritus)
Sonny Kamm
Mike Kerr
Victor Kohn
John McLaughlin
Don O'Neil
Tom Rowland
John Smet
Antonio Vegezzi
Shaw Wagener
Kelly Webb
. Mike Downer or any other lawyer in the CGC Legal Group
. Don Wolfe of Deloitte & Touche LLP (CGC's auditors).
<PAGE>
CGC GIFTS POLICY -- CONFLICTS OF INTEREST
A conflict of interest occurs when the private interests of associates
interfere or could potentially interfere with their responsibilities at
work. Associates must not place themselves or the company in a position of
actual or potential conflict. Associates may not accept gifts worth more
than $100, excessive business entertainment, loans, or anything else
involving personal gain from those who conduct business with the company.
In addition, a business entertainment event exceeding $200 in value should
not be accepted unless the associate receives permission from the Gifts
Policy Committee.
REPORTING -- Although the limitations on accepting gifts applies to all
associates as described above, some associates will be asked to fill out
quarterly reports. If you receive a reporting form, you must report any gift
exceeding $50 (although it is recommended that you report all gifts received)
and business entertainment in which an event exceeds $75.
GIFTS POLICY COMMITTEE
The Gifts Policy Committee oversees administration of and compliance with
the Policy.
INSIDER TRADING
Antifraud provisions of the federal securities laws generally prohibit
persons while in possession of material nonpublic information from trading
on or communicating the information to others. Sanctions for violations can
include civil injunctions, permanent bars from the securities industry,
civil penalties up to three times the profits made or losses avoided,
criminal fines and jail sentences.
While investment research analysts are most likely to come in contact with
material nonpublic information, the rules (and sanctions) in this area
apply to all CGC associates and extend to activities both within and
outside each associate's duties.
Personal Investing Policy
As an associate of the Capital Group companies, you may have access to
confidential information. This places you in a position of special trust.
You are associated with a group of companies that is responsible for the
management of many billions of dollars belonging to mutual fund
shareholders and other clients. The law, ethics and our own policy place a
heavy burden on all of us to ensure that the highest standards of honesty
and integrity are maintained at all times.
There are several rules that must be followed to avoid possible conflicts
of interest in personal securities transactions.
2
<PAGE>
All Associates
Information regarding proposed or partially completed plans by CGC
companies to buy or sell specific securities must not be divulged to
outsiders.
Favors or preferential treatment from stockbrokers may not be accepted.
Associates may not subscribe to any initial public offering or any other
securities offering that is subject to allocation (so-called "hot issues").
Generally, this prohibition applies to spouses of associates and any family
member residing in the same household. However, an associate may request
that the Personal Investing Policy Committee consider granting an
exception. Please note that any investments in private placements that are
not prohibited as described above must be pre-cleared.
Covered Persons
Associates who have access to investment information in connection with
their regular duties are generally considered "covered persons." If you
receive a quarterly personal securities transactions report form, you are a
covered person. A detailed description of the personal investing policy can
be found at thE CGC web home page. You should take the time to review this
policy as ongoing interpretations of the policy will be explained therein.
Covered persons must conduct their personal securities transactions in such
a way that they do not conflict with the interests of the funds and client
accounts. This policy also includes securities transactions of family
members living in the covered person's household and any trust or
custodianship for which the associate is trustee or custodian. A conflict
may occur if you, a family member in the same household, a trust or
custodianship for which you are trustee or custodian have a transaction in
a security when the funds or client accounts are considering or concluding
a transaction in the same security.
Additional rules apply to "investment personnel" including portfolio
counselors/managers, research analysts, traders, and investment
administration personnel (see below).
Pre-clearance of Securities Transactions
Before buying or selling securities, covered persons should find out if the
purchase or sale of a particular security would involve a conflict of
interest. This involves checking with the CGC Legal Group based in LAO by
calling (phone number). (You will generally receive a response within one
business day.) Unless a shorter period is specified, clearance is good for
two trading days (including the day you check). If you have not executed
your transaction within this period, you must again pre-clear your
transaction.
Covered persons must promptly submit quarterly reports of certain
transactions. Transactions of securities (including fixed-income
securities) or options (see below) must be pre-cleared as described above
and reported except for: gifts or bequests of securities (although receipt
of securities as a gift must be reported and pre-clearance and reporting
are required if these
3
<PAGE>
securities are later sold); open-end investment companies (mutual funds);
shares of CGC stock; money market instruments with maturities of one year
or less; direct obligations of the U.S. Government, bankers' acceptances,
CDs or other commercial paper; commodities; and options or futures on
broad-based indices. Covered persons must also report transactions made by
family members in their household and by those for which they are a trustee
or custodian. Reporting forms will be supplied at the appropriate times and
must be submitted by the date indicated on the form.
In addition, the following transactions must be reported but need not have
been pre-cleared: transactions in debt instruments rated "A" or above by at
least one national rating service; sales pursuant to tender offers; and
dividend reinvestment plan purchases (provided the purchase pursuant to
such plan is made with dividend proceeds only).
Personal investing should be viewed as a privilege, not a right. As such,
limitations may be placed on the number of pre-clearances and/or
transactions as deemed appropriate by the Personal Investing Committee.
Brokerage Accounts
Covered persons should inform their stockbrokers that they are employed by
an investment adviser, trust company or affiliate of either. The broker is
subject to certain rules designed to prevent favoritism toward such
accounts. Associates may not accept negotiated commission rates which they
believe may be more favorable than the broker grants to accounts with
similar characteristics. In addition, covered persons must direct their
brokers to send duplicate confirmations and copies of all periodic
statements on a timely basis to The Legal Group of The Capital Group
Companies, Inc.,(special post office box address). All documents received
in this post office box are kept strictly confidential.
[If extraneous information is included on an associate's statements (e.g.,
checking account information or other information that is not subject to
the policy), the associate might want to establish a separate account
solely for transactions subject to the policy.]
Annual disclosure of personal securities holdings
Covered persons will be required to disclose all personal securities
holdings upon commencement of employment (or upon becoming a covered
person) and thereafter on an annual basis. Reporting forms will be supplied
for this purpose.
Annual Re-certification
All access persons will be required to certify annually that they have read
and understood the Personal Investing Policy and recognize that they are
subject thereto.
Additional Rules for Investment Personnel
Disclosure of ownership of recommended securities -- Ownership of
securities that are held professionally as well as personally will be
reviewed on a periodic basis by the Legal Group and
4
<PAGE>
may also be reviewed by the applicable Management Committee and/or
Investment Committee or Subcommittee. In addition, to the extent that
disclosure has not already been made by the Legal Group to the applicable
Management Committee and/or Investment Committee or Subcommittee, any
associate who is in a position to recommend the purchase or sale of
securities by the fund or client accounts that s/he personally owns should
first disclose such ownership either in writing (in a company write-up) or
orally (when discussing the company at investment meetings) prior to making
a recommendation./1/
Blackout period -- Portfolio counselors/managers and research analysts may
not buy or sell a security within at least seven calendar days before and
after a fund or client account that his or her company manages transacts in
that security. Profits resulting from transactions occurring within this
time period are subject to special review and may be subject to
disgorgement.
Ban on short-term trading profits -- Investment personnel are prohibited
from profiting from the purchase and sale or sale and purchase of the same
(or equivalent) securities within 60 days. This restriction applies to the
purchase of an option and the exercise of the option within 60 days.
Service as a director -- Investment personnel must obtain prior
authorization of the investment committee of the appropriate management
company before serving on the board of directors of publicly traded
companies. This can be arranged by calling the LAO Legal Group.
Personal Investing Policy Committee
Any questions or hardships that result from these policies or requests for
exceptions should be referred to CGC's Personal Investing Policy Committee
by calling the LAO Legal Group.
___________________________
/1/ Note that this disclosure requirement is consistent with both AIMR
standards as well as the ICI Advisory Group Guidelines.
5
<PAGE>
EXHIBIT (P)(4)
GOLDMAN SACHS ASSET MANAGEMENT
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
CODE OF ETHICS
--------------
Effective January 23, 1991
(as revised April 1, 2000)
I. DEFINITIONS
A. "Access Person" with respect to Goldman Sachs Asset Management
("GSAM") means (because GSAM is a unit within the Investment
Management Division, a separate operating division, of Goldman, Sachs
& Co., and Goldman, Sach & Co. is primarily engaged in a business
other than advising registered investment companies or other advisory
clients) only those officers, general partners or Advisory Persons (as
defined below) of GSAM who, with respect to any Investment Company (as
defined below), make recommendations or participate in the
determination of which recommendation shall be made to any Investment
Company, or whose principal function or duties relate to the
determination of which recommendation shall be made to any Investment
Company, or who, in connection with their duties, obtain any
information concerning such recommendations on Covered Securities (as
defined below) which are being made to the Investment Company. "Access
Person" with respect to Goldman Sachs Asset Management International
("GSAMI") and Goldman Sachs Funds Management, L.P. ("GSFM") means any
director, officer, general partner or Advisory Person of GSAMI or
GSFM, as the case may be.
B. "Adviser" means each of GSAM, GSAMI and GSFM.
C. "Advisory Person" means (i) any officer or employee of the Adviser or
any company in a control relationship to the Adviser who, in
connection with his or her regular functions or duties, makes,
participates in or obtains information regarding the purchase or sale
of a Covered Security by an Investment Company, or whose functions
relate to the making of any recommendations with respect to such
purchases or sales; and (ii) any natural person in a control
relationship to the Adviser who obtains information concerning the
recommendations made to an Investment Company with regard to the
purchase or sale of a Covered Security.
D. "Beneficial ownership" of a security shall be interpreted in the same
manner as it would be under Rule 16a-1 (a) (2) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), in determining
whether a person is the beneficial
A-1
<PAGE>
owner of a security for purposes of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.
E. "Board of Trustees" means the board of trustees or directors,
including a majority of the disinterested trustees/directors, of any
Investment Company for which an Adviser serves as an investment
adviser, sub-adviser or principal underwriter.
F. "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"). Section 2(a)(9) generally provides that
"control" means the power to exercise a controlling influence over the
management or policies of a company, unless such power is solely the
result of an official position with such company.
G. "Covered Security" means a security as defined in Section 2(a) (36) of
the Investment Company Act, except that it does not include: (i)
direct obligations of the Government of the United States; (ii)
banker's acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments (any instrument having a
maturity at issuance of less than 366 days and that is in one of the
two highest rating categories of a nationally recognized statistical
rating organization), including repurchase agreements; and (iii)
shares of registered open-end investment companies.
H. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of Sections 13 or 15(d) of the Exchange Act.
I. "Investment Company" means a company registered as such under the
Investment Company Act, or any series thereof, for which the Adviser
is the investment adviser, sub-adviser or principal underwriter.
J. "Investment Personnel" of the Adviser means (i) any employee of the
Adviser (or of any company in a control relationship to the Adviser)
who, in connection with his or her regular functions or duties, makes
or participates in making recommendations regarding the purchase or
sale of securities by an Investment Company or (ii) any natural person
who controls the Adviser and who obtains information concerning
recommendations made to an Investment Company regarding the purchase
or sale of securities by an Investment Company.
K. A "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2)
or Section 4(6) or pursuant to Rule 504, Rule 505 or Rule 506 under
the Securities Act of 1933.
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L. "Purchase or sale of Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security or any
security that is exchangeable for or convertible into another
security.
M. "Review Officer" means the officer of the Adviser designated from time
to time by the Adviser to receive and review reports of purchases and
sales by Access Persons. The term "Alternative Review Officer" shall
mean the officer of the Adviser designated from time to time by the
Adviser to receive and review reports of purchases and sales by the
Review Officer, and who shall act in all respects in the manner
prescribed herein for the Review Officer. It is recognized that a
different Review Officer and Alternative Review Officer may be
designated with respect to each Adviser.
N. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation. With respect to an analyst of the Adviser, the
foregoing period shall commence on the day that he or she decides to
recommend the purchase or sale of the security to the Adviser for an
Investment Company.
O. A security is "held or to be acquired" if within the most recent 15
days it (1) is or has been held by the Investment Company, or (2) is
being or has been considered by the Adviser for purchase by the
Investment Company.
II. LEGAL REQUIREMENTS
Section 17(j) of the Investment Company Act provides, among other
things, that it is unlawful for any affiliated person of the Adviser to engage
in any act, practice or course of business in connection with the purchase or
sale, directly or indirectly, by such affiliated person of any security held or
to be acquired by an Investment Company in contravention of such rules and
regulations as the Securities and Exchange Commission (the "Commission") may
adopt to define and prescribe means reasonably necessary to prevent such acts,
practices or courses of business as are fraudulent, deceptive or manipulative.
Pursuant to Section 17(j), the Commission has adopted Rule 17j-1 which provides,
among other things, that it is unlawful for any affiliated person of the Adviser
in connection with the purchase or sale, directly or indirectly, by such person
of a Covered Security held or to be acquired by an Investment Company:
(1) To employ any device, scheme or artifice to defraud such
Investment Company;
(2) To make any untrue statement of a material fact to such
Investment Company or omit to state a material fact necessary in
order to make the statements made to such Investment Company, in
light of the circumstances under which they are made, not
misleading;
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(3) To engage in any act, practice, or course of business that
operates or would operate as a fraud or deceit upon any such
Investment Company; or
(4) To engage in any manipulative practice with respect to such
Investment Company.
III. STATEMENT OF POLICY
It is the policy of the Adviser that no Access Person shall engage in any
act, practice or course of conduct that would violate the provisions of Rule
17j-1. The fundamental position of the Adviser is, and has been, that each
Access Person shall place at all times the interests of each Investment Company
and its shareholders first in conducting personal securities transactions.
Accordingly, private securities transactions by Access Persons of the Adviser
must be conducted in a manner consistent with this Code and so as to avoid any
actual or potential conflict of interest or any abuse of an Access Person's
position of trust and responsibility. Further, Access Persons should not take
inappropriate advantage of their positions with, or relationship to, any
Investment Company, the Adviser or any affiliated company.
Without limiting in any manner the fiduciary duty owed by Access Persons to
the Investment Companies or the provisions of this Code, it should be noted that
the Adviser and the Investment Companies consider it proper that purchases and
sales be made by Access Persons in the marketplace of securities owned by the
Investment Companies; provided, however, that such securities transactions
comply with the spirit of, and the specific restrictions and limitations set
forth in, this Code. Such personal securities transactions should also be made
in amounts consistent with the normal investment practice of the person involved
and with an investment, rather than a trading, outlook. Not only does this
policy encourage investment freedom and result in investment experience, but it
also fosters a continuing personal interest in such investments by those
responsible for the continuous supervision of the Investment Companies'
portfolios. It is also evidence of confidence in the investments made. In
making personal investment decisions with respect to any security, however,
extreme care must be exercised by Access Persons to ensure that the prohibitions
of this Code are not violated. Further, personal investing by an Access Person
should be conducted in such a manner so as to eliminate the possibility that the
Access Person's time and attention is being devoted to his or her personal
investments at the expense of time and attention that should be devoted to
management of an Investment Company's portfolio. It bears emphasis that
technical compliance with the procedures, prohibitions and limitations of this
Code will not automatically insulate from scrutiny personal securities
transactions which show a pattern of abuse by an Access Person of his or her
fiduciary duty to any Investment Company.
IV. EXEMPTED TRANSACTIONS
The Statement of Policy set forth above shall be deemed not to be violated
by and the prohibitions of Section V of this Code shall not apply to:
A. Purchases or sales of securities effected for, or held in, any account
over which the Access Person has no direct or indirect influence or
control;
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B. Purchases or sales of securities which are not eligible for purchase
or sale by an Investment Company;
C. Purchases or sales of securities which are non-volitional on the part
of either the Access Person or an Investment Company;
D. Purchases or sales of securities which are part of an automatic
dividend reinvestment, cash purchase or withdrawal plan provided that
no adjustment is made by the Access Person to the rate at which
securities are purchased or sold, as the case may be, under such a
plan during any period in which the security is being considered for
purchase or sale by an Investment Company;
E. Purchases of securities effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its securities, to the
--- ----
extent such rights were acquired from such issuer, and sales of such
rights so acquired;
F. Tenders of securities pursuant to tender offers which are expressly
conditioned on the tender offer's acquisition of all of the securities
of the same class;
G. Purchases or sales of publicly-traded shares of companies that have a
market capitalization in excess of $10 billion; and
H. Other purchases or sales which, due to factors determined by the
Adviser, only remotely potentially impact the interests of an
Investment Company because the securities transaction involves a small
number of shares of an issuer with a large market capitalization and
high average daily trading volume or would otherwise be very unlikely
to affect a highly institutional market.
V. PROHIBITED PURCHASES AND SALES
A. While the scope of actions which may violate the Statement of Policy
set forth above cannot be exactly defined, such actions would always
include at least the following prohibited activities:
(1) No Access Person shall purchase or sell, directly or indirectly,
any Covered Security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership
and which to his or her actual knowledge at the time of such
purchase or sale the Covered Security:
(i) is being considered for purchase or sale by an Investment
Company; or
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(ii) is being purchased or sold by an Investment Company.
(2) No Access Person shall reveal to any other person (except in the
normal course of his or her duties on behalf of an Investment
Company) any information regarding securities transactions by an
Investment Company or consideration by an Investment Company or
the Adviser of any such securities transaction.
(3) No Access Person shall engage in, or permit anyone within his or
her control to engage in, any act, practice or course of conduct
which would operate as a fraud or deceit upon, or constitute a
manipulative practice with respect to, an Investment Company or
an issuer of a any security owned by an Investment Company.
(4) No Access Person shall enter an order for the purchase or sale of
a Covered Security which an Investment Company is purchasing or
selling or considering for purchase or sale until the later of
(1) the day after the Investment Company's transaction in that
Covered Security is completed or (2) after the Investment Company
is no longer considering the security for purchase or sale,
unless the Review Officer determines that it is clear that, in
view of the nature of the Covered Security and the market for
such Covered Security, the order of the Access Person will not
adversely affect the price paid or received by the Investment
Company. Any securities transactions by an Access Person in
violation of this Subsection D must be unwound, if possible, and
the profits, if any, will be subject to disgorgement based on the
assessment of the appropriate remedy as determined by the
Adviser.
(5) No Access Person shall, in the absence of prior approval by the
Review Officer, sell any Covered Security that was purchased, or
purchase a Covered Security that was sold, within the prior 30
calendar days (measured on a last-in first-out basis).
B. In addition to the foregoing, the following provision will apply to
Investment Personnel of the Adviser:
(1) Investment Personnel must, as a regulatory requirement and as a
requirement of this Code, obtain prior approval before directly
or indirectly acquiring beneficial ownership in any securities in
an Initial Public Offering or in a Limited Offering. In addition,
Investment Personnel must comply with any additional restrictions
or prohibitions that may be adopted by the Adviser from time to
time.
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(2) No Investment Personnel shall accept any gift or personal benefit
valued in excess of such de minimis amount established by the
Adviser from time to time in its discretion (currently this
amount is $100 annually) from any single person or entity that
does business with or on behalf of an Investment Company. Gifts
of a de minimis value (currently these gifts are limited to gifts
whose reasonable value is no more than $100 annually from any
single person or entity), and customary business lunches, dinners
and entertainment at which both the Investment Personnel and the
giver are present, and promotional items of de minimis value may
be accepted. Any solicitation of gifts or gratuities is
unprofessional and is strictly prohibited.
(3) No Investment Personnel shall serve on the board of directors of
any publicly traded company, absent prior written authorization
and determination by the Review Officer that the board service
would be consistent with the interests of the Investment
Companies and their shareholders. Such interested Investment
Personnel may not participate in the decision for any Investment
Company to purchase and sell securities of such company.
VI. BROKERAGE ACCOUNTS
Access Persons are required to direct their brokers to supply for the
Review Officer on a timely basis duplicate copies of confirmations of all
securities transactions in which the Access Person has a beneficial ownership
interest and related periodic statements, whether or not one of the exemptions
listed in Section IV applies. If an Access Person is unable to arrange for
duplicate copies of confirmations and periodic account statements to be sent to
the Review Officer, he or she must immediately notify the Review Officer.
VII. PRECLEARANCE PROCEDURE
With such exceptions and conditions as the Adviser deems to be appropriate
from time to time and consistent with the purposes of this Code (for example,
exceptions based on an issuer's market capitalization, the amount of public
trading activity in a security, the size of a particular transaction or other
factors), prior to effecting any securities transactions in which an Access
Person has a beneficial ownership interest, the Access Person must receive
approval by the Adviser. Any approval is valid only for such number of day(s)
as may be determined from time to time by the Adviser. If an Access Person is
unable to effect the securities transaction during such period, he or she must
re-obtain approval prior to effecting the securities transaction.
The Adviser will decide whether to approve a personal securities
transaction for an Access Person after considering the specific restrictions and
limitations set forth in, and the spirit of, this Code of Ethics, including
whether the security at issue is being considered for purchase or sale for an
Investment Company. The Adviser is not required to give any explanation for
refusing to approve a securities transaction.
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VIII. REPORTING
A. Every Access Person shall report to the Review Officer the information
(1) described in Section VIII-C of this Code with respect to
transactions in any Covered Security in which such Access Person has,
or by reason of such transaction acquires or disposes of, any direct
or indirect beneficial ownership in the Covered Security or (2)
described in Sections VIII-D or VIII-E of this Code with respect to
securities holdings beneficially owned by the Access Person.
B. Notwithstanding Section VIII-A of this Code, an Access Person need not
make a report where the report would duplicate information recorded
pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under the Investment
Advisers Act of 1940 or if the report would duplicate information
contained in broker trade confirmations or account statements received
by the Review Officer and all of the information required by Section
VIII-C, D or E is contained in such confirmations or account
statements. The quarterly transaction reports required under Section
VIII-A(1) shall be deemed made with respect to (1) any account where
the Access Person has made provisions for transmittal of all daily
trading information regarding the account to be delivered to the
designated Review Officer for his or her review or (2) any account
maintained with the Adviser or an affiliate. With respect to
Investment Companies for which the Adviser does not act as investment
adviser or sub-adviser, reports required to be furnished by officers
and trustees of such Investment Companies who are Access Persons of
the Adviser must be made under Section VIII-C of this Code and
furnished to the designated review officer of the relevant investment
adviser.
C. Quarterly Transaction Reports. Unless quarterly transaction reports
are deemed to have been made under Section VIII-B of this Code, every
quarterly transaction report shall be made not later than 10 days
after the end of the calendar quarter in which the transaction to
which the report relates was effected, and shall contain the following
information:
(1) The date of the transaction, the title, the interest rate and
maturity date (if applicable), class and the number of shares,
and the principal amount of each Covered Security involved;
(2) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(3) The price of the Covered Security at which the transaction
was effected;
(4) The name of the broker, dealer or bank with or through whom the
transaction was effected;
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(5) The date that the report was submitted by the Access Person;
and
(6) With respect to any account established by an Access Person in
which any securities were held during the quarter for the direct
or indirect benefit of the Access Person:
(1) The name of the broker, dealer or bank with whom the Access
Person established the account;
(2) The date the account was established; and
(3) The date that the report was submitted by the Access
Person.
D. Initial Holdings Reports. No later than 10 days after becoming an Access
Person, each Access Person must submit a report containing the following
information:
(1) The title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct
or indirect beneficial ownership when the person became an
Access Person;
(2) The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were
held for the direct or indirect benefit of the Access Person
as of the date the person became an Access Person; and
(3) The date that the report is submitted by the Access
Person.
E. Annual Holdings Reports. Between January 1st and January 30th of each
calendar year, every Access Person shall submit the following information
(which information must be current as of a date no more than 30 days before
the report is submitted):
(1) The title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct
or indirect beneficial ownership;
(2) The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any Covered Securities
are held for the direct or indirect benefit of the Access
Person; and
(3) The date that the report is submitted by the Access
Person.
F. If no transactions in any securities requiredto be reported under Section
VII_A(1) were effected during a quarterly period by an access Person, such
access Person
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shall report to the Review Officer not later than 10 days after the end of
such quarterly period stating that no reportable securities transactions
were effected.
G. These reporting requirements shall apply whether or not one of the
exemptions listed in Section IV applies except that an Access Person shall
not be required to make a report with respect to securities transactions
effected for, and any Covered Securities held in, any account over which
such Access Person does not have any direct or indirect influence or
control.
H. Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that (1) he or
she has or had any direct or indirect beneficial ownership in the Covered
Security to which the report relates (a "Subject Security") or (2) he or
she knew or should have known that the Subject Security was being purchased
or sold, or considered for purchase or sale, by an Investment Company on
the same day.
IX. APPROVAL OF CODE OF ETHICS AND AMENDMENTS TO THE CODE OF ETHICS
The Board of Trustees of each Investment Company shall approve this Code of
Ethics. Any material amendments to this Code of Ethics must be approved by the
Board of Trustees of each Investment Company no later than six months after the
adoption of the material change. Before their approval of this Code of Ethics
and any material amendments hereto, the Adviser shall provide a certification to
the Board of Trustees of each such Investment Company that the Adviser has
adopted procedures reasonably necessary to prevent Access Persons from violating
the Code of Ethics.
X. ANNUAL CERTIFICATION OF COMPLIANCE
Each Access Person shall certify to the Review Officer annually on the form
annexed hereto as Form A that he or she (A) has read and understands this Code
of Ethics and any procedures that are adopted by the Adviser relating to this
Code, and recognizes that he or she is subject thereto; (B) has complied with
the requirements of this Code of Ethics and such procedures; (C) has disclosed
or reported all personal securities transactions and beneficial holdings in
Covered Securities required to be disclosed or reported pursuant to the
requirements of this Code of Ethics and any related procedures.
XI. CONFIDENTIALITY
All reports of securities transactions, holding reports and any other
information filed with the Adviser pursuant to this Code shall be treated as
confidential, except that reports of securities transactions and holdings
reports hereunder will be made available to the Investment Companies and to the
Commission or any other regulatory or self-regulatory organization to the extent
required by law or regulation or to the extent the Adviser considers necessary
or advisable in cooperating with an investigation or inquiry by the Commission
or any other regulatory or self-regulatory organization.
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XII. REVIEW OF REPORTS
A. The Review Officer shall be responsible for the review of the
quarterly transaction reports required under VIII-C and VIII-F, and
the initial and annual holdings reports required under Sections VIII-D
and VIII-E, respectively, of this Code of Ethics. In connection with
the review of these reports, the Review Officer or the Alternative
Review Officer shall take appropriate measures to determine whether
each reporting person has complied with the provisions of this Code of
Ethics and any related procedures adopted by the Adviser.
B. On an annual basis, the Review Officer shall prepare for the Board of
Trustees of each Investment Company and the Board of Trustees of each
Investment Company shall consider:
(1) A report on the level of compliance during the previous year by
all Access Persons with this Code and any related procedures
adopted by the Adviser, including without limitation the
percentage of reports timely filed and the number and nature of
all material violations and sanctions imposed in response to
material violations. An Alternative Review Officer shall prepare
reports with respect to compliance by the Review Officer;
(2) A report identifying any recommended changes to existing
restrictions or procedures based upon the Adviser's experience
under this Code, evolving industry practices and developments in
applicable laws or regulations; and
(3) A report certifying to the Board of Trustees that the Adviser has
adopted procedures that are reasonably necessary to prevent
Access Persons from violating this Code of Ethics.
XIII. SANCTIONS
Upon discovering a violation of this Code, the Adviser may impose such
sanction(s) as it deems appropriate, including, among other things, a letter of
censure, suspension or termination of the employment of the violator and/or
restitution to the affected Investment Company of an amount equal to the
advantage that the offending person gained by reason of such violation. In
addition, as part of any sanction, the Adviser may require the Access Person or
other individual involved to reverse the trade(s) at issue and forfeit any
profit or absorb any loss from the trade. It is noted that violations of this
Code may also result in criminal prosecution or civil action. All material
violations of this Code and any sanctions imposed with respect thereto shall be
reported periodically to the Board of Trustees of the Investment Company with
respect to whose securities the violation occurred.
XIV. INTERPRETATION OF PROVISIONS
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The Adviser may from time to time adopt such interpretations of this Code
as it deems appropriate.
XV. IDENTIFICATION OF ACCESS PERSONS AND INVESTMENT PERSONNEL
The Adviser shall identify all persons who are considered to be Access
Persons and Investment Personnel, and shall inform such persons of their
respective duties and provide them with copies of this Code and any related
procedures adopted by the Adviser.
XVI. EXCEPTIONS TO THE CODE
Although exceptions to the Code will rarely, if ever, be granted, a
designated Officer of the Adviser, after consultation with the Review Officer,
may make exceptions on a case by case basis, from any of the provisions of this
Code upon a determination that the conduct at issue involves a negligible
opportunity for abuse or otherwise merits an exception from the Code. All such
exceptions must be received in writing by the person requesting the exception
before becoming effective. The Review Officer shall report any exception to the
Board of Trustees of the Investment Company with respect to which the exception
applies at its next regularly scheduled Board meetings.
XVII. RECORDS
The Adviser shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the conditions
described in Rule 31a-2(f)(1) and Rule 17j-1 under the Investment Company Act
and shall be available for examination by representatives of the Commission.
A. A copy of this Code and any other code which is, or at any time within
the past five years has been, in effect shall be preserved for a
period of not less than five years in an easily accessible place;
B. A record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible
place for a period of not less than five years following the end of
the fiscal year in which the violation occurs;
C. A copy of each initial holdings report, annual holdings report and
quarterly transaction report made by an Access Person pursuant to this
Code (including any brokerage confirmation or account statements
provided in lieu of the reports) shall be preserved for a period of
not less than five years from the end of the fiscal year in which it
is made, the first two years in an easily accessible place;
D. A list of all persons who are, or within the past five years have
been, required to make initial holdings, annual holdings or quarterly
transaction reports pursuant to this Code shall be maintained in an
easily accessible place;
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E. A list of all persons, currently or within the past five years who are
or were responsible for reviewing initial holdings, annual holdings or
quarterly transaction reports shall be maintained in an easily
accessible place;
F. A record of any decision and the reason supporting the decision to
approve the acquisition by Investment Personnel of Initial Public
Offerings and Limited Offerings shall be maintained for at least five
years after the end of the fiscal year in which the approval is
granted; and
G. A copy of each report required by Section XII-B of this Code must be
maintained for at least five years after the end of the fiscal year in
which it was made, the first two years in an easily accessible plan.
XVIII. SUPPLEMENTAL COMPLIANCE AND REVIEW PROCEDURES
The Adviser may establish, in its discretion, supplemented compliance and
review procedures (the "Procedures") that are in addition to those set forth in
this Code in order to provide additional assurance that the purposes of this
Code are fulfilled and/or assist the Adviser in the administration of this Code.
The Procedures may be more, but shall not be less, restrictive than the
provisions of this Code. The Procedures, and any amendments thereto, do not
require the approval of the Board of Trustees of an Investment Company.
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April 1, 2000
GOLDMAN SACHS ASSET MANAGEMENT
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
Supplemental Compliance and Review Procedures Under Code of Ethics
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as
amended, Goldman Sachs Asset Management, Goldman Sachs Funds Management, L.P.,
and Goldman Sachs Asset Management International (each, an "Adviser") have
adopted a Code of Ethics with respect to Investment Companies for which the
Adviser is the investment adviser, sub-adviser or principal underwriter. The
Code of Ethics contemplates that the Adviser may establish, in its discretion,
supplemental compliance and review procedures ("Procedures") that are in
addition to those set forth in the Code of Ethics in order to provide additional
assurance that the purposes of the Code of Ethics are fulfilled and/or assist
the Adviser in the administration of the Code. These Procedures apply to Access
Persons and Investment Personnel of the Adviser as stated below. Terms that are
defined in the Code of Ethics shall have the same meaning in these Procedures.
A. Review Procedures
-----------------
The Review Officer for each Adviser shall follow the procedures set forth
below in connection with reviewing initial and annual holdings reports and
quarterly transaction reports described in the Adviser's Code of Ethics.
In reviewing the initial and annual holdings reports and the quarterly
transaction reports (including information related to the establishment of any
new accounts during the review period) required to be submitted by Access
Persons under the Adviser's Code, the Review Officer shall compare, or caused to
be compared through an electronic-review process, the reported personal
securities holdings and transactions of each Access Person with completed and
contemplated portfolio transactions and holdings of the Investment Companies for
which an Adviser is the investment adviser or sub-adviser to determine whether
any holdings or transactions that violate the Code may have occurred (a
"Reviewable Holding" or a "Reviewable Transaction"). In the case of reports of
personal securities holdings or transactions of the Review Officer, the
Alternative Review Officer shall perform such comparison. Before making any
determination that a violation has been committed by any Access Person, the
Review Officer (or Alternative Review Officer, as the case may be) shall provide
such Access Person an opportunity to supply additional explanatory material for
the purposes of demonstrating that such holdings or transactions did not violate
this Code. If the Review Officer determines that a Reviewable Transaction may
have occurred, he or she shall submit his or her written determination, together
with the confidential quarterly report and any additional explanatory material
provided by the Access Person to a designated officer of the Adviser, who shall
make an independent determination of whether a violation of this Code has
occurred.
<PAGE>
B. Additional Compliance Procedures
--------------------------------
In addition to the compliance procedures set forth in the Adviser's
Code of Ethics, Access Persons, Advisory Persons and Investment Personnel shall
follow the additional compliance procedures set forth below as applicable.
(1) No Access Person shall recommend any securities transaction for
an Investment Company without having disclosed his or her
interest, if any, in such securities or the issuer thereof,
including without limitation (i) his or her direct or indirect
beneficial ownership of any securities or such issuer, (ii) any
contemplated transaction by such person in such securities, (iii)
any position with such issuer or its affiliates and (iv) any
present or proposed business relationship between such issuer or
its affiliates, on the one hand, and such person or any party in
which such person has a significant interest, on the other;
provided, however, that in the event the interest of such Access
Person in such securities or issuer is not material to his or her
personal net worth (as determined by the Review Officer) and any
contemplated transaction by such person in such securities cannot
reasonably be expected to have a material adverse effect on any
such transaction by the company or on the market for the
securities generally, such Access Person shall not be required to
disclose his or her interest in the securities or issuer thereof
in connection with any such recommendation.
(2) No Investment Personnel shall, directly or indirectly, purchase
any security sold in an Initial Public Offering or secondary
public offering of an issuer, regardless of whether the issue is
a "hot issue."
(3) No Investment Personnel shall, directly or indirectly, purchase
any security issued pursuant to a Limited Offering without
obtaining prior written approval from the Review Officer. In
reviewing a request to purchase a security issued pursuant to a
Limited Offering, the Review Officer shall determine whether the
purchase creates or may create a conflict of interest with an
Investment Company warranting that the request be rejected. For
instance, the approval process will take into account whether the
investment opportunity should be reserved for an Investment
Company and whether the opportunity is being offered to the
Investment Personnel by virtue of his or her position with or
relationship to an Investment Company.
(4) No Investment Personnel shall, directly or indirectly, purchase
or sell any Covered Security in which he or she has, or by reason
of such purchase acquires, any beneficial ownership interest
within a period of seven (7)
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calendar days before and after any Investment Company advised by
such person has purchased or sold such Covered Security. Any
securities transaction by a person in violation of this
Subsection B.4 must be unwound, if possible, and the profits, if
any, must be disgorged to the applicable Investment Company.
C. Preclearance Procedure
----------------------
Until further change, purchases and sales of publicly-traded common
shares of companies that have a market capitalization in excess of $10 billion
shall not be subject to the Adviser's pre-clearance procedures set forth in
Section VII of the Adviser's Code of Ethics.
D. Sanctions
---------
Upon discovering a violation of the Adviser's Code or these Procedures,
the Adviser may impose such sanction(s) as it deems appropriate, including,
among other things, a letter of censure, suspension or termination of the
employment of the violator and/or restitution to the affected Investment Company
of an amount equal to the advantage that the offending person gained by reason
of such violation. In addition, as part of any sanction, the Adviser may require
the Access Person or other individual involved to reverse the trade(s) at issue
and forfeit any profit or absorb any loss from the trade. It is noted that
violations of the Code or these Procedures may also result in criminal
prosecution or civil action.
E. Amendments
----------
These Procedures may be amended by the Adviser from time to time in its
discretion.
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EXHIBIT (P)(5)
CODE OF ETHICS
1. Purposes
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This Code of Ethics (the "Code") has been adopted by the Directors of
J.P. Morgan Investment Management Inc. (the "Adviser"), in accordance with Rule
17j-1(c) promulgated under the Investment Company Act of 1940, as amended (the
"Act"). Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to purchases or sales of securities Held or to be
Acquired (defined in Section 2(k) of this Code) by investment companies, if
effected by associated persons of such companies. The purpose of this Code is to
adopt provisions reasonably necessary to prevent Access Persons from engaging in
any unlawful conduct as set forth in Rule 17j-1(b) as follows:
It is unlawful for any affiliated person of or principal
underwriter for a Fund, or any affiliated person of an investment adviser of or
principal underwriter for a Fund, in connection with the purchase or sale,
directly or indirectly, by the person of a Security Held or to be Acquired by
the Fund:
(a) To employ any device, scheme or artifice to defraud the Fund;
(b) To make any untrue statement of a material fact to the Fund or omit to
state a material fact necessary in order to make the statements made
to the Fund, in light of the circumstances under which they are made,
not misleading;
(c) To engage in any act, practice, or course of business that operates or
would operate as a fraud or deceit on the Fund; or
(d) To engage in any manipulative practice with respect to the Fund.
2. Definitions
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(a) "Access Person" means any director, officer, general partner or
Advisory Person of the Adviser.
(b) "Administrator" means Morgan Guaranty Trust Company.
(c) "Advisory Person" means (i) any employee of the Adviser or the
Administrator (or any company in a control relationship to the Adviser) who, in
connection with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of securities for a Fund,
or whose functions relate to the making of any recommendations with respect to
such purchases or sales; and (ii) any natural person in a control relationship
to the Adviser who obtains information concerning recommendations regarding the
purchase or sale of securities by a Fund.
<PAGE>
(d) "Beneficial ownership" shall be interpreted in the same manner as it
would be under Exchange Act Rule 16a-1(a)(2)in determining whether a person is
subject to the provisions of Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder.
(e) "Control" has the same meaning as in Section 2(a)(9) of the Act.
(f) "Covered Security" shall have the meaning set forth in Section
2(a)(36) of the Act, except that it shall not include shares of open-end funds,
direct obligations of the United States Government, bankers' acceptances, bank
certificates of deposit, commercial paper and high quality short-term debt
instruments, including repurchase agreements.
(g) "Fund" means an Investment Company registered under the Investment
Company Act of 1940.
(h) "Initial Public Offering" means an offering of Securities registered
under the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Sections 13 or
15(d) of the Securities Exchange Act.
(i) "Limited Offering" means an offering that is exempt from registration
under the Securities Act pursuant to Section 4(2) or Section 4(6) or pursuant to
Rule 504, Rule 505, or Rule 506 under the Securities Act.
(j) "Purchase or sale of a Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security.
(k) "Security Held or to be Acquired" by a Adviser means: (i) any Covered
Security which, within the most recent 15 days, is or has been held by a Fund or
other client of the Adviser or is being or has been considered by the Adviser
for purchase by a Fund or other client of the Adviser; and (ii) any option to
purchase or sell, and any security convertible into or exchangeable for, a
Covered Security described in Section 2(k)(i) of this Code.
3. Statement of Principles
-----------------------
It is understood that the following general fiduciary principles
govern the personal investment activities of Access Persons:
(a) the duty to at all times place the interests of shareholders and other
clients of the Adviser first;
(b) the requirement that all personal securities transactions be conducted
consistent with this Code of Ethics and in such a manner as to avoid any actual
or potential conflict of interest or any abuse of an individual's position of
trust and responsibility;
(c) the fundamental standard that Investment Personnel may not take
inappropriate advantage of their position; and
(d) all personal transactions must be oriented toward investment, not
short-term or speculative trading.
It is further understood that the procedures, reporting and recordkeeping
requirements set forth below are hereby adopted and certified by the Adviser as
reasonably necessary to prevent Access Persons from violating the provisions of
this Code of Ethics.
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4. Procedures to be followed regarding Personal Investments by Access Persons
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(a) Pre-clearance requirement. Each Access Person must obtain prior
written approval from his or her group head (or designee) and from the Adviser's
trading desk before transacting in any Covered Security based on certain
quidelines set forth from time to time by the Adviser's compliance Department.
For details regarding transactions in mutual funds, see Section 4(e).
(b) Brokerage transaction reporting requirement. Each Access Person
working in the United States must maintain all of his or her accounts and the
accounts of any person of which he or she is deemed to be a beneficial owner
with a broker designated by the Adviser and must direct such broker to provide
broker trade confirmations to the Adviser's legal/compliance department, unless
an exception has been granted by the Adviser's legal/compliance department. Each
Access Person to whom an exception to the designated broker requirement has been
granted must instruct his or her broker to forward all trade confirms and
monthly statements to the Adviser's legal/compliance department. Access Persons
located outside the United States are required to provide details of each
brokerage transaction of which he or she is deemed to be the beneficial owner,
to the Adviser's legal/compliance group, within the customary period for the
confirmation of such trades in that market.
(c) Initial public offerings (new issues). Access Persons are prohibited
from participating in Initial Public Offerings, whether or not J.P. Morgan or
any of its affiliates is an underwriter of the new issue, while the issue is in
syndication.
(d) Minimum investment holding period. Each Access Person is subject to a
60-day minimum holding period for personal transactions in Covered Securities.
An exception to this minimum holding period requirement may be granted in the
case of hardship as determined by the legal/compliance department.
(e) Mutual funds. Each Access Person must pre-clear transactions in shares
of closed-end Funds with the Adviser's trading desk, as they would with any
other Covered Security. See Section 4(a). Each Access Person must obtain pre-
clearance from his or her group head(or designee) before buying or selling
shares in an open-end Fund or a sub-advised Fund managed by the Adviser if such
Access Person or the Access Person's department has had recent dealings or
responsibilities regarding such mutual fund.
(f) Limited offerings. An Access Person may participate in a limited
offering only with written approval of such Access Person's group head (or
designee) and with advance notification to the Adviser's compliance group.
(g) Blackout periods. Advisory Persons are subject to blackout periods 7
calendar days before and after the trade date of a Covered Security where such
Advisory Person makes, participates in, or obtains information regarding the
purchase or sale of such Covered Security for any of their client accounts. In
addition, Access Persons are prohibited from executing a transaction in a
Covered Security during a period in which there is a pending buy or sell order
on the Adviser's trading desk.
(h) Prohibitions. Short sales are generally prohibited. Transactions in
options, rights, warrants, or other short-term securities and in futures
contracts (unless for bona fide hedging) are prohibited, except for purchases of
options on widely traded indices specified by the Adviser's compliance group if
made for investment purposes.
<PAGE>
(i) Securities of J.P. Morgan. No Access Person may buy or sell any
security issued by J.P. Morgan from the 27th of each March, June, September, and
December until the first full business day after earnings are released in the
following month. All transactions in securities issued by J.P. Morgan must be
pre-cleared with the Adviser's compliance group and executed through an approved
trading area. Transactions in options and short sales of J.P. Morgan stock are
prohibited.
(j) Certification requirements. In addition to the reporting requirements
detailed in Sections 6 below, each Access Person, no later than 30 days after
becoming an Access Person, must certify to the Adviser's compliance group that
he or she has complied with the broker requirements in Section 4(b).
5. Other Potential Conflicts of Interest
-------------------------------------
(a) Gifts. No employee of the Adviser or the Administrator may (i)accept
gifts, entertainment, or favors from a client, potential client, supplier, or
potential supplier of goods or services to the Adviser or the Administrator
unless what is given is of nominal value and refusal to accept it would be
discourteous or otherwise harmful to the Adviser or Administrator; (ii)provide
excessive gifts or entertainment to clients or potential clients; and (iii)
offer bribes, kickbacks, or similar inducements.
(b) Outside Business Activities. The prior consent of the Chairman of the
Board of J.P. Morgan, or his or her designee, is required for an officer of the
Adviser or Administrator to engage in any business-related activity outside of
the Adviser or Administrator, whether the activity is intermittent or
continuing, and whether or not compensation is received. For example, such
approval is required such an officer to become:
-An officer, director, or trustee of any corporation (other than
a nonprofit corporation or cooperative corporation owning the building in
which the officer resides);
-A member of a partnership (other than a limited partner in a
partnership established solely for investment purposes);
-An executor, trustee, guardian, or similar fiduciary advisor
(other than for a family member).
6. Reporting Requirements
----------------------
(a) Every Access Person must report to the Adviser:
(i)Initial Holdings Reports. No later than 10 days after the person
becomes an Access Person, the following information: (A) the title,
number of shares and principal amount of each Covered Security in
which the Access Person had any direct or indirect beneficial
ownership when the person became an Access Person; (B) the name of any
broker, dealer or bank with whom the Access Person maintained an
account in which any Covered Securities were held for the direct or
indirect benefit of the Access Person as of the date the person became
an Access Person; and (C) the date that the report is submitted by the
Access Person.
<PAGE>
(ii)Quarterly Transaction Reports. No later than 10 days after the
end of a calendar quarter, with respect to any transaction during the
quarter in a Covered Security in which the Access Person had any
direct or indirect Beneficial Ownership: (A) the date of the
transaction, the title, the interest rate and maturity date (if
applicable), the number of shares and principal amount of each Covered
Security involved; (B) the nature of the transaction; (C) the price of
the Covered Security at which the transaction was effected; (D) the
name of the broker, dealer or bank with or through which the
transaction was effected; and (E) the date that the report is
submitted by the Access Person.
(iii)New Account Report. No later than 10 days after the calendar
quarter, with respect to any account established by the Access Person
in which any Covered Securities were held during the quarter for the
direct or indirect benefit of the Access Person: (A) the name of the
broker, dealer or bank with whom the Access Person established the
account; (B) the date the account was established; and (C) the date
that the report is submitted by the Access Person.
(iv)Annual Holdings Report. Annually, the following information
(which information must be current as of a date no more than 30 days
before the report is submitted): (A) the title, number of shares and
principal amount of each Covered Security in which the Access Person
had any direct or indirect beneficial ownership; (B) the name of any
broker, dealer or bank with whom the Access Person maintains an
account in which any Covered Securities are held for the direct or
indirect benefit of the Access Person: and (C) the date that the
report is submitted by the Access Person.
(b) Exceptions from the Reporting Requirements.
(i) Notwithstanding the provisions of Section 6(a), no Access Person
shall be required to make:
A. a report with respect to transactions effected for any
account over which such person does not have any direct or
indirect influence or control;
B. a Quarterly Transaction or New Account Report under Sections
6(a)(ii) or (iii) if the report would duplicate information
contained in broker trade confirmations or account statements
received by the Adviser with respect to the Access Person no
later than 10 days after the calendar quarter end, if all of
the information required by Sections 6(a)(ii) or (iii), as
the case may be, is contained in the broker trade
confirmations or account statements, or in the records of the
Adviser.
(c) Each Access Person shall promptly report any transaction which is, or
might appear to be, in violation of this Code. Such report shall
contain the information required in Quarterly Transaction Reports
filed pursuant to Section 6(a)(ii).
(d) All reports prepared pursuant to this Section 6 shall be filed with
the appropriate compliance personnel designated by the Adviser and
reviewed in accordance with procedures adopted by such personnel.
(e) The Adviser will identify all Access Persons who are required to file
reports pursuant to this Section 6 and will inform them of their
reporting obligation.
<PAGE>
(f) The Adviser no less frequently than annually shall furnish to a Fund's
board of directors for their consideration a written report that:
(a) describes any issues under this Code of Ethics or related
procedures since the last report to the board of directors,
including, but limited to, information about material
violations of the Code or procedures and sanctions imposed
in response to the material violations; and
(b) certifies that the Adviser has adopted procedures reasonably
necessary to prevent Access Persons from violating this Code
of Ethics.
7. Recordkeeping Requirements
--------------------------
The Adviser must at its principal place of business maintain records in the
manner and extent set out in this Section of this Code and must make
available to the Securities and Exchange Commission (SEC) at any time and
from time to time for reasonable, periodic, special or other examination:
(a) A copy of its code of ethics that is in effect, or at any time
within the past five years was in effect, must be maintained in
an easily accessible place;
(b) A record of any violation of the code of ethics, and of any
action taken as a result of the violation, must be maintained in
an easily accessible place for at least five years after the end
of the fiscal year in which the violation occurs;
(c) A copy of each report made by an Access Person as required by
Section 6(a) including any information provided in lieu of a
quarterly transaction report, must be maintained for at least
five years after the end of the fiscal year in which the report
is made or the information is provided, the first two years in an
easily accessible place.
(d) A record of all persons, currently or within the past five years,
who are or were required to make reports as Access Persons or who
are or were responsible for reviewing these reports, must be
maintained in an easily accessible place.
(e) A copy of each report required by 6(f) above must be maintained
for at least five years after the end of the fiscal year in which
it is made, the first two years in an easily accessible place.
(f) A record of any decision and the reasons supporting the decision
to approve the acquisition by Access Persons of securities under
Section 4(f) above, for at least five years after the end of the
fiscal year in which the approval is granted.
8. Sanctions
---------
Upon discovering a violation of this Code, the Directors of the Adviser may
impose such sanctions as they deem appropriate, including, inter alia, financial
----- ----
penalty, a letter of censure or suspension or termination of the employment of
the violator.
<PAGE>
EXHIBIT (P)(6)
[LOGO]
JANUS ETHICS RULES
"ACT IN THE BEST INTEREST OF OUR INVESTORS [_] EARN THEIR
CONFIDENCE WITH EVERY ACTION"
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CODE OF ETHICS
INSIDER TRADING POLICY
GIFT POLICY
OUTSIDE EMPLOYMENT POLICY
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LAST REVISED MARCH 1, 2000
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS................................................................... 1
INTRODUCTION.................................................................. 4
CAUTION REGARDING PERSONAL TRADING ACTIVITIES............................ 4
COMMUNICATIONS WITH OUTSIDE TRUSTEES/DIRECTORS........................... 4
CODE OF ETHICS................................................................ 5
OVERVIEW................................................................. 5
GENERAL PROHIBITIONS..................................................... 5
TRADING RESTRICTIONS..................................................... 6
EXCLUDED TRANSACTIONS............................................... 6
DISCLOSURE OF CONFLICTS............................................. 7
PRECLEARANCE........................................................ 7
TRADING BAN ON PORTFOLIO MANAGERS AND ASSISTANT PORTFOLIO MANAGERS.. 8
BAN ON IPOs AND HOT ISSUES.......................................... 8
60 DAY RULE......................................................... 8
BLACKOUT PERIOD..................................................... 8
FIFTEEN DAY RULE.................................................... 8
SEVEN DAY RULE...................................................... 9
SHORT SALES......................................................... 9
HEDGE FUNDS, INVESTMENT CLUBS, AND OTHER INVESTMENTS................ 9
PRECLEARANCE PROCEDURES.................................................. 9
GENERAL PRECLEARANCE................................................ 9
PRECLEARANCE REQUIREMENTS FOR INVESTMENT PERSONNEL.................. 10
PRECLEARANCE OF COMPANY STOCK....................................... 10
PRECLEARANCE OF TENDER OFFERS AND STOCK PURCHASE PLANS.............. 11
FOUR DAY EFFECTIVE PERIOD........................................... 11
REPORTING REQUIREMENTS................................................... 11
ACCOUNT STATEMENTS.................................................. 11
HOLDINGS REPORTS.................................................... 12
PERSONAL SECURITIES TRANSACTION REPORTS............................. 12
NON-INFLUENCE AND NON-CONTROL ACCOUNTS.............................. 12
OTHER REQUIRED FORMS..................................................... 13
ACKNOWLEDGMENT OF RECEIPT FORM...................................... 13
ANNUAL CERTIFICATION FORM........................................... 13
OUTSIDE DIRECTOR/TRUSTEE REPRESENTATION FORM........................ 13
INSIDER TRADING POLICY........................................................ 14
BACKGROUND INFORMATION................................................... 14
WHO IS AN INSIDER?.................................................. 15
WHEN IS INFORMATION NONPUBLIC?...................................... 15
WHAT IS MATERIAL INFORMATION?....................................... 15
WHEN IS INFORMATION MISAPPROPRIATED?................................ 15
PENALTIES FOR INSIDER TRADING....................................... 16
WHO IS A CONTROLLING PERSON?........................................ 16
PROCEDURES TO IMPLEMENT POLICY........................................... 16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
IDENTIFYING MATERIAL INSIDE INFORMATION............................. 16
REPORTING INSIDE INFORMATION........................................ 17
WATCH AND RESTRICTED LISTS.......................................... 17
PROTECTING INFORMATION.............................................. 18
RESPONSIBILITY TO MONITOR TRANSACTIONS.............................. 19
RECORD RETENTION.................................................... 19
TENDER OFFERS....................................................... 19
GIFT POLICY................................................................... 20
GIFT GIVING.............................................................. 20
GIFT RECEIVING........................................................... 20
CUSTOMARY BUSINESS AMENITIES............................................. 20
OUTSIDE EMPLOYMENT POLICY..................................................... 21
PENALTY GUIDELINES............................................................ 22
OVERVIEW................................................................. 22
PENALTY GUIDELINES....................................................... 22
SUPERVISORY AND COMPLIANCE PROCEDURES......................................... 23
SUPERVISORY PROCEDURES................................................... 23
PREVENTION OF VIOLATIONS............................................ 23
DETECTION OF VIOLATIONS............................................. 23
COMPLIANCE PROCEDURES.................................................... 24
REPORTS OF POTENTIAL DEVIATIONS OR VIOLATIONS....................... 24
ANNUAL REPORTS...................................................... 24
RECORDS............................................................. 24
INSPECTION.......................................................... 25
CONFIDENTIALITY..................................................... 25
FILING OF REPORTS................................................... 25
THE ETHICS COMMITTEE..................................................... 25
MEMBERSHIP OF THE COMMITTEE......................................... 25
COMMITTEE MEETINGS.................................................. 25
SPECIAL DISCRETION.................................................. 26
GENERAL INFORMATION ABOUT THE ETHICS RULES.................................... 27
DESIGNEES........................................................... 27
ENFORCEMENT......................................................... 27
INTERNAL USE........................................................ 27
FORMS......................................................................... 28
</TABLE>
<PAGE>
JANUS ETHICS RULES
"ACT IN THE BEST INTEREST OF OUR INVESTORS - EARN
THEIR CONFIDENCE WITH EVERY ACTION"
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DEFINITIONS
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The following definitions are used throughout this document. You are
responsible for reading and being familiar with each definition.
1. "Access Person" shall mean:
1) Any trustee, director, officer or Advisory Person of the Janus Funds
or JCC;
2) Any director or officer of JDI who in the ordinary course of his or
her business makes, participates in or obtains information regarding
the purchase or sale of securities for the Janus Funds or for the
advisory clients or whose functions or duties as part of the ordinary
course of his or her business relate to the making of any
recommendation to the Janus Funds or advisory clients regarding the
purchase or sale of securities; and
3) Any other persons designated by the Ethics Committee as having access
to current trading information.
2. "Advisory Person" shall mean:
1) Any employee of the Janus Funds or JCC (or of any company in a control
-------
relationship to the Janus Funds or JCC) who in connection with his or
her regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of a security by the Funds
or for the account of advisory clients, or whose functions relate to
the making of any recommendations with respect to such purchases and
sales; and
2) Any natural person in a control relationship to the Funds or JCC who
obtains information concerning recommendations made to the Funds or
for the account of Clients with regard to the purchase or sale of a
security.
3. "Beneficial Ownership" shall be interpreted in the same manner as it would
be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in
determining whether a person is subject to the provisions of Section 16
except that the determination of direct or indirect Beneficial Ownership
shall apply to all Covered Securities which an Access Person has or
acquires. For example, in addition to a person's own accounts the term
"Beneficial Ownership" encompasses securities held in the name of a spouse
or equivalent domestic partnership, minor children, a relative sharing your
home, or certain trusts under which you or a related party is a
beneficiary, or held under other arrangements indicating a sharing of
financial interest.
4. "Company Stock" is any stock or option issued by Janus, Stilwell Financial,
Inc. ("Stilwell") or Kansas City Southern Industries, Inc. ("KCSI").
1
<PAGE>
5. "Control" shall have the same meaning as that set forth in Section 2(a)(9)
of the 1940 Act.
6. "Covered Persons" are all Directors, Trustees, officers, and full-time,
part-time or temporary employees of Janus, and persons working at Janus on
a contract basis.
7. "Covered Securities" generally include all securities (including Company
Stock), whether publicly or privately traded, and any option, future,
forward contract or other obligation involving a security or index thereof,
including an instrument whose value is derived or based on any of the above
(a "derivative"). The term Covered Security includes any separate security,
which is convertible into or exchangeable for, or which confers a right to
purchase such security. The following investments are not Covered
Securities:
[_] shares of registered open-end investment companies (e.g., mutual
funds);
[_] direct obligations of the U.S. government (e.g., Treasury securities),
or any derivative thereof;
[_] securities representing a limited partnership interest in a real
estate limited partnership;
[_] high-quality money market instruments, such as certificates of
deposit, bankers acceptances, repurchase agreements, commercial paper,
and U.S. government agency obligations;
[_] insurance contracts, including life insurance or annuity contracts;
[_] direct investments in real estate, business franchises or similar
ventures; and
[_] physical commodities (including foreign currencies), or any
derivatives thereof.
8. "Designated Compliance Representatives" are David Kowalski and Ernie
Overholt or their designee(s).
9. "Designated Legal Representatives" are Bonnie Howe and Heidi Walter or
their designee(s).
10. "Designated Trading Operations Representatives" are Lesa Finney, John
Porro, and Mark Farrell.
11. "Directors" are directors of JCC.
12. "Executive Committee" is comprised of Thomas Bailey, Jim Craig, Thomas
Early, Steve Goodbarn, Margie Hurd, and Mark Whiston.
13. "Executive Investment Committee" is comprised of Jim Craig, Jim Goff, Helen
Hayes, Warren Lammert, and Scott Schoelzel.
14. "Ethics Committee" is comprised of Thomas Early, Steve Goodbarn, David
Kowalski and Ernie Overholt.
15. "Initial Public Offering" means an offering of securities registered under
the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of sections 13
or 15(d) of the Securities Exchange Act of 1934.
16. "Inside Trustees and Directors" are Trustees and Directors who are also
employed by Janus.
2
<PAGE>
17. "Investment Personnel" shall mean (i) a person who makes decisions
regarding the purchase or sale of securities by or on behalf of the Janus
Funds or advisory clients and any person such as an analyst or trader who
directly assists in the process, and (ii) any natural person who controls
the Janus Funds or JCC and who obtains information concerning
recommendations made to the Funds regarding the purchase or sale of Covered
Securities by the Funds.
18. "Janus" is Janus Investment Fund, Janus Aspen Series, Janus Capital
Corporation, Janus Service Corporation, Janus Distributors, Inc., Janus
Capital International Ltd., Janus International (UK) Ltd., Janus Capital
Trust Manager Ltd., Janus Universal Funds, and Janus World Funds Plc.
19. "Janus Funds" are Janus Investment Fund, Janus Aspen Series, Janus
Universal Funds, and Janus World Funds Plc.
20. "JCC" is Janus Capital Corporation, Janus Capital International Ltd., Janus
International (UK) Ltd. and Janus Capital Trust Manager Ltd.
21. "JDI" is Janus Distributors, Inc.
22. "JDI's Operations Manager" is Dana Stephens and/or her designee(s).
23. "Limited Offering" means an offering that is exempt from registration under
the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or
pursuant to rule 504, rule 505 or rule 506 thereunder.
24. "NASD" is the National Association of Securities Dealers, Inc.
25. "Non-Access Person" is any person that is not an Access Person.
26. "Outside Directors" are Directors who are not employed by Janus.
27. "Outside Trustees" are Trustees who are not "interested persons" of the
Janus Funds within the meaning of Section 2(a)(9) of the 1940 Act.
28. "Registered Persons" are persons registered with the NASD by JDI.
29. "Security Held or to be Acquired" means any Covered Security which, within
the most recent 15 days (i) is or has been held by the Janus Funds; or (ii)
is being or has been considered by the Janus Funds or JCC for purchase.
30. "SEC" is Securities and Exchange Commission.
31. "Trustees" are trustees of Janus Investment Fund and Janus Aspen Series.
These definitions may be updated from time to time to reflect changes in
personnel.
3
<PAGE>
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INTRODUCTION
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These Ethics Rules ("Rules") apply to all Covered Persons. The Rules apply
to transactions for your personal accounts and any other accounts you
Beneficially Own. You may be deemed the beneficial owner of any account in
which you have a direct or indirect financial interest. Such accounts include,
among others, accounts held in the name of your spouse or equivalent domestic
partnership, your minor children, a relative sharing your home, or certain
trusts under which you or such persons are a beneficiary.
The Rules are intended to ensure that you (i) at all times place first the
interests of the Janus Funds, investment companies for which Janus serves as
subadviser, and other advisory clients ("Clients"); (ii) conduct all personal
trading consistent with the Rules and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of your position of trust and
responsibility; and (iii) not use any material nonpublic information in
securities trading. The Rules also establish policies regarding other matters,
such as outside employment and the giving or receiving of gifts.
You are required to read and retain these Rules and to sign and return the
attached Acknowledgment of Receipt Form to Compliance upon commencement of
employment or other services. On an annual basis thereafter, you will be
required to complete an Annual Certification Form. The Annual Certification
Form confirms that (i) you have received, read and asked any questions necessary
to understand the Rules; (ii) you agree to conduct yourself in accordance with
the Rules; and (iii) you have complied with the Rules during such time as you
have been associated with Janus. Depending on your status, you may be required
to submit additional reports and/or obtain clearances as discussed more fully
below.
Unless otherwise defined, all capitalized terms shall have the same meaning
as set forth in the Definitions section.
CAUTION REGARDING PERSONAL TRADING ACTIVITIES
Certain personal trading activities may be risky not only because of the
nature of the transactions, but also because action necessary to close out a
position may become prohibited for some Covered Persons while the position
remains open. For example, you may not be able to close out short sales and
transactions in derivatives. Furthermore, if JCC becomes aware of material
nonpublic information, or if a Client is active in a given security, some
Covered Persons may find themselves "frozen" in a position. JCC will not bear
any losses in personal accounts resulting from the application of these Rules.
COMMUNICATIONS WITH OUTSIDE TRUSTEES/DIRECTORS
As a regular business practice, JCC attempts to keep Directors and Trustees
informed with respect to its investment activities through reports and other
information provided to them in connection with board meetings and other events.
In addition, Janus personnel are encouraged to respond to inquiries from
Directors and Trustees, particularly as they relate to general strategy
considerations or economic or market conditions affecting Janus. However, it is
JCC's policy not to communicate specific trading information and/or advice on
specific issues to Outside Directors and Outside Trustees (i.e., no information
should be given on securities for which current activity is being considered for
Clients). Any pattern of repeated requests by such Directors or Trustees should
be reported to the Chief Compliance Officer or the Compliance Manager.
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CODE OF ETHICS
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OVERVIEW
In general, it is unlawful for persons affiliated with investment
companies, their principal underwriters or their investment advisers to engage
in personal transactions in securities held or to be acquired by a registered
investment company, if such personal transactions are made in contravention of
rules which the SEC has adopted to prevent fraudulent, deceptive and
manipulative practices. Such rules require each registered investment company,
investment adviser and principal underwriter to adopt its own written code of
ethics containing provisions reasonably necessary to prevent its employees from
engaging in such conduct, and to maintain records, use reasonable diligence, and
institute such procedures as are reasonably necessary to prevent violations of
such code. This Code of Ethics ("Code") and information reported hereunder will
enable Janus to fulfill these requirements.
GENERAL PROHIBITIONS
The following activities are prohibited for applicable Covered Persons
(remember, if you work at Janus full-time, part-time, temporarily or on a
contract basis, or you are a Trustee or Director, you are a Covered Person).
Persons who violate any prohibition may be required to disgorge any profits
realized in connection with such violation to a charitable organization selected
by the Ethics Committee and may be subject to other sanctions imposed by the
Ethics Committee, as outlined in the Penalty Guidelines.
1. Covered Persons may not cause a Client to take action, or to fail to
take action, for personal benefit, rather than to benefit such Client.
For example, a Covered Person would violate this Code by causing a
Client to purchase a security owned by the Covered Person for the
purpose of supporting or increasing the price of that security or by
causing a Client to refrain from selling a security in an attempt to
protect a personal investment, such as an option on that security.
2. Covered Persons may not use knowledge of portfolio transactions made
or contemplated for Clients to profit, or cause others to profit, by
the market effect of such transactions.
3. Covered Persons may not disclose current portfolio transactions made
or contemplated for Clients as well as any other nonpublic information
to anyone outside of Janus.
4. Covered Persons may not engage in fraudulent conduct in connection
with the purchase or sale of a Security Held or to be Acquired by a
Client, including without limitation:
1) Employing any device, scheme or artifice to defraud any Client;
2) Making to any Client any untrue statement of material fact or
omitting to state to any Client a material fact necessary in order
to make the statements made, in light of the circumstances under
which they are made, not misleading;
3) Engaging in any act, practice or course of business which operates
or would operate as a fraud or deceit upon any Client;
4) Engaging in any manipulative practice with respect to any Client;
or
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5) Investing in derivatives to evade the restrictions of this Code.
Accordingly, individuals may not use derivatives to take positions
in securities that would be otherwise prohibited by the Code if
the positions were taken directly.
5. Investment Personnel may not serve on the board of directors of a
publicly traded company without prior written authorization from the
Ethics Committee. No such service shall be approved without a finding
by the Ethics Committee that the board service would not be
inconsistent with the interests of Clients. If board service is
authorized by the Ethics Committee, the Investment Personnel serving
as director normally should be isolated from those making investment
decisions with respect to the company involved through "Chinese Walls"
or other procedures.
TRADING RESTRICTIONS
The trading restrictions of the Code apply to all direct or indirect
acquisitions or dispositions of Covered Securities, whether by purchase, sale,
tender offers, stock purchase plan, gift, inheritance, or otherwise. Unless
otherwise noted, the following trading restrictions are applicable to any
transaction in a Covered Security Beneficially Owned by a Covered Person.
Outside Directors and Outside Trustees are exempt from certain trading
restrictions because of their limited access to current information regarding
Client investments.
Any disgorgement of profits required under any of the following provisions
shall be donated to a charitable organization selected by the Ethics Committee,
as outlined in the Penalty Guidelines. However, if disgorgement is required as
a result of trades by a portfolio manager that conflicted with that manager's
own Clients, disgorgement proceeds shall be paid directly to such Clients. If
disgorgement is required under more than one provision, the Ethics Committee
shall determine in its sole discretion the provision that shall control./1/
EXCLUDED TRANSACTIONS
Some or all of the trading restrictions listed below do not apply to the
following transactions; however, these transactions must still be reported to
Compliance (see Reporting Requirements):
. Tender offer transactions are exempt from all trading restrictions
except preclearance.
__________________________
/1/ Unless otherwise noted, restrictions on personal transactions apply to
transactions involving Covered Securities, including any derivative thereof.
When determining the amount of disgorgement required with respect to a
derivative, consideration will be given to price differences in both the
derivative and the underlying securities, with the lesser amount being used for
purposes of computing disgorgement. For example, in determining whether
reimbursement is required when the applicable personal trade is in a derivative
and the Client transaction is in the underlying security, the amount shall be
calculated using the lesser of (a) the difference between the price paid or
received for the derivative and the closing bid or ask price (as appropriate)
for the derivative on the date of the Client transaction, or (b) the difference
between the last sale price, or the last bid or ask price (as appropriate) of
the underlying security on the date of the derivative transaction, and the price
received or paid by the Client for the underlying security. Neither
preclearance nor disgorgement shall be required if such person's transaction is
to close, sell or exercise a derivative within five days of its expiration.
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. The acquisition of securities through stock purchase plans are exempt
from all trading restrictions except preclearance, the trading ban on
portfolio managers and assistant portfolio managers, and the seven day
rule. (Note: the sales of securities acquired through a stock purchase
plan are subject to all of the trading restrictions of the Code).
. The acquisition of securities through stock dividends, automatic
dividend reinvestment plans, stock splits, reverse stock splits,
mergers, consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all holders
of the same class of such securities are exempt from all trading
restrictions. The acquisition of securities through the exercise of
rights issued by an issuer pro rata to all holders of a class of
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securities, to the extent the rights were acquired in the issue are
exempt from all trading restrictions.
. Non-discretionary transactions in Company Stock (e.g., the acquisition
of securities through Stilwell or KCSI's Employee Stock Purchase Plan
("ESPP") or the receipt of options in Company Stock as part of a
compensation or benefit plan) are exempt from all trading
restrictions. Discretionary transactions in Company Stock issued by
JCC are exempt from all trading restrictions. Discretionary
transactions in Company Stock issued by Stilwell or KCSI (e.g.,
exercising options or selling ESPP Stock) are exempt from all trading
restrictions except preclearance (See procedures for Preclearance of
Company Stock).
. The acquisition of securities by gift or inheritance is exempt from
all trading restrictions. (Note: the sales of securities acquired by
gift or inheritance are subject to all trading restrictions of the
---
Code).
. Transactions in options on and securities based on the following
indexes are exempt from all trading restrictions: S&P 500 Index, S&P
MidCap 400 Index, S&P 100 Index, FTSE 100 Index or Nikkei 225 Index.
DISCLOSURE OF CONFLICTS
If an Investment Person is planning to invest or make a recommendation to
invest in a security for a Client, and such person has a material interest in
the security, such person must first disclose such interest to his or her
manager or the Chief Investment Officer. The manager or Chief Investment Office
shall conduct an independent review of the recommendation to purchase the
security for Clients. The manager or Chief Investment Officer may review the
recommendation only if he or she has no material interest in the security. A
material interest is Beneficial Ownership of any security (including
derivatives, options, warrants or rights), offices, directorships, significant
contracts, or interests or relationships that are likely to affect such person's
judgment.
PRECLEARANCE
Access Persons (except Outside Directors and Outside Trustees) must obtain
preclearance prior to engaging in any personal transaction in Covered
Securities. (See Preclearance Procedures below).
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TRADING BAN ON PORTFOLIO MANAGERS AND ASSISTANT PORTFOLIO MANAGERS
Portfolio managers and their assistants are prohibited from trading
personally in Covered Securities. However, the following types of transactions
are exempt from this policy, but are subject to all applicable provisions of the
Rules, including preclearance:
[_] Purchases or sales of Company Stock;
[_] The sale of any security that is not held by any Client; and
[_] The sale of any security in order to raise capital to fund a
significant life event. For example, purchasing a home or automobile,
or paying medical or education expenses.
BAN ON IPOs AND HOT ISSUES
Covered Persons (except Outside Directors and Outside Trustees) may not
purchase securities in an initial public offering or in a secondary offering
that constitutes a "hot issue" as defined in NASD rules. Such securities may be
purchased or received, however, where the individual has an existing right to
purchase the security based on his or her status as an investor, policyholder or
depositor of the issuer. In addition, securities issued in reorganizations are
also outside the scope of this prohibition if the transaction involves no
investment decision on the part of the Covered Person except in connection with
a shareholder vote.
60 DAY RULE
Access Persons (except Outside Directors and Outside Trustees) shall
disgorge any profits realized in the purchase and sale, or sale and purchase, of
the same or equivalent Covered Securities within sixty (60) calendar days if a
Client held or traded the security during the sixty (60) calendar day period.
BLACKOUT PERIOD
No Access Person may engage in a transaction in a Covered Security when
such person knows or should have known at the time there to be pending, on
behalf of any Client, a "buy" or "sell" order in that same security. The
existence of pending orders will be checked by Compliance as part of the
Preclearance process. Preclearance may be given when any pending Client order
is completely executed or withdrawn.
FIFTEEN DAY RULE
Any Access Person (except Outside Directors and Outside Trustees) who buys
or sells a Covered Security within fifteen calendar days before such security is
bought or sold on behalf of any Client must disgorge any price advantage
realized. The price advantage shall be the favorable spread, if any, between
the price paid or received by such person and the least favorable price paid or
received by a Client during such period.2 The Ethics Committee has the
authority by unanimous action to exempt any person from the fifteen-day rule if
such person is selling a security to raise capital to fund a significant life
event. For
_________________________
/2/ Personal purchases are matched only against subsequent Client purchases and
personal sales are matched only against subsequent Client sales for purposes of
this restriction.
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example, purchasing a home or automobile, or paying medical or education
expenses. In order for the Ethics Committee to consider such exemption, the life
event must occur within thirty (30) calendar days of the security transaction,
and the person must provide written confirmation of the event.
SEVEN DAY RULE
Any portfolio manager or assistant portfolio manager who buys or sells a
Covered Security within seven calendar days before or after he or she trades in
that security on behalf of a Client shall disgorge any profits realized on such
transaction.
SHORT SALES
Any Access Person who sells short a Covered Security that such person knows
or should have known is held long by any Client shall disgorge any profit
realized on such transaction. This prohibition shall not apply, however, to
securities indices or derivatives thereof (such as futures contracts on the S&P
500 index). Client ownership of Covered Securities will be checked as part of
the Preclearance process.
HEDGE FUNDS, INVESTMENT CLUBS, AND OTHER INVESTMENTS
No Access Person (except Outside Directors and Outside Trustees) may
participate in hedge funds, partnerships, investment clubs, or similar
investment vehicles, unless such person does not have any direct or indirect
influence or control over the trading. Covered Persons wishing to rely upon
this provision must submit a Certification of Non-Influence and Non-Control Form
to the Compliance Manager for approval. (See Non-Influence and Non-Control
Accounts section below.)
PRECLEARANCE PROCEDURES
Access Persons must obtain preclearance for all applicable transactions in
Covered Securities in which such person has a Beneficial Interest. A
Preclearance Form must be completed and forwarded to Compliance. Compliance
shall promptly notify the person of approval or denial of the transaction.
Notification of approval or denial of the transaction may be given verbally;
however, it shall be confirmed in writing within seventy-two (72) hours of
verbal notification. When preclearance has been approved, the person then has
four business days from and including the day of first notification to execute
the trade.
GENERAL PRECLEARANCE
General preclearance shall be obtained from an authorized person from
each of the following three groups:
. A DESIGNATED LEGAL OR COMPLIANCE REPRESENTATIVE, who will present the
personal investment to the attendees of the weekly investment meeting,
whereupon an opportunity will be given to orally object. An attendee
of the weekly investment meeting shall object to such clearance if
such person knows of a conflict with a pending Client transaction or a
transaction known by such attendee to be under consideration for a
Client. Objections to such clearance should also take into account,
among other factors, whether the investment opportunity should be
reserved for a Client. If no objections are raised, the Designated
Legal or Compliance Representative shall so indicate by signing the
Preclearance Form. Such approval shall not be required for sales of
securities not held by any Clients.
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In place of this authorization, Investment Personnel are required to
obtain approvals from all Executive Investment Committee members as
noted in the section below entitled Preclearance Requirements for
Investment Personnel.
. A DESIGNATED TRADING OPERATIONS REPRESENTATIVE, who may provide
clearance if such Representative knows at the time of the request of
no pending "buy" or "sell" order in the security on behalf of a Client
and no such trades are known by such person to be under consideration.
. The COMPLIANCE MANAGER, OR A DESIGNATED LEGAL OR COMPLIANCE
REPRESENTATIVE IF THE COMPLIANCE MANAGER IS NOT AVAILABLE, who may
provide clearance if no legal prohibitions are known by such person to
exist with respect to the proposed trade. Approvals for such clearance
should take into account, among other factors, the existence of any
Watch List or Restricted List and, to the extent reasonably
practicable, recent trading activity and holdings of Clients.
No authorized person may preclear a transaction in which such person
--
has a Beneficial Interest.
PRECLEARANCE REQUIREMENTS FOR INVESTMENT PERSONNEL
Trades by Investment Personnel may not be precleared by presentation
at the weekly investment meeting. Instead, Investment Personnel must obtain the
following management approvals. However, such approvals shall not be required
for sales of securities not held by any Clients:
[_] TRADES IN EQUITY SECURITIES require prior written approval from
all members of the Executive Investment Committee, Investment
Person's manager and either Ron Speaker or Sandy Rufenacht;
[_] TRADES IN DEBT SECURITIES require prior written approval from all
senior fixed income portfolio managers, either Jim Craig or two
other Executive Investment Committee members, and Investment
Person's manager.
A portfolio manager may not preclear his or her own transaction.
PRECLEARANCE OF COMPANY STOCK
Officers of Janus and certain persons designated by Compliance who
wish to make discretionary transactions in Stilwell or KCSI securities, or
derivatives thereon, must preclear such transactions. A Company Stock
Preclearance Form must be completed and forwarded to Compliance. Compliance
shall promptly notify the person of approval or denial for the transaction.
Notification of approval or denial for the transaction may be given verbally;
however, it shall be confirmed in writing within seventy-two (72) hours of
verbal notification. When preclearance has been approved, the person then has
four business days from and including the day of first notification to execute
the trade.
If such persons are subject to the provisions of Section 16(b) of the
Securities Exchange Act of 1934, trading will generally be allowed only in the
ten (10) business day period beginning seventy-two (72) hours after Stilwell or
KCSI files its quarterly results with the SEC (e.g., 10Q or 10K filing, not
earnings release).
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To preclear the trade, the Compliance Manager or such other Representative shall
discuss the transaction with Janus's General Counsel or Chief Financial Officer.
PRECLEARANCE OF TENDER OFFERS AND STOCK PURCHASE PLANS
Access Persons (other than Outside Directors and Outside Trustees) who wish
to participate in a tender offer or stock purchase plan must preclear such
trades only with the Compliance Manager prior to submitting notice to
participate in such tender offer or notice of participation in such stock
purchase plan to the applicable company. To preclear the trade, the Compliance
Manager shall consider all material factors relevant to a potential conflict of
interest between the Access Person and Clients. In addition, any increase of
$100 or more to a pre-existing stock purchase plan must be precleared.
FOUR DAY EFFECTIVE PERIOD
Clearances to trade will be in effect for only four trading/business days
from and including the date of the last Authorized Person's signature (which may
not be provided more than one day after the first Authorized Person's
signature). For tender offers, stock purchase plans, exercise of Company Stock
and similar transactions, the date the request is submitted to the company
processing the transaction will be considered the trade date for purposes of
this requirement. Open orders, including stop loss orders, will generally not
be allowed unless such order is expected to be completed within the four day
effective period. It is necessary to re-preclear transactions not executed
within the four day effective period.
REPORTING REQUIREMENTS
ACCOUNT STATEMENTS
ACCESS PERSONS (other than Outside Trustees) and REGISTERED PERSONS must
notify Compliance of each brokerage account in which they have a Beneficial
Interest and must arrange for their brokers or financial institutions to provide
to Compliance, on a timely basis, duplicate account statements and confirmations
showing all transactions in brokerage or commodities accounts in which they have
a Beneficial Interest. A Personal Brokerage Account Disclosure Form should be
completed for this purpose.
Please note that, even if such person does not trade Covered Securities in
a particular brokerage or commodities account (e.g., trading mutual funds in a
Schwab account), the reporting of duplicate account statements and confirmations
is still required. However, if such person only uses a particular brokerage
account for checking account purposes, and not investment purposes, he or she
may in lieu of reporting duplicate account statements, report duplicate trade
confirmations and make a quarterly representation to Compliance indicating that
no investment transactions occurred in the account during the calendar quarter.
Reporting of accounts that do not allow any trading in Covered Securities (e.g.,
a mutual fund account held directly with the fund sponsor) is not required.
Covered Persons must notify Compliance of each reportable account at the
time it is opened, and annually thereafter, including the name of the firm and
the name under which the account is carried. A Personal Brokerage Account
Disclosure Form should be completed for this purpose.
Certain transactions might not be reported through a brokerage account,
such as private placements, inheritances or gifts. In these instances, Access
Persons must report these transactions within ten (10) calendar days using a
Personal Securities Transaction Report as noted below.
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Registered Persons are reminded that they must also inform any brokerage firm
with which
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they open an account, at the time the account is opened, that they are
registered with JDI.
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NON-ACCESS PERSONS who engage in an aggregate of $25,000 or more of
transactions in Covered Securities within a calendar year must provide
Compliance with an Annual Transaction Report listing all such transactions in
all accounts in which such person has a Beneficial Interest. Compliance will
request this information annually and will spot check all or a portion of such
transactions or accounts.
HOLDINGS REPORTS
Access Persons (other than Outside Trustees) must, within ten (10) calendar
days after becoming an Access Person, provide Compliance with a Holdings Report
which lists all Covered Securities beneficially held and any brokerage accounts
through which such securities are maintained. In addition, such persons must
provide a brief description of any positions held (e.g., director, officer,
other) with for-profit entities other than Janus. The report must contain
information current as of no more than thirty (30) calendar days from the time
the report is submitted.
PERSONAL SECURITIES TRANSACTION REPORTS
ACCESS PERSONS (other than Outside Trustees) must provide a Personal
Securities Transaction Report within ten (10) calendar days after any month end
showing all transactions in Covered Securities for which confirmations are known
by such person to not have been timely provided to Janus, and all such
transactions that are not effected in brokerage or commodities accounts,
including without limitation non-brokered private placements, and transactions
in securities that are in certificate form, which may include gifts,
inheritances, and other transactions in Covered Securities.
OUTSIDE TRUSTEES need only report a transaction in a Covered Security if
such person, at the time of that transaction, knew or, in the ordinary course of
fulfilling his or her official duties as a Trustee should have known, that,
during the fifteen-day period immediately preceding the date of his or her
personal transaction, such security was purchased or sold by, or was being
considered for purchase or sale on behalf of, any Janus Fund for which such
person acts as Trustee.
SUCH PERSONS MUST PROMPTLY COMPLY WITH ANY REQUEST OF THE COMPLIANCE MANAGER TO
PROVIDE TRANSACTION REPORTS REGARDLESS OF WHETHER THEIR BROKER HAS BEEN
INSTRUCTED TO PROVIDE DUPLICATE CONFIRMATIONS. SUCH REPORTS MAY BE REQUESTED,
FOR EXAMPLE, TO CHECK THAT ALL APPLICABLE CONFIRMATIONS ARE BEING RECEIVED OR TO
SUPPLEMENT THE REQUESTED CONFIRMATIONS WHERE A BROKER IS DIFFICULT TO WORK WITH
OR OTHERWISE FAILS TO PROVIDE DUPLICATE CONFIRMATIONS ON A TIMELY BASIS.
NON-INFLUENCE AND NON-CONTROL ACCOUNTS
The Rules shall not apply to any account, partnership, or similar
investment vehicle over which a Covered Person has no direct or indirect
influence or control. Covered Persons wishing to rely upon this provision are
required to receive approval from the Ethics Committee. In order to request
such approval, a Certification of Non-Influence and Non-Control Form must be
submitted to the Compliance Manager.
Any account beneficially owned by a Covered Person that is managed by JCC
in a discretionary capacity is not covered by these Rules so long as such person
has no direct or indirect influence or control over the account. The employment
relationship between the account-holder and the individual managing
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the account, in the absence of other facts indicating control, will not be
deemed to give such account-holder influence or control over the account.
OTHER REQUIRED FORMS
In addition to the Preclearance Form, Preclearance Form for Company Stock,
Personal Brokerage Account Disclosure Form, Holdings Report, Report of Personal
Securities Transactions, Annual Transaction Report, and Certification of Non-
Influence and Non-Control Form discussed above, the following forms (available
through Lotus Notes) must be completed if applicable to you:
ACKNOWLEDGMENT OF RECEIPT FORM
Each Covered Person must provide Compliance with an Acknowledgment of
Receipt Form within ten (10) calendar days of commencement of employment or
other services certifying that he or she has received a current copy of the
Rules and acknowledges, as a condition of employment, that he or she will comply
with the Rules in their entirety.
ANNUAL CERTIFICATION FORM
Each Covered Person must provide Compliance annually within thirty (30)
calendar days from date of request with an Annual Certification Form certifying
that he or she:
1) Has received, read and understands the Rules;
2) Has complied with the requirements of the Rules; and
3) Has disclosed or reported all open brokerage and commodities accounts,
personal holdings and personal securities transactions required to be
disclosed or reported pursuant to the requirements of the Rules.
OUTSIDE DIRECTOR/TRUSTEE REPRESENTATION FORM
All Outside Directors and Outside Trustees must, upon commencement of
services and annually thereafter, provide Compliance with an Outside
Director/Trustee Representation Form. The Form declares that such persons agree
to refrain from trading in any securities when they are in possession of any
information regarding trading recommendations made or proposed to be made to any
Client by Janus or its officers or employees.
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INSIDER TRADING POLICY
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BACKGROUND INFORMATION
The term "insider trading" is not defined in the federal securities
statutes, but generally is used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider") or to
communications of material nonpublic information to others.
While the law concerning insider trading can be complex and unclear, you
should assume that the law prohibits:
[_] Trading by an insider, while in possession of material nonpublic
information,
[_] Trading by a non-insider, while in possession of material nonpublic
information, where the information was disclosed to the non-insider
(either directly or through one or more intermediaries) in violation
of an insider's duty to keep it confidential,
[_] Communicating material nonpublic information to others in breach of a
duty not to disclose such information, and
[_] Misappropriating confidential information for securities trading
purposes, in breach of a duty owed to the source of the information to
keep the information confidential.
Trading based on material nonpublic information about an issuer does not
violate this policy unless the trader (i) is an "insider" with respect to an
issuer; (ii) receives the information from an insider or from someone that the
trader knows received the information from an insider, either directly or
indirectly, or (iii) misappropriates the nonpublic information or obtains or
misuses it in breach of a duty of trust and confidence owed to the source of the
information. Accordingly, trading based on material nonpublic information about
an issuer can be, but is not necessarily, a violation of this Policy. Trading
while in possession of material nonpublic information relating to a tender offer
is prohibited under this Policy regardless of how such information was obtained.
Application of the law of insider trading to particular transactions can be
difficult, particularly if it involves a determination about trading based on
material nonpublic information. You legitimately may be uncertain about the
application of this Policy in particular circumstances. If you have any
questions regarding the application of the Policy or you have any reason to
believe that a violation of the Policy has occurred or is about to occur, you
should contact the Chief Compliance Officer or the Compliance Manager.
The following discussion is intended to help you understand the principal
concepts involved in insider trading.
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WHO IS AN INSIDER?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary insider" if
he or she enters into a special confidential relationship in the conduct of a
company's affairs and as a result is given access to information solely for the
company's purposes. A temporary insider can include, among others, a company's
attorneys, accountants, consultants, bank lending officers, and the employees of
such organizations. In addition, one or more of the Janus entities may become a
temporary insider of a company it advises or for which it performs other
services. To be considered an insider, the company must expect the outsider to
keep the disclosed nonpublic information confidential and/or the relationship
must at least imply such a duty.
WHEN IS INFORMATION NONPUBLIC?
Information remains nonpublic until it has been made public. Information
becomes public when it has been effectively communicated to the marketplace,
such as by a public filing with the SEC or other governmental agency, inclusion
in the Dow Jones "tape" or publication in The Wall Street Journal or another
-----------------------
publication of general circulation. Moreover, sufficient time must have passed
so that the information has been disseminated widely.
WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally means information for
which there is a substantial likelihood that a reasonable investor would
consider it important in making his or her investment decisions, or information
that is reasonably certain to have a substantial effect on the price of a
company's securities. Information that should be considered material includes,
but is not limited to: dividend changes, earnings estimates, changes in
previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
Material information may also relate to the market for a company's
------
securities. Information about a significant order to purchase or sell
securities may, in some contexts, be deemed material. Similarly, prepublication
information regarding reports in the financial press also may be deemed
material. For example, the Supreme Court upheld the criminal convictions of
insider trading defendants who capitalized on prepublication information about
The Wall Street Journal's "Heard on the Street" column.
- -------------------------
WHEN IS INFORMATION MISAPPROPRIATED?
The misappropriation theory prohibits trading on the basis of non-public
information by a corporate "outsider" in breach of a duty owed not to a trading
party, but to the source of confidential information. Misappropriation of
information occurs when a person obtains the non-public information through
deception or in breach of a duty of trust and loyalty to the source of the
information.
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PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material nonpublic information
are severe, both for individuals involved in such unlawful conduct and their
employers or other controlling persons. A person can be subject to some or all
of the penalties below even if he or she does not personally benefit from the
violation. Penalties include:
[_] Civil injunctions
[_] Treble damages
[_] Disgorgement of profits
[_] Jail sentences for up to 10 years
[_] Fines up to $1,000,000 (or $2,500,000 for corporations and other
entities)
[_] Civil penalties for the person who committed the violation of up to
three times the profit gained or loss avoided, whether or not the
person actually benefited, and
[_] Civil penalties for the employer or other controlling person of up to
the greater of $1,000,000 or three times the amount of the profit
gained or loss avoided.
In addition, any violation of the law may result in serious sanctions by
Janus, including termination of employment.
WHO IS A CONTROLLING PERSON?
Included as controlling persons are Janus and its Directors, Trustees and
officers. If you are a Director, Trustee or officer, you have a duty to act to
prevent insider trading. Failure to fulfill such a duty may result in penalties
as described above.
PROCEDURES TO IMPLEMENT POLICY
The following procedures have been established to aid the Directors,
Trustees, officers and employees of Janus in avoiding insider trading, and to
aid Janus in preventing, detecting and imposing sanctions against insider
trading.
IDENTIFYING MATERIAL INSIDE INFORMATION
Before trading for yourself or others, including the Janus Funds or other
Clients, in the securities of a company about which you may have potential
inside information, ask yourself the following questions:
[_] To whom has this information been provided? Has the information been
effectively communicated to the marketplace?
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[_] Has this information been obtained from either the issuer or from
another source in breach of a duty to that source to keep the
information confidential?
[_] Is the information material? Is this information that an investor
would consider important in making his or her investment decisions? Is
this information that would affect the market price of the securities
if generally disclosed?
Special caution should be taken with respect to potential inside
information regarding JCC. Although JCC's shares are not publicly traded, JCC's
parent, KCSI, is a publicly traded company. KCSI owns 82% of the stock of JCC.
As a result, potential inside information regarding JCC may affect trading in
KCSI stock and should be reported pursuant to the procedures set forth below.
The following is a non-exclusive list of situations that Investment Personnel
should report immediately pursuant to the procedures below: (i) participation in
private placements; (ii) the receipt of any information from an issuer pursuant
to a confidentiality agreement; (iii) participation on or receipt of information
from a bankruptcy committee of an issuer; and (iv) receipt of information
regarding earnings or sales figures in advance of the public release of those
numbers.
REPORTING INSIDE INFORMATION
If, after consideration of the above, you believe that the information is
material and nonpublic, or if you have questions as to whether the information
is material and nonpublic, you should take the following steps:
[_] Do not purchase or sell the securities on behalf of yourself or
others, including Clients.
[_] Do not communicate the information inside or outside of Janus, other
than to the Chief Compliance Officer or the Compliance Manager.
[_] Immediately advise the Chief Compliance Officer or Compliance Manager
of the nature and source of such information. The Chief Compliance
Officer or Compliance Manager will review the information with the
Ethics Committee.
[_] Depending upon the determination made by the Ethics Committee, or by
the Chief Compliance Officer until the Committee can be convened, you
may be instructed to continue the prohibition against trading and
communication and the Compliance Manager will place the security on a
Restricted List or Watch List, as described below. Alternatively, if
it is determined that the information obtained is not material
nonpublic information, you may be allowed to trade and communicate the
information.
WATCH AND RESTRICTED LISTS
Whenever the Ethics Committee or the Chief Compliance Officer determines
that a Director, Trustee, officer or employee of Janus is in possession of
material nonpublic information with respect to a company (regardless of whether
it is currently owned by any Client) such company will either be placed on a
Watch List or on a Restricted List.
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WATCH LIST
If the security is placed on a Watch List, the flow of the information to
other Janus personnel will be restricted in order to allow such persons to
continue their ordinary investment activities. This procedure is commonly
referred to as a "Chinese Wall."
RESTRICTED LIST
If the Ethics Committee or the Chief Compliance Officer determines that
material nonpublic information is in the possession of a Director, Trustee,
officer, or employee of Janus and cannot be adequately isolated through the use
of a Chinese Wall, the company will be placed on the Restricted List. While a
company is on the Restricted List, no Investment Person shall initiate or
recommend any transaction in any Client account, and no Access Person shall be
precleared to transact in any account in which he or she has a beneficial
interest, with respect to the securities of such company. The Ethics Committee
or the Chief Compliance Officer will also have the discretion of placing a
company on the Restricted List even though no "break in the Chinese Wall" has or
is expected to occur with respect to the material nonpublic information about
the company. Such action may be taken by such persons for the purpose of
avoiding any appearance of the misuse of material nonpublic information.
The Ethics Committee or the Chief Compliance Officer will be responsible
for determining whether to remove a particular company from the Watch List or
Restricted List. The only persons who will have access to the Watch List or
Restricted List are members of the Ethics Committee, Designated Legal or
Compliance Representatives and such persons who are affected by the information.
The Watch List and Restricted List are highly confidential and should, under no
circumstances, be discussed with or disseminated to anyone other than the
persons noted above.
PROTECTING INFORMATION
Directors, Trustees, officers and employees of Janus shall not disclose any
nonpublic information (whether or not it is material) relating to Janus or its
securities transactions to any person outside Janus (unless such disclosure has
been authorized by the Chief Compliance Officer). Material nonpublic
information may not be communicated to anyone, including any Director, Trustee,
officer or employee of Janus, except as provided in this Policy. Access to such
information must be restricted. For example, access to files containing
material nonpublic information and computer files containing such information
should be restricted, and conversations containing such information, if
appropriate at all, should be conducted in private.
To insure the integrity of the Chinese Wall and to avoid unintended
disclosures, it is important that all employees take the following steps with
respect to confidential or nonpublic information:
[_] Do not discuss confidential information in public places such as
elevators, hallways or social gatherings.
[_] To the extent practical, limit access to the areas of the firm where
confidential information could be observed or overheard to employees
with a business need for being in the area.
[_] Avoid use of speakerphones in areas where unauthorized persons may
overhear conversations.
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[_] Avoid use of wireless and cellular phones, or other means of
communication, which may be intercepted.
[_] Where appropriate, maintain the confidentiality of Client identities
by using code names or numbers for confidential projects.
[_] Exercise care to avoid placing documents containing confidential
information in areas where they may be read by unauthorized persons
and to store such documents in secure locations when they are not in
use.
[_] Destroy copies of confidential documents no longer needed for a
project unless required to be saved pursuant to applicable record
keeping policies or requirements.
RESPONSIBILITY TO MONITOR TRANSACTIONS
Compliance will monitor transactions of Clients and employees for which
reports are received to detect the existence of any unusual trading activities
with respect to companies on the Watch and Restricted Lists. Compliance will
immediately report any unusual trading activity directly to the Compliance
Manager, and in his or her absence, the Chief Compliance Officer, who will be
responsible for determining what, if any, action should be taken.
RECORD RETENTION
Compliance shall maintain copies of the Watch List and Restricted List for
a minimum of six years.
TENDER OFFERS
Tender offers represent a particular concern in the law of insider trading
for two reasons. First, tender offer activity often produces extraordinary
fluctuations in the price of the target company's securities. Trading during
this time period is more likely to attract regulatory attention (and produces a
disproportionate percentage of insider trading cases). Second, the SEC has
adopted a rule which expressly forbids trading and "tipping" while in possession
of material nonpublic information regarding a tender offer received from the
tender offeror, the target company or anyone acting on behalf of either. Janus
employees and others subject to this Policy should exercise particular caution
any time they become aware of nonpublic information relating to a tender offer.
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GIFT POLICY
- --------------------------------------------------------------------------------
Gifts may be given (or accepted) only if they are in accordance with
normally accepted business practices and do not raise any question of
impropriety. A question of impropriety may be raised if a gift influences or
gives the appearance of influencing the recipient. The following outlines
Janus's policy on giving and receiving gifts to help us maintain those standards
and is applicable to all Inside Directors and Inside Trustees, officers and
employees of Janus.
GIFT GIVING
Neither you nor members of your immediate family may give any gift, series
of gifts, or other thing of value, including cash, loans, personal services, or
special discounts ("Gifts") in excess of $100 per year to any Client or any one
person or entity that does or seeks to do business with or on behalf of Janus or
any Client (collectively referred to herein as "Business Relationships").
GIFT RECEIVING
Neither you nor members of your immediate family may receive any Gift of
material value from any single Business Relationship. A Gift will be considered
material in value if it influences or gives the appearance of influencing the
recipient.
In the event the aggregate fair market value of all Gifts received by you
from any single Business Relationship is estimated to exceed $250 in any 12-
month period, you must immediately notify your manager. Managers that receive
such notification must report this information to the Compliance Manager if it
appears that such Gifts may have improperly influenced the receiver. If the
Gift is made in connection with the sale or distribution of registered
investment company or variable contract securities, the aggregate fair market
value of all such Gifts received by you from any single Business Relationship
may never exceed $100 in any 12-month period.
Occasionally, Janus employees are invited to attend or participate in
conferences, tour a company's facilities, or meet with representatives of a
company. Such invitations may involve traveling and may require overnight
lodging. Generally, Janus must pay for all travel and lodging expenses provided
in connection with such activities. However, if appropriate, and with prior
approval from your manager, you may accept travel related amenities if the costs
are considered insubstantial and are not readily ascertainable.
The solicitation of a Gift is prohibited (i.e., you may not request a Gift,
such as tickets to a sporting event, be given to you).
CUSTOMARY BUSINESS AMENITIES
Customary business amenities are not considered Gifts so long as such
amenities are business related (e.g., if you are accepting tickets to a sporting
----------------
event, the offerer must go with you), reasonable in cost, appropriate as to time
and place, and neither so frequent nor so costly as to raise any question of
impropriety. Customary business amenities which you and, if appropriate, your
guests, may accept (or give) include an occasional meal, a ticket to a sporting
event or the theater, greens fees, an invitation to a reception or cocktail
party, or comparable entertainment.
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OUTSIDE EMPLOYMENT POLICY
- --------------------------------------------------------------------------------
No Inside Director, Inside Trustee, officer or employee of Janus shall
accept employment or compensation as a result of any business activity (other
than a passive investment), outside the scope of his relationship with Janus
unless such person has provided prompt written notice of such employment or
compensation to the Chief Compliance Officer (or, for Registered Persons, to
JDI's Operations Manager), and, in the case of securities-related employment or
compensation, has received the prior written approval of the Ethics Committee.
Registered Persons are reminded to update and submit their Outside Business
Activity Disclosure forms as appropriate pursuant to JDI's Written Supervisory
Procedures and applicable NASD rules.
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- --------------------------------------------------------------------------------
PENALTY GUIDELINES
- --------------------------------------------------------------------------------
OVERVIEW
Covered Persons who violate any of the requirements, restrictions, or
prohibitions of the Rules may be subject to sanctions imposed by the Ethics
Committee. The following guidelines shall be used by the Compliance Manager for
recommending remedial actions for Covered Persons who violate prohibitions or
disregard requirements of the Rules. Deviations from the Fifteen-Day Rule are
not considered to be violations under the Rules and, therefore, are not subject
to the penalty guidelines.
Upon learning of a potential deviation from, or violation of the Rules, the
Compliance Manager will provide a written recommendation of remedial action to
the Ethics Committee. The Ethics Committee has full discretion to approve such
recommendation or impose other sanctions it deems appropriate. The Ethics
Committee will take into consideration, among other things, whether the
violation was a technical violation of the Rules or inadvertent oversight (i.e.,
ill-gotten profits versus general oversight). The guidelines are designed to
promote consistency and uniformity in the imposition of sanctions and
disciplinary matters.
PENALTY GUIDELINES
Outlined below are the guidelines for the sanctions that may be imposed on
Covered Persons who fail to comply with the Rules:
[_] 1st violation- Compliance will send a memorandum of reprimand to the
person, copying his or her supervisor. The memorandum will generally
reinforce the person's responsibilities under the Rules, educate the
person on the severity of personal trading violations and inform the
person of the possible penalties for future violations of the Rules;
[_] 2nd violation- Janus's Chief Investment Officer, James Craig, will
meet with the person to discuss the violations in detail and will
reinforce the importance of complying with the Rules;
[_] 3rd violation- Janus's Chairman of the Board, Thomas Bailey, will meet
with the person to discuss the violations in detail and will reinforce
the importance of complying with the Rules;
[_] 4th violation- The Executive Committee will impose such sanctions as
it deems appropriate, including without limitation, a letter of
censure, fines, withholding of bonus payments, or suspension or
termination of employment or personal trading privileges.
In addition to the above disciplinary sanctions, such persons may be
required to disgorge any profits realized in connection with such violation.
All disgorgement proceeds collected will be donated to a charitable organization
selected by the Ethics Committee. The Ethics Committee may determine to impose
any of the sanctions set forth in item 4 above, including termination,
immediately and without notice if it determines that the severity of any
violation or violations warrants such action. All sanctions imposed will be
documented in such person's personal trading file maintained by Janus, and will
be reported to the Executive Committee.
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- --------------------------------------------------------------------------------
SUPERVISORY AND COMPLIANCE PROCEDURES
- --------------------------------------------------------------------------------
The Chief Compliance Officer and Compliance Manager are responsible for
implementing supervisory and compliance review procedures. Supervisory
procedures can be divided into two classifications: prevention of violations
and detection of violations. Compliance review procedures include preparation
of special and annual reports, record maintenance and review, and
confidentiality preservation.
SUPERVISORY PROCEDURES
PREVENTION OF VIOLATIONS
To prevent violations of the Rules, the Compliance Manager should, in
addition to enforcing the procedures outlined in the Rules:
1. Review and update the Rules as necessary, at least once annually,
including but not limited to a review of the Code by the Chief
Compliance Officer, the Ethics Committee and/or counsel;
2. Answer questions regarding the Rules, or refer the same to the Chief
Compliance Officer;
3. Request from all persons upon commencement of services, and annually
thereafter, any applicable forms and reports as required by the Rules;
4. Identify all Access Persons and notify them of their responsibilities
and reporting requirements;
5. Write letters to the securities firms requesting duplicate
confirmations and account statements where necessary; and
6. With such assistance from the Human Resources Department as may be
appropriate, maintain a continuing education program consisting of the
following:
1) Orienting Covered Persons who are new to Janus to the Rules, and
2) Further educating Covered Persons by distributing memos or other
materials that may be issued by outside organizations such as the
Investment Company Institute discussing the issue of insider
trading and other issues raised by the Rules.
DETECTION OF VIOLATIONS
To detect violations of these Rules, the Compliance Manager should, in
addition to enforcing the procedures outlined in the Rules:
[_] Implement procedures to review holding and transaction reports,
confirmations, forms and statements relative to applicable
restrictions, as provided under the Code; and
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[_] Implement procedures to review the Restricted and Watch Lists relative
to applicable personal and Client trading activity, as provided under
the Policy.
Spot checks of certain information are permitted as noted under the Code.
COMPLIANCE PROCEDURES
REPORTS OF POTENTIAL DEVIATIONS OR VIOLATIONS
Upon learning of a potential deviation from, or violation of the Rules, the
Compliance Manager shall report such violation to the Chief Compliance Officer,
together with all documents relating to the matter. The Chief Compliance
Officer shall either present the information at the next regular meeting of the
Ethics Committee, or conduct a special meeting. The Ethics Committee shall
thereafter take such action as it deems appropriate (see Penalty Guidelines).
ANNUAL REPORTS
The Compliance Manager shall prepare a written report to the Ethics
Committee and the Trustees at least annually. The written report to the
Trustees shall include any certification required by Rule 17j-1. This report
shall set forth the following information, and shall be confidential:
[_] Copies of the Rules, as revised, including a summary of any changes
made since the last report;
[_] Identification of any material issues arising under the Rules
including material violations requiring significant remedial action
since the last report;
[_] Identification of any material conflicts that arose since the last
report; and
[_] Recommendations, if any, regarding changes in existing restrictions or
procedures based upon Janus's experience under these Rules, evolving
industry practices, or developments in applicable laws or regulations.
The Trustees must initially approve these Rules within the time frame
required by Rule 17-1. Any material changes to these Rules must be approved
within six months.
RECORDS
Compliance shall maintain the following records on behalf of each Janus
entity:
[_] A copy of this Code and any amendment thereof which is or at any time
within the past five years has been in effect.
[_] A record of any violation of this Code, or any amendment thereof, and
of any action taken as a result of such violation.
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[_] Files for personal securities transaction confirmations and account
statements, all reports and other forms submitted by Covered Persons
pursuant to these Rules and any other pertinent information.
[_] A list of all persons who are, or have been, required to make reports
pursuant to these Rules.
[_] A list of persons who are, or within the last five years have been
responsible for, reviewing transaction and holdings reports.
[_] A copy of each report made to the Trustees pursuant to this Code.
INSPECTION
The records and reports maintained by Compliance pursuant to the Rules
shall at all times be available for inspection, without prior notice, by any
member of the Ethics Committee.
CONFIDENTIALITY
All procedures, reports and records monitored, prepared or maintained
pursuant to these Rules shall be considered confidential and proprietary to
Janus and shall be maintained and protected accordingly. Except as otherwise
required by law or this Policy, such matters shall not be disclosed to anyone
other than to members of the Ethics Committee, as requested.
FILING OF REPORTS
To the extent that any report, form acknowledgment or other document is
required to be in writing and signed, such documents may be submitted in by e-
mail or other electronic form approved by Compliance. Any report filed with the
Chief Compliance Officer or Compliance Manager of JCC shall be deemed filed with
the Janus Funds.
THE ETHICS COMMITTEE
The purpose of this Section is to describe the Ethics Committee. The
Ethics Committee is created to provide an effective mechanism for monitoring
compliance with the standards and procedures contained in the Rules and to take
appropriate action at such times as violations or potential violations are
discovered.
MEMBERSHIP OF THE COMMITTEE
The Committee consists of Thomas A. Early, Vice President and General
Counsel; Steven R. Goodbarn, Vice President of Finance, Treasurer and Chief
Financial Officer; David Kowalski, Vice President and Chief Compliance Officer;
and Ernie C. Overholt, Compliance Manager. The Compliance Manager currently
serves as the Chairman of the Committee. The composition of the Committee may
be changed from time to time.
COMMITTEE MEETINGS
The Committee shall generally meet every four months or as often as
necessary to review operation of the compliance program and to consider
technical deviations from operational procedures, inadvertent oversights, or any
other potential violation of the Rules. Deviations alternatively may be
addressed by including them in the employee's personnel records maintained by
Janus. Committee meetings are primarily
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intended for consideration of the general operation of the compliance program
and substantive or serious departures from standards and procedures in the
Rules.
Such other persons may attend a Committee meeting, at the discretion of the
Committee, as the Committee shall deem appropriate. Any individual whose
conduct has given rise to the meeting also may be called upon, but shall not
have the right, to appear before the Committee.
It is not required that minutes of Committee meetings be maintained; in
lieu of minutes the Committee may issue a report describing any action taken.
The report shall be included in the confidential file maintained by the
Compliance Manager with respect to the particular employee or employees whose
conduct has been the subject of the meeting.
SPECIAL DISCRETION
The Committee shall have the authority by unanimous action to exempt any
person or class of persons or transaction or class of transactions from all or a
portion of the Rules, provided that:
[_] The Committee determines, on advice of counsel, that the particular
application of all or a portion of the Rules is not legally required;
[_] The Committee determines that the likelihood of any abuse of the Rules
by such exempted person(s) or as a result of such exempted transaction
is remote;
[_] The terms or conditions upon which any such exemption is granted is
evidenced in writing; and
[_] The exempted person(s) agrees to execute and deliver to the Compliance
Manager, at least annually, a signed Acknowledgment Form, which
Acknowledgment shall, by operation of this provision, include such
exemptions and the terms and conditions upon which it was granted.
The Committee shall also have the authority by unanimous action to impose
such additional requirements or restrictions as it, in its sole discretion,
determines appropriate or necessary, as outlined in the Penalty Guidelines.
Any exemption, and any additional requirement or restriction, may be
withdrawn by the Committee at any time (such withdrawal action is not required
to be unanimous).
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GENERAL INFORMATION ABOUT THE ETHICS RULES
- --------------------------------------------------------------------------------
DESIGNEES
The Compliance Manager and the Chief Compliance Officer may appoint
designees to carry out their functions pursuant to these Rules.
ENFORCEMENT
In addition to the penalties described in the Penalty Guidelines and
elsewhere in the Rules, upon discovering a violation of the Rules, the Janus
entity with which you are associated may impose such sanctions as it deems
appropriate, including without limitation, a letter of censure or suspension or
termination of employment or personal trading privileges of the violator. All
material violations of the Rules and any sanctions imposed with respect thereto
shall be reported periodically to the Directors and Trustees and the directors
of any other Janus entity which has been directly affected by the violation.
INTERNAL USE
The Rules are intended solely for internal use by Janus and do not
constitute an admission, by or on behalf of such companies, their controlling
persons or persons they control, as to any fact, circumstance or legal
conclusion. The Rules are not intended to evidence, describe or define any
relationship of control between or among any persons. Further, the Rules are
not intended to form the basis for describing or defining any conduct by a
person that should result in such person being liable to any other person,
except insofar as the conduct of such person in violation of the Rules may
constitute sufficient cause for Janus to terminate or otherwise adversely affect
such person's relationship with Janus.
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EXHIBIT (P)(7)
________________
Revised 4/3/2000
________________
LAZARD ASSET MANAGEMENT
A Division of
Lazard Freres & Co. LLC. ("LAM")
Code of Ethics
Set forth below is LAM's policy on personal securities transactions. As a
general rule, LAM personnel are reminded that the interests of LAM clients take
priority over the investment desires of LAM personnel. All LAM personnel must
conduct themselves in a manner consistent with LAM's requirements as set forth
in this Code of Ethics and the respective Codes of Ethics of The Lazard Funds,
Inc. and Lazard Retirement Series, Inc. as well as the Compliance Manual of
Lazard Freres & Co. LLC ("LF&Co" or the "Firm") then in effect. Please review
this Code of Ethics carefully and contact the Compliance Department if there are
any questions.
Personal Securities Accounts Covered
- ------------------------------------
The restrictions set forth below apply to trading for all "Personal Securities
Accounts." These include:
- - Accounts in the Managing Director's or employee's name or accounts in which
the Managing Director or employee or any Related Person has a direct or
indirect beneficial interest other than an account which is managed by
another manager, or by other LAM portfolio managers, for a fee;
- - Accounts in the name of the Managing Director's or employee's spouse;
- - Accounts in the name of children under the age of 21, whether or not living
with the Managing Director or employee, and relatives or other individuals
living with the Managing Director or employee or for whose support the
Managing Director or employee is wholly or partially responsible (together
with the Managing Director's or employee's spouse, "Related Persons");
- - Accounts in which the Managing Director or employee or any Related Person
directly or indirectly controls, participates in, or has the right to
control or participate in, investment decisions, except for trades where the
Managing Director or employee or Related Person does not provide input.
Restrictions
- ------------
The following restrictions apply to trading for Personal Securities Accounts of
LAM personnel, all of which are subject to certain de minimus provisions and may
be waived upon consent of LAM's or; to the extent applicable, LF&Co's,
compliance personnel:
<PAGE>
1. No transactions for a Personal Securities Account may be made in a security
that is on the Restricted List;
2. No security may be purchased or sold for a Personal Securities Account:
(a) if the security is currently being considered for purchase or sale for
an LAM client;
or
(b) if the security is being purchased or sold for an LAM client on that
day or has been purchased or sold for an LAM client within the immediately
preceding 7 calendar day period;
3. No purchase and sale, or sale and purchase, of a security for a Personal
Securities Account may occur within any 60-day period without prior
approval of Norman Eig, Herb Gullquist or David Osunkwo;
4. No transaction for a Personal Securities Account may be made in securities
offered pursuant to a public offering. Securities offered pursuant to a
private placement may not be purchased for Personal Securities Accounts
without the approval of Norman Eig, Herb Gullquist or David Osunkwo;
5. No transaction for a Personal Securities Account may be made in "deal" or
"rumor" securities, which are defined as securities of companies that are
the subject of reports or rumors of actual or anticipated extraordinary
corporate transactions or other corporate events;
6. Absent approval from the appropriate compliance personnel, Managing
Directors and employees are prohibited from engaging in the trading of
options or futures and from engaging in speculative trading as opposed to
investment activity. When such approval is given and Managing Directors and
employees effect opening transactions in options, the resulting closing
transaction will be considered effected on the day that the opening
transaction was effected for compliance purposes. The Managing Director or
employee must wait 60 days from the date of the opening transaction before
effecting the closing transaction. Managing Directors and employees are
prohibited from engaging in short sales of any security.
7. No transaction may be made in violation of the Material Non-Public
Information Policies and Procedures as outlined in Chapter X of LF&Co's
Compliance Manual; and
8. All transactions for Personal Securities Accounts must be approved by a
Managing Director of LAM, preferably the Managing Director to whom the
employee reports, and pre-cleared by Don KleinDavid Osunkwo, or their
respective representatives. These approvals should be written on the trade
ticket. In addition, each Managing Director or employee should complete and
deliver to David Osunkwo, prior to the transaction, the attached personal
securities transaction form. The procedure for pre-clearing a personnel
trade is explained in greater detail below.
Exemptions
- ----------
The restrictions and prohibitions contained in this Code shall not apply
to:
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(a) Purchases or sales of securities which receive the prior approval of
either Norman Eig or Herbert W. Gullquist and David Osunkwo (the
approving officer having no personal interest in such purchases or
sales) because such purchases or sales are not likely to have any
economic impact on any client account managed or advised by LAM
(b) Any securities transaction, or series of related transactions during
any 30-day period, involving 500 shares or less in the aggregate of
any security, if the issuer has a market capitalization (outstanding
shares multiplied by the current price per share) greater than US $1
billion ("de minimus exemption"). This provision does not provide an
exemption from the 60-day holding period.
Other Items
- -----------
1. LAM personnel may not serve on the board of directors of any corporation
(other than a not-for-profit corporation or a related Lazard entity)
without the prior approval of Norman Eig or Herb Gullquist;
2. All LAM personnel must complete quarterly Personal Security Account
transaction reports. By law, these reports must be returned to Compliance
----------------------------------------------------
by the tenth day following the end of the quarter. To ensure strict
-------------------------------------------------
compliance with these requirements, the forms should be returned by the
seventh day following the end of the quarter; and
3. Each LAM Managing Director and employee must annually certify compliance
with the LAM Code of Ethics with respect to all Personal Securities
Accounts.
Securities Covered
- ------------------
LAM's policies and procedures regarding personal securities trading set forth
herein apply to transactions involving all equity and debt securities, including
common and preferred stock, investment and non-investment grade debt securities,
investments convertible into or exchangeable for stock or debt securities, or
any derivative instrument relating to any such security or securities index,
including options, warrants and futures, or any interest in a partnership or
other entity that invests in any of the foregoing. Investments in mutual funds,
----------------------------
certificates of deposit and federal government obligations are not covered by
- -----------------------------------------------------------------------------
these policies and procedures. Any other exception to personal securities
- ------------------------------
trading policies and procedures must be approved.
Transaction Approval Procedures
- -------------------------------
Internal Accounts
- -----------------
To pre-clear a transaction being made in a Personal Securities Account held at
the Firm (an "Internal Account"), LAM personnel must:
1. Electronically complete and "sign" a "New Equity Order" or "New Bond Order"
trade ticket located in the Firm's Lotus-Notes e-mail application under the
heading "Employee Trades." The ticket should be directed to the employee's
supervising Managing Director,
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or, in the absence of the supervising Managing Director, to another LAM
Managing Director or one of the LAM Directors designated in the database.
2. Upon review of the ticket by the designated supervisor, the employee should
receive an automatic e-mail notification informing her/him that the trade
has been approved or rejected.
3. Following the supervisor's approval, the ticket is transmitted to the
Compliance Department where it is processed and, if approved, is routed to
the trading desk for execution, provided the employee had selected the
"Direct Execution" button when completing the ticket.
The cut-off time for receipt of supervisor-approved tickets in the Compliance
Department is 9.30 a.m. each trading day. Any ticket received after this time
will be processed for execution the next trading day. It is the responsibility
of each employee to ensure that tickets sent to a supervisor for approval
receive the supervisor's timely attention.
NOTE
- ----
In completing a new ticket, if the employee de-selects the "Direct Execution"
button, the ticket will be returned to her/him after Compliance approval for
submission to the trading desk. In such case, the trade must be submitted
within 2 days or it will expire and be null and void.
To assist each employee with monitoring the status of a trade ticket submitted
for approval, the system is designed to generate an e-mail notification to the
employee every time the ticket is reviewed or acted upon by the supervisor,
compliance department or the trading desk. Additionally, every supervisor's
assistant is set up to receive a summary of the each approval request sent to
the supervisor so that in the absence of the supervisor, the assistant would
advise the employee to re-rout the trade to another supervisor. For more
details on the set-up and use of the Employee Trades database, please contact
David Osunkwo at ext. 6065.
Outside Accounts
- ----------------
LAM personnel may not maintain a securities or commodities account (including a
foreign securities account) at any other broker or dealer or bank (an "Outside
Account") without the prior written consent of the Firm. Where such consent is
given, employees must provide the Firm with the name of the broker-dealer firm
with whom they carry their personal accounts and must request that the broker-
dealer send to Lazard, to the attention of both Donald Klein and David Osunkwo,
---- ---
copies of monthly account statements and all trade confirmations. These same
principles apply to establishing an account at another brokerage house where the
employee has control over the trading in that account (such as a discretionary
account, a nominee account, an account for a general or limited partnership, a
trust account), or an account of a corporation where trading is controlled or
influenced by the LAM employee. If you already have an Outside Account, please
notify David Osunkwo as soon as possible to facilitate the distribution and
review of your monthly account statements and trade confirmations.
Managing Directors and employees are required to report promptly to Donald Klein
and David Osunkwo any change in status or location of any account in which they
have a beneficial interest
4
<PAGE>
as defined above. With respect to a trust account of which a Managing Director
or employee or member of his immediate family is a beneficiary, the Firm policy
requires that the Firm receive duplicate confirmations and monthly account
statements for each such account. Similarly, Managing Directors and employees
are required to report private securities and commodities transactions effected
by or for (i) themselves, (ii) spouses and unemancipated family members, (iii)
accounts over which the employee has control as described above, or (iv)
accounts of which the employee or a member of his family is a beneficiary, or
(v) accounts of family members including accounts of in-laws where introduced or
carried by an employee or Managing Director's member organization. Deviations
from the foregoing policies will be permitted only with the prior written
approval of an appropriate individual with compliance responsibilities.
To pre-clear a transaction being made in an outside account, LAM personnel must
follow the "Transaction Approval Procedures" relating to Internal Accounts.
NOTE:
Once a Managing Director or employee receives approval, the LAM personnel must
transmit appropriate trade instructions to their outside broker within two days,
or the approval will become null and void.
5
<PAGE>
EXHIBIT (P)(8)
CODE OF ETHICS
MERRILL LYNCH ASSET MANAGEMENT GROUP (MLAMG)
REGISTERED INVESTMENT COMPANIES
AND THEIR INVESTMENT ADVISERS
AND PRINCIPAL UNDERWRITER
Section 1 - Background
This Code of Ethics is adopted under Rule 17j-1 under the Investment
Company Act of 1940 ("1940 Act") and Rule 204-2(a) under the Investment Advisers
Act of 1940 and has been approved by the Boards of Directors of each of the
MLAMG funds./1/ Except where noted, the Code applies to all MLAMG employees.
Section 17(j) under the Investment Company Act of 1940 makes it unlawful
for persons affiliated with investment companies, their principal underwriters
or their investment advisers to engage in fraudulent personal securities
transactions. Rule 17j-1 requires each Fund, investment adviser and principal
underwriter to adopt a Code of Ethics that contains provisions reasonably
necessary to prevent an employee from engaging in conduct prohibited by the
principles of the Rule. The Rule also requires that reasonable diligence be
used and procedures be instituted which are reasonably necessary to prevent
violations of the Code of Ethics.
On August 23, 1999, the SEC adopted amendments to Rule 17j-1 which require
greater board oversight of personal trading practices, more complete reporting
of employee securities trading and preclearance of employee purchases of initial
public offerings and private placements. The amendments require, among other
things, that MLAMG provide its fund boards annually a written report that (i)
describes issues that arose during the previous year under the Code, including
information about material code violations and sanctions imposed and (ii)
certifies to the board that MLAMG has adopted procedures reasonably necessary to
prevent access persons from violating the Code.
Section 2 - Statement of General Fiduciary Principles
The Code of Ethics is based on the fundamental principle that MLAMG and its
employees must put client interests first. As an investment adviser, MLAMG has
fiduciary responsibilities to its clients, including the registered investment
companies
_____________________________
/1/ As applicable herein, MLAMG includes all AMG investment advisory affiliates
and the affiliated principal underwriter of investment companies registered
under the 1940 Act.
<PAGE>
(the "Funds") for which it serves as investment adviser. Among MLAMG's fiduciary
responsibilities is the responsibility to ensure that its employees conduct
their personal securities transactions in a manner which does not interfere or
appear to interfere with any Fund transactions or otherwise take unfair
advantage of their relationship to the Funds. All MLAMG employees must adhere to
this fundamental principle as well as comply with the specific provisions set
forth herein. It bears emphasis that technical compliance with these provisions
will not insulate from scrutiny transactions which show a pattern of compromise
or abuse of an employee's fiduciary responsibilities to the Funds. Accordingly,
all MLAMG employees must seek to avoid any actual or potential conflicts between
their personal interest and the interest of the Funds. In sum, all MLAMG
employees shall place the interest of the Funds before personal interests.
Section 3 - Insider Trading Policy
All MLAMG employees are subject to MLAMG's Insider Trading Policy, which is
considered an integral part of this Code of Ethics. MLAMG's Insider Trading
Policy, which is set forth in the MLAMG Code of Conduct, prohibits MLAMG
employees from buying or selling any security while in the possession of
material nonpublic information about the issuer of the security. The policy
also prohibits MLAMG employees from communicating to third parties any material
nonpublic information about any security or issuer of securities. Additionally,
no MLAMG employee may use inside information about MLAMG activities or the
activities of any Merrill Lynch & Co., Inc. entity to benefit the Funds or to
gain personal benefit. Any violation of MLAMG's Insider Trading Policy may
result in sanctions, which could include termination of employment with MLAMG.
(See Section 10--Sanctions).
Section 4 - Restrictions Relating to Securities Transactions
A. General Trading Restrictions for all Employees
The following restrictions apply to all MLAMG employees:
1. Accounts. No employee, other than those employed by Mercury Asset
Management International Ltd. ("MAMI"), may engage in personal
securities transactions other than through an account maintained with
Merrill Lynch, Pierce, Fenner & Smith Incorporated or another Merrill
Lynch broker/dealer entity ("Merrill Lynch") unless written permission
is obtained from the Compliance Director. Similarly, no MAMI employee
may engage in personal securities transactions other than through an
account maintained with Merrill Lynch or The Bank of New York Europe
Limited ("BNYE") unless written permission is obtained from the
Compliance Director.
2. Accounts Include Family Members and Other Accounts. Accounts of
employees include the accounts of their spouses, dependent relatives,
trustee and custodial accounts or any other account in which the
employee has a financial
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<PAGE>
interest or over which the employee has investment discretion.
3. Preclearance. All employees must obtain approval from the Compliance
Director or preclearance delegatee prior to entering any securities
transaction (with the exception of exempted securities as listed in
Section 5) in all accounts. Approval of a transaction, once given, is
effective only for the business day on which approval was requested or
until the employee discovers that the information provided at the time
the transaction was approved is no longer accurate.
4. Restrictions on Purchases. No employee may purchase any security which
at the time is being purchased, or to the employee's knowledge is
being considered for purchase, by any Fund managed by MLAMG. This
restriction, however, does not apply to personal trades of employees
which coincide with trades by any MLAMG index fund.
5. Restrictions on Sales. No employee may sell any security which at the
time is actually being sold, or to the employee's knowledge is being
considered for sale, by any Fund managed by MLAMG. This restriction,
however, does not apply to personal trades of employees which coincide
with trades by any MLAMG index fund.
6. Restrictions on Related Securities. The restrictions and procedures
applicable to the transactions in securities by employees set forth in
this Code of Ethics shall similarly apply to securities that are
issued by the same issuer and whose value or return is related, in
whole or in part, to the value or return of the security purchased or
sold or being contemplated for purchase or sale during the relevant
period by the Fund. For example, options or warrants to purchase
common stock, and convertible debt and convertible preferred stock of
a particular issuer would be considered related to the underlying
common stock of that issuer for purposes of this policy. In sum, the
related security would be treated as if it were the underlying
security for the purpose of the pre-clearance procedures described
herein.
7. Private Placements. Employee purchases and sales of "private
placement" securities (including all private equity partnerships,
hedge funds, limited partnership or venture capital funds) must be
precleared directly with the Compliance Director or designee. No
employee may engage in any such transaction unless the Compliance
Director or his designee and the employee's senior manager have each
previously determined in writing that the contemplated investment does
not involve any potential for conflict with the investment activities
of the Funds.
If, after receiving the required approval, an employee has any
material role in the subsequent consideration by any Fund of an
investment in the same or
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<PAGE>
affiliated issuer, the employee must disclose his or her interest in
the private placement investment to the Compliance Director and the
employee's department head. The decision to purchase securities of the
issuer by a Fund must be independently reviewed and authorized by the
employee's department head.
8. Initial Public Offerings. As set forth in Paragraph A.3. of this
Section 4, the purchase by an employee of securities offered in an
initial public offering must be precleared. As a matter of policy,
employees will not be allowed to participate in so-called "hot"
offerings as such term may be defined by Merrill Lynch or appropriate
regulators.
9. Prohibition on Short-Term Profits. Employees are prohibited from
profiting on any sale and subsequent purchase, or any purchase and
subsequent sale of the same (or equivalent) securities occurring
within 60 calendars days ("short-term profit"). This holding period
also applies to all permitted options transactions; therefore, for
example, an employee may not purchase or write an option if the option
will expire in less than 60 days (unless the employee is buying or
writing an option on a security that the employee has held more than
60 days). In determining short-term profits, all transactions within a
60-day period in all accounts related to the employee shall be netted
regardless of an employee's intentions to do otherwise (e.g., tax or
other trading strategies). Should an employee fail to preclear a trade
that results in a short-term profit, the trade would be subject to
reversal with all costs and expenses related to the trade borne by the
employee, and the employee would be required to disgorge the profit.
Transactions not required to be precleared under Section 5 will not be
subject to this prohibition.
B. Additional Trading Restrictions for Decision-Making Employees
The following additional restrictions apply to decision-making
employees
(i.e., employees who recommend or determine which securities transactions a Fund
undertakes). The Compliance Department will retain and keep current a list of
decision-making employees.
1. Notification. A decision-making employee must notify the Compliance
Department or preclearance designee of any intended transactions in a
security for his or her own personal account which is owned or
contemplated for purchase or sale by a Fund for which the employee has
decision-making authority.
2. Blackout Periods. A decision-making employee may not buy or sell a
security within 7 calendar days either before or after a purchase or
sale of the same or related security by a Fund or portfolio management
group for which the employee has decision-making authority. For
example, if a Fund trades a
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<PAGE>
security on day 0, day 8 is the first day the manager, analyst or
portfolio management group member of that Fund may trade the security
for his or her own account.
3. Establishing Positions Counter to Fund Positions. No decision-making
employee may establish a long position in a personal account in a
security if a Fund for which the employee is a decision-making
employee holds a put option on such security (aside from a put
purchased for hedging purposes where the fund holds the underlying
security), has written a call option on such security, or otherwise
maintains a position that would benefit from a decrease in the value
of the underlying security (e.g., a short sale other than a short sale
"against-the-box").
No decision-making employee may purchase a put option or write a call
option where a Fund for which such person has decision-making
responsibilities holds a long position in the underlying security.
No decision-making employee may short sell any security where a Fund
for which the employee has decision-making authority holds a long
position in the same security or where such Fund otherwise maintains a
position in respect of which the Fund would benefit from an increase
in the value of the security.
4. Purchasing an Investment for a Fund that is a Personal Holding. A
decision-making employee may not purchase an investment for a Fund
that is also a personal holding of the employee or any other account
covered by this Code of Ethics, or the value of which is materially
linked to a personal holding, unless the decision-making employee has
obtained prior approval from the employee's senior manager.
5. Index Funds. The restrictions of this Section 4.B. do not apply to
purchases and sales of securities by decision-making employees which
coincide with trades by any MLAMG index fund.
C. Trading Restrictions for Disinterested Directors of the MLAMG Funds
The following restrictions apply only to disinterested directors of
the MLAMG Funds (i.e., any director who is not an "interested person" of a MLAMG
fund within the meaning of Section 2(a)(10) of the 1940 Act):
1. Restrictions on Purchases. No disinterested director may purchase any
security which, to the director's knowledge at the time, is being
purchased or is being considered for purchase by any Fund managed by
MLAMG.
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<PAGE>
2. Restrictions on Sales. No disinterested director may sell any security
which, to the director's knowledge at the time, is being sold or is
being considered for sale by any Fund managed by MLAMG.
3. Restrictions on Trades in Securities Related in Value. The
restrictions applicable to the transactions in securities by
disinterested directors shall similarly apply to securities that are
issued by the same issuer and whose value or return is related, in
whole or in part, to the value or return of the security purchased or
sold by the Fund (see Section 4.A.6.).
Section 5 - Exempted Transactions/Securities
MLAMG has determined that the following securities transactions do not
present the opportunity for improper trading activities that Rule 17j-1 is
designed to prevent; therefore, the restrictions set forth in Section 4 of this
Code (including preclearance, prohibition on short-term profits and blackout
periods) shall not apply.
Exempted transactions/securities may not be executed/held in brokerage
---
accounts maintained outside of Merrill Lynch.
The reporting requirements listed in Section 6 of this Code, however,
shall apply to the securities and transaction types set forth in paragraphs F-J
of this section.
A. Purchases or sales in an account over which the employee has no direct or
indirect influence or control (e.g., an account managed on a fully
discretionary basis by an investment adviser or trustee).
B. Purchases or sales of direct obligations of the U.S. Government.
C. Purchases or sales of open-end investment companies (including money market
funds), variable annuities and unit investment trusts. (However, unit
investment trusts traded on a stock exchange (e.g., MITS, SPDRS, DIAMONDS,
NASDAQ 100, etc.) must be precleared.)
D. Purchases or sales of bank certificates, bankers acceptances, commercial
paper and other high quality short-term debt instruments, including
repurchase agreements.
E. Merrill Lynch common stock which is purchased and sold within any Merrill
Lynch employee benefit plan and stock purchased and sold through similar
such employer-sponsored plans in which a spouse of a MLAMG employee may
participate.
F. Purchases or sales which are non-volitional on the part of the employee
(e.g., an in-the-money option that is automatically exercised by a broker;
a security that is
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<PAGE>
called away as a result of an exercise of an option; or a security that is
sold by a broker, without employee consultation, to meet a margin call not
met by the employee).
G. Purchases which are made by reinvesting cash dividends pursuant to an
automatic dividend reinvestment plan.
H. Purchases effected upon the exercise of rights issued by an issuer pro rata
to all holders of a class of its securities, to the extent such rights were
acquired from such issuer.
I. Purchases or sales of commodities, futures (including currency futures and
futures on broad-based indices), options on futures and options on broad-
based indices. (Currently, "broad-based indices" include only the S&P 100,
S&P 500, FTSE 100 and Nikkei 225.)
J. The receipt of a bona fide gift of securities. (Donations of securities,
however, require preclearance.)
Section 6 - Reporting by Employees
The requirements of this Section 6 apply to all MLAMG employees. The
requirements will also apply to all transactions in the accounts of spouses,
dependent relatives and members of the same household, trustee and custodial
accounts or any other account in which the employee has a financial interest or
over which the employee has investment discretion. The requirements do not
apply to securities acquired for accounts over which the employee has no direct
or indirect control or influence. All employees whose accounts are maintained
at Merrill Lynch or BNYE are deemed to have automatically complied with the
requirements of this Section 6 B. and C. as to reporting executed transactions
and personal holdings. Transactions and holdings in such accounts are
automatically reported to the Compliance Department through automated systems.
Employees who have approved accounts outside of Merrill Lynch or BNYE are
deemed to have complied with the requirements of this Section 6 B. and C.
provided that the Compliance Department receives duplicate statements and
confirmations directly from their brokers.
Employees who effect reportable transactions outside of a brokerage account
(e.g., optional purchases or sales through an automatic investment program
directly with an issuer) will be deemed to have complied with this requirement
by preclearing transactions with the Compliance Department and by reporting
their holdings annually on the "Personal Securities Holdings" form, as required
by the Compliance Department.
-7-
<PAGE>
A. Initial Holdings Report. Each new MLAMG employee will be given a copy of
this Code of Ethics upon commencement of employment. All new employees must
disclose their personal securities holdings to the Compliance Department
within 10 days of commencement of employment with MLAMG. (Similarly,
securities holdings of all new related accounts must be reported to the
Compliance Department within 10 days of the date that such account becomes
related to the employee.) With respect to exempt securities referred to in
Section 5 which do not require preclearance/reporting, employees must
nonetheless initially report those exempt securities defined in Section
5.F.-J. (This reporting requirement does not apply to holdings that are the
result of transactions in exempt securities as defined in Section 5.A.-E.)
Initial holdings reports must identify the title, number of shares, and
principal amount with respect to each security holding. Within 10 days of
commencement of employment, each employee shall file an Acknowledgement
stating that he or she has read and understands the provisions of the Code.
B. Records of Securities Transactions. All employees must preclear each
securities transaction (with the exception of exempt transactions in
Section 5) with the Compliance Department or preclearance designee. At the
time of preclearance, the employee must provide a complete description of
the security and the nature of the transaction. As indicated above,
employees whose accounts are maintained at Merrill Lynch or BNYE or who
provide monthly statements directly from their brokers/dealers are deemed
to have automatically complied with the requirement to report executed
transactions.
C. Annual Holdings Report. All employees must submit an annual holdings report
reflecting holdings as of a date no more than 30 days before the report is
submitted. As indicated above, employees whose accounts are maintained at
Merrill Lynch or BNYE or who provide monthly statements directly from their
brokers/dealers are deemed to have automatically complied with this
requirement.
With respect to exempt securities referred to in Section 5 which do not
require preclearance/reporting, employees must nonetheless annually report
the holdings of those exempt securities that are defined in Section 5.F.-J.
--------
(This reporting requirement, however, does not apply to exempt securities
as defined in Section 5.A.-E.)
D. Annual Certification of Compliance. All MLAMG employees must certify
annually to the Compliance Department that (1) they have read and
understand and agree to abide by this Code of Ethics; (2) they have
complied with all requirements of the Code of Ethics, except as otherwise
notified by the Compliance Department that they have not complied with
certain of such requirements; and (3) they have reported all transactions
required to be reported under the Code of Ethics.
E. Review of Transactions and Holdings Reports. All transactions reports and
holdings reports will be reviewed by appropriate management or compliance
-8-
<PAGE>
personnel according to procedures established by the Compliance Department.
Section 7 - Reporting by Disinterested Directors of MLAMG Funds
A disinterested director of a Fund need only report a transaction in a
security if the director, at the time of that transaction, knew or, in the
ordinary course of fulfilling the official duties of a director of such Fund,
should have known that, during the 15-day period immediately preceding the date
of the transaction by the director, the security was purchased or sold by the
Fund or was being considered for purchase or sale by the Fund. In reporting
such transactions, disinterested directors must provide: the date of the
transaction, a complete description of the security, number of shares, principal
amount, nature of the transaction, price, commission, and name of broker/dealer
through which the transaction was effected.
As indicated in Section 6.D. for MLAMG employees, disinterested directors
are similarly required to certify annually to the Compliance Department that (1)
they have read and understand and agree to abide by this Code of Ethics; (2)
they have complied with all requirements of the Code of Ethics, except as
otherwise reported to the Compliance Department that they have not complied with
certain of such requirements; and (3) they have reported all transactions
required to be reported under the Code of Ethics.
Section 8 - Approval and Review by Boards of Directors
The Board of Directors of each MLAMG Fund, including a majority of
directors who are disinterested directors, must approve this Code of Ethics.
Additionally, any material changes to this Code must be approved by the Board of
Directors within six months after adoption of any material change. The Board of
Directors must base its approval of the Code and any material changes to the
Code on a determination that the Code contains provisions reasonably necessary
to prevent employees from engaging in any conduct prohibited by Rule 17j-1.
Prior to approving the Code or any material change to the Code, the Board of
Directors must receive a certification from the Fund, the Investment Adviser or
Principal Underwriter that it has adopted procedures reasonably necessary to
prevent employees from violating the Code of Ethics.
Section 9 - Review of MLAMG Annual Report
At least annually, the Fund, the Investment Adviser and the Principal
Underwriter must furnish to the Fund's Board of Directors, and the Board of
Directors must consider, a written report that (1) describes any issues arising
under this Code of Ethics or procedures since the last report to the Board of
Directors, including, but not limited to, information about material violations
of the Code of Ethics or procedures and sanctions imposed in response to the
material violations and (2) certifies that the
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<PAGE>
Fund, Investment Adviser and Principal Underwriter have adopted procedures
reasonably necessary to prevent employees from violating this Code of Ethics.
Section 10 - Sanctions
Potential violations of the Code of Ethics must be brought to the attention
of the Compliance Director or his designee and are investigated. Upon
completion of the investigation, if necessary, the matter will be reviewed by
the Code of Ethics Review Committee and the employee's senior manager. The Code
of Ethics Review Committee will make a determination as to whether any sanction
should be imposed. Sanctions will include, but are not limited to, a letter of
caution or warning, reversal of a trade, fine or other monetary penalty,
disgorgement of a profit or absorption of costs associated with a trade,
suspension of personal trading privileges, suspension of employment (with or
without compensation), and termination of employment.
Section 11 - Exceptions
An exception to any of the policies, restrictions or requirements set forth
herein may be granted only upon a showing by the employee to the Code of Ethics
Review Committee that such employee would suffer extreme financial hardship
should an exception not be granted. Should the subject of the exception request
involve a transaction in a security, a change in the employee's investment
objectives, tax strategies, or special new investment opportunities would not
constitute acceptable reasons for a waiver.
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<PAGE>
EXHIBIT (P)(9)
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "CLOSED-END FUNDS")
AND
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
(THE "OPEN-END FUNDS", AND TOGETHER WITH THE CLOSED-END FUNDS, THE "FUNDS")
AND
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
("MSDW INVESTMENT MANAGEMENT")
AND
MILLER ANDERSON & SHERRERD, LLP
("MAS", AND TOGETHER WITH MSDW INVESTMENT MANAGEMENT, THE "INVESTMENT MANAGERS")
AND
MORGAN STANLEY & CO. INCORPORATED
("MS&Co.")
CODE OF ETHICS
--------------
1. Purposes
--------
This Code of Ethics has been adopted by the Funds, the Investment Managers
and MS&Co., the principal underwriter of the Open-End Funds, in accordance with
Rule 17j-1 under the Investment Company Act of 1940, as amended (the "Act").
Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to purchases or sales of securities held or to be
acquired by investment companies, if effected by affiliated persons (as defined
under the Act) of such companies. Specifically, Rule 17j-1 provides that it is
unlawful for any affiliated person of or principal underwriter for a registered
investment company, or any affiliated person of an investment adviser of or
principal underwriter for a registered investment company, in connection with
the purchase or sale, directly or indirectly, by such person of a security held
or to be acquired by such registered investment company:
(a) To employ any device, scheme or artifice to defraud such registered
investment company;
1
<PAGE>
(b) To make to such registered investment company any untrue statement of
a material fact or omit to state to such registered investment company
a material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading;
(c) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any such registered
investment company; or
(d) To engage in any manipulative practice with respect to such registered
investment company.
While Rule 17j-1 is designed to protect only the interests of the Funds and
their stockholders, the Investment Managers apply the policies and procedures
described in this Code of Ethics to all employees of the Investment Managers to
protect the interests of their non-Fund clients as well (hereinafter, where
appropriate, non-Fund clients of the Investment Managers are referred to as
"Advisory Clients" and any reference to an Advisory Client(s) relates only to
the activities of employees of the Investment Managers).
The purpose of this Code of Ethics is to (i) ensure that Access Persons
conduct their personal securities transactions in a manner which does not (a)
create an actual or potential conflict of interest with the Funds' or an
Advisory Client's portfolio transactions, (b) place their personal interests
before the interest of the Funds and their stockholders or an Advisory Client or
(c) take unfair advantage of their relationship to the Funds or an Advisory
Client and (ii) provide policies and procedures consistent with the Act and Rule
17j-1 designed to give effect to the general prohibitions set forth in Rule 17j-
l.
Among other things, the procedures set forth in this Code of Ethics require
that all (i) Access Persons review this Code of Ethics at least annually, (ii)
Access Persons, unless excepted by Sections 8. (d) or (e) of this Code of
Ethics, report transactions in Covered Securities, (iii) Access Persons refrain
from engaging in certain transactions, and (iv) employees of the Investment
Managers pre-clear with the Compliance Department or the trading desk at MAS any
transactions in Covered Securities.
2. Definitions
-----------
(a) "Access Person" means (i) any director, officer or Advisory Person of
the Funds or of the Investment Managers, and (ii) any director or
officer of MS&Co., who, in the ordinary course of business, makes,
participates in or obtains information regarding the purchase or sale
of Covered Securities by the Funds.
(b) "Advisory Person" means any employee of the Funds, or of the
Investment Managers (or of any company in a control relationship to
the Funds or the Investment Managers), who, in connection with his or
her regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of Covered Securities by
the Funds or an Advisory Client, or whose functions relate to the
making of any recommendations with respect to such purchases or sales.
2
<PAGE>
(c) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, except that the determination of
direct or indirect beneficial ownership shall apply to all securities
which an Access Person has or acquires.
(d) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act.
(e) "Compliance Department" means the MSDW Investment Management or MAS
Compliance Department.
(f) "Covered Security" means a security as defined in Section 2(a)(36) of
the Act, except that it does not include: (i) shares of registered
open-end investment companies, (ii) direct obligations of the
Government of the United States, and (iii) bankers' acceptances, bank
certificates of deposit, commercial paper, and high quality short-term
debt instruments, including repurchase agreements.
(g) "Disinterested Director" means a director of a Fund who is not an
"interested person" of such Fund within the meaning of Section
2(a)(19) of the Act.
(h) "Purchase or sale (or sell)" with respect to a Covered Security means
any acquisition or disposition of a direct or indirect beneficial
interest in a Covered Security, including, inter alia, the writing or
----- ----
buying of an option to purchase or sell a Covered Security.
(i) "Security held or to be acquired" means (i) any Covered Security
which, within the most recent 15 days, is or has been held by a Fund
or an Advisory Client, or is being or has been considered by a Fund or
an Advisory Client or the Investment Managers for purchase by a Fund
or an Advisory Client and (ii) any option to purchase or sell, and any
security convertible into or exchangeable for, a Covered Security
described in this paragraph.
3. Prohibited Transactions
-----------------------
(a) No Access Person or employee of the Investment Managers shall purchase
or sell any Covered Security which to his or her actual knowledge at
the time of such purchase or sale:
(i) is being considered for purchase or sale by a Fund or an Advisory
Client; or
(ii) is being purchased or sold by a Fund or an Advisory Client.
3
<PAGE>
(b) No employee of the Investment Managers shall purchase or sell a
Covered Security while there is a pending "buy" or "sell" order in the
same or a related security for a Fund or an Advisory Client until that
order is executed or withdrawn.
(c) No Advisory Person shall purchase or sell a Covered Security within
seven calendar days before or after any portfolio(s) of the Funds over
which such Advisory Person exercises investment discretion or an
Advisory Client over which the Advisory Person exercises investment
discretion purchases or sells the same or a related Covered Security.
Any profits realized or unrealized by the Advisory Person on a
prohibited purchase or sale within the proscribed period shall be
disgorged to a charity.
(d) No employee of the Investment Managers shall profit from the purchase
and sale or sale and purchase of the same (or equivalent) Covered
Security within 60 calendar days, except that he or she may sell a
Covered Security for a loss after 30 calendar days. Any profits
realized within 60 calendar days on such purchase or sale shall be
disgorged to a charity.
(e) No employee of the Investment Managers shall purchase any securities
in an initial public offering.
(f) No employee of the Investment Managers shall purchase privately-placed
securities unless such purchase is pre-approved by the Compliance
Department. Any such person who has previously purchased privately-
placed securities must disclose such purchases to the Compliance
Department before such person participates in a Fund's or an Advisory
Client's subsequent consideration of an investment in the securities
of the same or a related issuer. Upon such disclosure, the Compliance
Department shall appoint another person with no personal interest in
the issuer, to conduct an independent review of such Fund's or such
Advisory Client's decision to purchase securities of the same or a
related issuer.
(g) No Access Person or employee of the Investment Managers shall
recommend the purchase or sale of any Covered Securities to a Fund or
to an Advisory Client without having disclosed to the Compliance
Department his or her interest, if any, in such Covered Securities or
the issuer thereof, including without limitation (i) his or her direct
or indirect beneficial ownership of any securities of such issuer,
(ii) any contemplated purchase or sale by such person of such
securities, (iii) any position with such issuer or its affiliates, and
(iv) any present or proposed business relationship between such issuer
or its affiliates, on the one hand, and such person or any party in
which such person has a significant interest, on the other; provided,
however, that in the event the interest of such person in such
securities or the issuer thereof is not material to his or her
personal net worth and any contemplated purchase or sale by such
person in such securities cannot reasonably be expected to have a
material adverse effect on any such purchase or sale by a Fund or an
Advisory Client or on the market for the securities generally, such
person shall not be required to disclose his or her interest in the
securities or the issuer thereof in connection with any such
recommendation.
4
<PAGE>
(h) No Access Person or employee of the Investment Managers shall reveal
to any other person (except in the normal course of his or her duties
on behalf of a Fund or an Advisory Client) any information regarding
the purchase or sale of any Covered Security by a Fund or an Advisory
Client or consideration of the purchase or sale by a Fund or an
Advisory Client of any such Covered Security.
4. Pre-Clearance of Covered Securities Transactions and Permitted Brokerage
------------------------------------------------------------------------
Accounts
--------
No employee of MSDW Investment Management shall purchase or sell Covered
Securities without prior written authorization from its Compliance Department.
No employee of MAS shall purchase or sell Covered Securities without prior
written authorization from the appropriate trading desk. Unless otherwise
indicated by the Compliance Department, pre-clearance of a purchase or sale
shall be valid and in effect only for the business day in which such pre-
clearance is given; provided, however, that the approval of an unexecuted
purchase or sale is deemed to be revoked when the employee becomes aware of
facts or circumstances that would have resulted in the denial of approval of the
approved purchase or sale were such facts or circumstances made known to the
Compliance Department or MAS trading desk, as appropriate, at the time the
proposed purchase or sale was originally presented for approval. The Investment
Managers require all of their employees to maintain their personal brokerage
accounts at MS&Co. or a broker/dealer affiliated with MS&Co. (hereinafter, a
"Morgan Stanley Account"). Outside personal brokerage accounts are permitted
only under very limited circumstances and only with express written approval by
the Compliance Department. The Compliance Department has implemented procedures
reasonably designed to monitor purchases and sales effected pursuant to the
aforementioned pre-clearance procedures.
5. Exempted Transactions
---------------------
(a) The prohibitions of Section 3 and Section 4 of this Code of Ethics
shall not apply to:
(i) Purchases or sales effected in any account over which an Access
Person or an employee of the Investment Managers has no direct
or indirect influence or control;
(ii) Purchases or sales which are non-volitional;
(iii) Purchases which are part of an automatic purchase plan directly
with the issuer or its agent or which are part of an automatic
dividend reinvestment plan; or
(iv) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities and
--- ----
sales of such rights so acquired, but only to the extent such
rights were acquired from such issuer.
(b) Notwithstanding the prohibitions of Sections 3. (a), (b) and (c) of
this Code of Ethics, the Compliance Department or MAS trading desk, as
appropriate, may approve a purchase or sale of a Covered Security by
employees of the Investment Managers which would appear to be in
5
<PAGE>
contravention of the prohibitions in Sections 3. (a), (b) and (c) if
it is determined that (i) the facts and circumstances applicable at
the time of such purchase or sale do not conflict with the interests
of a Fund or an Advisory Client, or (ii) such purchase or sale is only
remotely potentially harmful to a Fund or an Advisory Client because
it would be very unlikely to affect a highly institutional market, or
because it is clearly not related economically to the securities to be
purchased, sold or held by such Fund or Advisory Client, and (iii) the
spirit and intent of this Code of Ethics is met.
6. Restrictions on Receiving Gifts
-------------------------------
No employee of the Investment Managers shall receive any gift or other
consideration in merchandise, service or otherwise of more than de minimis value
----------
from any person, firm, corporation, association or other entity that does
business with or on behalf of the Funds or an Advisory Client.
7. Service as a Director
---------------------
No employee of the Investment Managers shall serve on the board of
directors of a publicly-traded company without prior written authorization from
the Compliance Department. Approval will be based upon a determination that the
board service would not conflict with the interests of the Funds and their
stockholders or an Advisory Client.
8. Reporting
---------
(a) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person must disclose all personal holdings in Covered
Securities to the Compliance Department for its review no later than
10 days after becoming an Access Person and annually thereafter. The
initial and annual holdings reports must contain the following
information:
(i) The title, number of shares and principal amount of each Covered
Security in which the Access Person has any direct or indirect
beneficial ownership;
(ii) The name of any broker, dealer or bank with or through whom the
Access Person maintained an account in which any securities were
held for the direct or indirect benefit of the Access Person;
and
(iii) The date the report was submitted to the Compliance Department
by the Access Person.
(b) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person and each employee of the Investment Managers must report
to the Compliance Department for its review within 10 days of the end
of a calendar quarter the information described below with respect to
transactions in Covered Securities in which such person has, or by
reason of such transactions acquires any direct or indirect beneficial
interest:
6
<PAGE>
(i) The date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of each Covered Security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(iii) The price of the Covered Security at which the purchase or sale
was effected;
(iv) The name of the broker, dealer or bank with or through which the
purchase or sale was effected; and
(v) The date the report was submitted to the Compliance Department
by such person.
(c) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person and each employee of the Investment Managers must report
to the Compliance Department for its review within 10 days of the end
of a calendar quarter the information described below with respect to
any account established by such person in which any securities were
held during the quarter for the direct or indirect benefit of such
person:
(i) The name of the broker, dealer or bank with whom the account was
established;
(ii) The date the account was established; and
(iii) The date the report was submitted to the Compliance Department
by such person.
(d) An Access Person will not be required to make any reports described in
Sections 8. (a), (b) and (c) above for any account over which the
Access Person has no direct or indirect influence or control. An
Access Person or an employee of the Investment Managers will not be
required to make the annual holdings report under Section 8. (a) and
the quarterly transactions report under Section 8. (b) with respect to
purchases or sales effected for, and Covered Securities held in: (i) a
Morgan Stanley Account, (ii) an account in which the Covered
Securities were purchased pursuant to an automatic purchase plan set
up directly with the issuer or its agent or pursuant to a dividend
reinvestment plan, or (iii) an account for which the Compliance
Department receives duplicate trade confirmations and quarterly
statements. An Access Person or an employee of MSDW Investment
Management will not be required to make a report under Section 8. (c)
for any account in which only shares of open-end registered investment
companies can be purchased or sold. Lastly, an employee of MSDW
Investment Management will no be required to make a report under
Section 8. (c) for any account established with MS&Co. or a
broker/dealer affiliated with MS&Co., or for any account which was
pre-approved by the Compliance Department.
7
<PAGE>
(e) A Disinterested Director of a Fund, who would be required to make a
report solely by reason of being a Fund director, is not required to
make initial and annual holdings reports. Additionally, such
Disinterested Director need only make a quarterly transactions report
for a purchase or sale of Covered Securities if he or she, at the time
of that transaction, knew or, in the ordinary course of fulfilling his
or her official duties as a Disinterested Director of a Fund, should
have known that, during the 15-day period immediately preceding or
following the date of the Covered Securities transaction by him or
her, such Covered Security is or was purchased or sold by a Fund or
was being considered for purchase or sale by a Fund.
(f) The reports described in Sections 8. (a), (b) and (c) above may
contain a statement that the reports shall not be construed as an
admission by the person making such reports that he or she has any
direct or indirect beneficial ownership in the Covered Securities to
which the reports relate.
9. Annual Certifications
---------------------
All Access Persons and employees of the Investment Managers must certify
annually that they have read, understood and complied with the requirements of
this Code of Ethics and recognize that they are subject to this Code of Ethics
by signing the certification attached hereto as Exhibit A.
10. Board Review
------------
The management of the Funds and representatives or officers of the
Investment Managers and, with respect to the Open-End Funds, MS&Co., shall each
provide each Fund's Board of Directors, at least annually, with the following:
(a) a summary of existing procedures concerning personal investing and any
changes in the procedures made during the past year;
(b) a description of any issues arising under this Code of Ethics or
procedures since the last such report, including, but not limited to,
information about material violations of this Code of Ethics or
procedures and sanctions imposed in response to material violations;
(c) any recommended changes in the existing restrictions or procedures
based upon a Fund's or the Investment Managers' experience under this
Code of Ethics, evolving industry practices or developments in
applicable laws and regulations; and
(d) a certification (attached hereto as Exhibits B, C, D, and E, as
appropriate) that each has adopted procedures reasonably necessary to
prevent its Access Persons from violating this Code of Ethics.
8
<PAGE>
11. Sanctions
---------
Upon discovering a violation of this Code of Ethics, the Board of Directors
of such Fund or of the Investment Managers, as the case may be, may impose such
sanctions as it deems appropriate.
12. Recordkeeping Requirements
--------------------------
The management of the Funds and representatives or officers of the
Investment Managers and, with respect to the Open-End Funds, MS&Co., each shall
maintain, as appropriate, the following records for a period of five years, the
first two years in an easily accessible place, and shall make these records
available to the Securities and Exchange Commission or any representative of
such during an examination of the Funds or of the Investment Managers:
(a) a copy of this Code of Ethics or any other Code of Ethics which was in
effect at any time within the previous five years;
(b) a record of any violation of this Code of Ethics during the previous
five years, and of any action taken as a result of the violation;
(c) a copy of each report required by Section 8. of this Code of Ethics,
including any information provided in lieu of each such report;
(d) a record of all persons, currently or within the past five years, who
are or were subject to this Code of Ethics and who are or were
required to make reports under Section 8. of this Code of Ethics;
(e) a record of all persons, currently or within the past five years, who
are or were responsible for reviewing the reports required under
Section 8. of this Code of Ethics; and
(f) a record of any decision, and the reasons supporting the decision, to
approve the acquisition of securities described in Sections 3. (e) and
(f) of this Code of Ethics.
9
<PAGE>
EXHIBIT A
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "CLOSED-END FUNDS")
AND
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
(THE "OPEN-END FUNDS", AND TOGETHER WITH THE CLOSED-END FUNDS, THE "FUNDS")
AND
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
("MSDW INVESTMENT MANAGEMENT")
AND
MILLER ANDERSON & SHERRERD, LLP
("MAS", AND TOGETHER WITH MSDW INVESTMENT MANAGEMENT, THE "INVESTMENT MANAGERS")
AND
MORGAN STANLEY & CO., INCORPORATED
("MS&Co.")
CODE OF ETHICS
--------------
ANNUAL CERTIFICATION
--------------------
I hereby certify that I have read and understand the Code of Ethics (the
"Code") which has been adopted by the Funds, the Investment Managers and MS&Co.
and recognize that it applies to me and agree to comply in all respects with the
policies and procedures described therein. Furthermore, I hereby certify that I
have complied with the requirements of the Code in effect, as amended, for the
year ended December 31, ____, and that all of my reportable transactions in
Covered Securities were executed and reflected accurately in a Morgan Stanley
Account (as defined in the Code) or that I have attached a report that satisfies
the annual holdings disclosure requirement as described in Section 8. (a) of the
Code.
Date:_______________, ________ Name:______________________________
Signature:_________________________
10
<PAGE>
EXHIBIT B
---------
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "FUNDS")
ANNUAL CERTIFICATION UNDER RULE 17J-1
OF THE INVESTMENT COMPANY ACT OF 1940
-------------------------------------
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") and pursuant to the Code of Ethics for the Funds, Morgan
Stanley Dean Witter Investment Management, Inc., Miller, Anderson & Sherrerd,
LLP and Morgan Stanley & Co., Incorporated (the "Code of Ethics"), each of the
Funds hereby certifies to such Fund's Board of Directors that such Fund has
adopted procedures reasonably necessary to prevent Access Persons (as defined in
the Code of Ethics) from violating the Code of Ethics.
Date:_________________ By:__________________________________
Name: Mary E. Mullin
Title: Secretary
<PAGE>
EXHIBIT C
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT, INC.
("MSDW INVESTMENT MANAGEMENT")
ANNUAL CERTIFICATION UNDER RULE 17J-1
OF THE INVESTMENT COMPANY ACT OF 1940
-------------------------------------
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") and pursuant to the Code of Ethics for MSDW Investment
Management, the Funds (as defined in the Code of Ethics) and Morgan Stanley &
Co., Incorporated (the "Code of Ethics"), MSDW Investment Management hereby
certifies to the Board of Directors of the Funds that MSDW Investment Management
has adopted procedures reasonably necessary to prevent Access Persons (as
defined in the Code of Ethics) from violating the Code of Ethics.
Date:_________________ By:__________________________________
Name: Harold J. Schaaff, Jr.
Title: General Counsel
<PAGE>
EXHIBIT D
MILLER, ANDERSON & SHERRERD, LLP ("MAS")
ANNUAL CERTIFICATION UNDER RULE 17J-1
OF THE INVESTMENT COMPANY ACT OF 1940
-------------------------------------
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") and pursuant to the Code of Ethics for MAS, the Funds (as
defined in the Code of Ethics) and Morgan Stanley & Co., Incorporated (the "Code
of Ethics"), MAS hereby certifies to the Board of Directors of the Funds that
MAS has adopted procedures reasonably necessary to prevent Access Persons (as
defined in the Code of Ethics) from violating the Code of Ethics.
Date:_________________ By:__________________________________
Name: Paul A. Frick
Title: Compliance Officer
<PAGE>
EXHIBIT E
MORGAN STANLEY & CO. INCORPORATED
("MS&CO.")
ANNUAL CERTIFICATION UNDER RULE 17J-1
OF THE INVESTMENT COMPANY ACT OF 1940
-------------------------------------
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") and pursuant to the Code of Ethics for MS&Co., the Open-End
Funds (as defined in the Code of Ethics), Morgan Stanley Dean Witter Investment
Management Inc., and Miller, Anderson & Sherrerd, LLP (the "Code of Ethics"),
MS&Co. hereby certifies to the Board of Directors of the Open-End Funds that
MS&Co. has adopted procedures reasonably necessary to prevent Access Persons (as
defined in the Code of Ethics) from violating the Code of Ethics.
Date:_________________ By:__________________________________
Name: Harold J. Schaaff, Jr.
Title: Managing Director
<PAGE>
EXHIBIT (p)(10)
PIMCO CODE OF ETHICS
--------------------
Effective as of March 31, 2000
INTRODUCTION
General Principles
This Code of Ethics is based on the principle that you, as a director,
officer or other Advisory Employee of Pacific Investment Management Company
("PIMCO"), owe a fiduciary duty to, among others, the shareholders of the Funds
and other clients (together with the Funds, the "Advisory Clients") for which
PIMCO serves as an advisor or subadvisor. Accordingly, you must avoid
activities, interests and relationships that might interfere or appear to
interfere with making decisions in the best interests of our Advisory Clients.
At all times, you must observe the following general rules:
1. You must place the interests of our Advisory Clients first. In other
words, as a fiduciary you must scrupulously avoid serving your own
personal interests ahead of the interests of our Advisory Clients. You
must adhere to this general fiduciary principle as well as comply with
the Code's specific provisions. Technical compliance with the Code's
procedures will not automatically insulate from scrutiny any trades
that indicate an abuse of your fiduciary duties or that create an
appearance of such abuse.
Your fiduciary obligation applies not only to your personal trading
activities but also to actions taken on behalf of Advisory Clients. In
particular, you may not cause an Advisory Client to take action, or not
to take action, for your personal benefit rather than the benefit of
the Advisory Client. For example, you would violate this Code if you
caused an Advisory Client to purchase a Security or Futures Contract
you owned for the purpose of increasing the value of that Security or
Futures Contract. If you are a portfolio manager or an employee who
provides information or advice to a portfolio manager or helps execute
a portfolio manager's decisions, you would also violate this Code if
you made a personal investment in a Security or Futures Contract that
might be an appropriate investment for an Advisory Client without first
considering the Security or Futures Contract as an investment for the
Advisory Client.
2. You must conduct all of your personal Investment Transactions in full
compliance with this Code, the PIMCO Advisors L.P. Insider Trading
Policy and Procedures (the "Insider Trading Policy"), and the PIMCO
Advisors L.P. Policy Regarding Special Trading Procedures for
Securities of PIMCO
<PAGE>
Advisors L.P. (the "Special Trading Procedures")/1/ and in such a
manner as to avoid any actual or potential conflict of interest or any
abuse of your position of trust and responsibility. PIMCO encourages
you and your family to develop personal investment programs. However,
those investment programs must remain within boundaries reasonably
necessary to ensure that appropriate safeguards exist to protect the
interests of our Advisory Clients and to avoid even the appearance of
unfairness or impropriety. Accordingly, you must comply with the
policies and procedures set forth in this Code under the heading
PERSONAL INVESTMENT TRANSACTIONS. In addition, you must comply with the
--------------------------------
policies and procedures set forth in the Insider Trading Policy and
Special Trading Procedures, which are attached to this Code as Appendix
II and III, respectively. Doubtful situations should be resolved in
favor of our Advisory Clients and against your personal trading.
3. You must not take inappropriate advantage of your position. The receipt
of investment opportunities, perquisites, gifts or gratuities from
persons seeking business with PIMCO directly or on behalf of an
Advisory Client could call into question the independence of your
business judgment. Accordingly, you must comply with the policies and
procedures set forth in this Code under the heading GIFTS AND SERVICE
-----------------
AS A DIRECTOR. Doubtful situations should be resolved against your
-------------
personal interest.
The General Scope Of The Code's
Applications To Personal Investment Activities
The Code reflects the fact that PIMCO specializes in the management of
fixed income portfolios. The vast majority of assets PIMCO purchases and sells
on behalf of its Advisory Clients consist of corporate debt Securities, U.S. and
foreign government obligations, asset-backed Securities, money market
instruments, foreign currencies, and futures contracts and options with respect
to those instruments. For its StocksPLUS Funds, PIMCO also purchases futures
and options on the S & P 500 index and, on rare occasions, may purchase or sell
baskets of the stocks represented in the S & P 500. For its Convertible Bond
Fund and other Advisory Clients, PIMCO purchases convertible securities that may
be converted or exchanged into underlying shares of common stock. Other PIMCO
Funds may also invest in convertible securities. The Convertible Bond Fund and
other Advisory Clients may also invest a portion of their assets in common
stocks.
Rule 17j-1 under the Investment Company Act of 1940 requires reporting of
all personal transactions in Securities (other than certain Exempt Securities)
by certain persons, whether or
_______________________
/1/ PIMCO expects Allianz of America ("AZOA") to acquire a majority interest in
PIMCO Advisors L.P. ("PALP") in the second quarter of 2000. When that
acquisition is consummated, the Special Trading Procedures for PALP
securities will no longer apply since PALP securities will not be publicly
owned or traded.
2
<PAGE>
not they are Securities that might be purchased or sold by PIMCO on behalf of
its Advisory Clients. The Code implements that reporting requirement.
However, since the purpose of the Code is to avoid conflicts of interest
arising from personal trading activities in Securities and other instruments
that are held or might be acquired on behalf of our Advisory Clients, this Code
only places restrictions on personal trading activities in such investments. As
a result, this Code does not place restrictions (beyond reporting) on personal
trading in most individual equity Securities. Except for the small number of
Portfolio Employees who are responsible for PIMCO's Municipal Bond Fund, this
Code also does not place restrictions (beyond reporting) on personal trading in
Tax-Exempt Municipal Bonds. Although equities and Tax-Exempt Municipal Bonds
are Securities, they are not purchased or sold by PIMCO on behalf of the vast
majority of PIMCO's Advisory Clients and PIMCO has established special
procedures to avoid conflicts of interest that might otherwise arise from
personal trading in those Securities. On the other hand, this Code does require
reporting and restrict trading in certain Futures Contracts which, although they
are not Securities, are instruments in which PIMCO frequently trades for many of
its Advisory Clients.
This Code applies to PIMCO's officers and directors as well as to all of
its Advisory Employees. The Code recognizes that portfolio managers and the
investment personnel who provide them with advice and who execute their
decisions occupy more sensitive positions than other Advisory Employees and that
it is appropriate to subject their personal investment activities to greater
restrictions.
The Organization Of The Code
The remainder of this Code is divided into three sections. The first
section concerns Personal Investment Transactions. The second section describes
the restrictions on Gifts And Service As A Director. The third section
summarizes the methods for ensuring Compliance under the Code. In addition, the
following Appendices are also a part of this Code:
I. Definitions of Capitalized Terms.
II. The PIMCO Advisors L.P. Insider Trading Policy and Procedures.
III. The PIMCO Advisors L.P. Policy Regarding Special Trading Procedures for
Securities of PIMCO Advisors L.P.
IV. Form for Acknowledgment of Receipt of this Code.
V. Form for Annual Certification of Compliance with this Code.
VI. Form for Initial Report of Accounts.
VII. Form for Quarterly Report of Investment Transactions.
VIII. Form for Annual Holdings Report.
IX. Preclearance Request Form
X. List of PIMCO Compliance Officers.
Questions
3
<PAGE>
Questions regarding this Code should be addressed to a Compliance Officer
listed on Appendix X. Those Compliance Officers compose the PIMCO Compliance
Committee.
PERSONAL INVESTMENT TRANSACTIONS
In General
Subject to the limited exceptions described below, you are required to
report all Investment Transactions in Securities and Futures Contracts made by
you, a member of your Immediate Family or a trust in which you have an interest,
or on behalf of any account in which you have an interest or which you direct.
In addition, you must preclear certain Investment Transactions in Securities and
Futures Contracts that PIMCO holds or may acquire on behalf of an Advisory
Client, including certain Investment Transactions in Related Securities.
The details of these reporting and preclearance requirements are described
below. This Code uses a number of capitalized terms, e.g. Advisory Employee,
Beneficial Ownership, Designated Equity Security, Exempt Security, Fixed Income
Security, Fund, Futures Contract, Immediate Family, Initial Public Offering,
Investment Transaction, Personal Account, Portfolio Employee, Private Placement,
Qualified Foreign Government, Related Account, Related Security, and Security.
The definitions of these capitalized terms are set forth in Appendix I. To
understand your responsibilities under the Code, it is important that you review
and understand the definitions in Appendix I.
Reporting Obligations
Notification Of Reporting Obligations
As an Advisory Employee, you are required to report accounts and Investment
Transactions in accordance with the requirements of this Code.
Use Of Broker-Dealers And Futures Commission Merchants
Unless you are an independent director, you must use a registered broker-
dealer or registered futures commission merchant to engage in any purchase or
sale of a publicly-traded Security or Publicly-Traded Futures Contract. This
requirement also applies to any purchase or sale of a publicly-traded Security
or of a Publicly-Traded Futures Contract in which you have, or by reason of the
Investment Transaction will acquire, a Beneficial Ownership interest. Thus, as
a general matter, any Investment Transaction in publicly-traded Securities or
Publicly-Traded Futures Contracts by members of your Immediate Family will need
to be made through a registered broker-dealer or futures commission merchant.
Initial Report
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Within 10 days after commencing employment or within 10 days of any event
that causes you to become subject to this Code (e.g. promotion to a position
that makes you an Advisory Employee), you shall supply to a Compliance Officer
copies of the most recent statements for each and every Personal Account and
Related Account that holds or is likely to hold a Security or a Futures Contract
in which you have a Beneficial Ownership interest, as well as copies of
confirmations for any and all Investment Transactions subsequent to the
effective date of those statements. These documents shall be supplied to the
Compliance Officer by attaching them to the form appended hereto as Appendix VI.
On that same form you shall supply the name of any broker, dealer, bank or
futures commission merchant and the number for any Personal Account and Related
Account that holds or is likely to hold a Security or a Futures Contract in
which you have a Beneficial Ownership interest for which you cannot supply the
most recent account statement. You shall also certify, where indicated on the
form, that the contents of the form and the documents attached thereto disclose
all such Personal Accounts and Related Accounts.
In addition, you shall also supply, where indicated on the form, the
following information for each Security or Futures Contract in which you have a
Beneficial Ownership interest, to the extent that this information is not
available from the statements attached to the form:
1. A description of the Security or Futures Contract, including its name
or title;
2. The quantity (e.g. in terms of numbers of shares, units or contracts)
and principal amount (in dollars) of the Security or Futures Contract;
and
3. The name of any broker, dealer, bank or futures commission merchant
with which you maintained an account in which the Security or Futures
Contract was held.
New Accounts
Immediately upon the opening of a new Personal Account or a Related Account
that holds or is likely to hold a Security or a Futures Contract, you shall
supply a Compliance Officer with the name of the broker, dealer, bank or futures
commission merchant for that account, the identifying number for that Personal
Account or Related Account, and the date the account was established.
Timely Reporting Of Investment Transactions
You must cause each broker, dealer, bank or futures commission merchant
that maintains a Personal Account or a Related Account that holds a Security or
a Futures Contract in which you have a Beneficial Ownership interest to provide
to a Compliance Officer, on a timely basis, duplicate copies of trade
confirmations of all Investment Transactions in that account and of periodic
statements for that account ("duplicate broker reports").
In addition, you must report to a Compliance Officer, on a timely basis,
any Investment Transaction in a Security or a Futures Contract in which you have
or acquired a Beneficial
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Ownership interest that was established without the use of a broker, dealer,
bank or futures commission merchant.
Quarterly Certifications And Reporting
At the end of the first, second and third calendar quarters, a Compliance
Officer will provide you with a list of all accounts that you have previously
identified to PIMCO as a Personal Account or a Related Account that holds or is
likely to hold a Security or Futures Contract. Within 10 days after the end of
that calendar quarter, you shall make any necessary additions, corrections or
deletions to that list and return it to a Compliance Officer with a
certification that: (a) the list, as modified (if necessary), represents a
complete list of the Personal Accounts and Related Accounts that hold Securities
or Futures Contracts in which you have or had a Beneficial Ownership interest
and for which PIMCO should have received or will receive timely duplicate broker
reports for the calendar quarter just ended, and (b) the broker, dealer, bank or
futures commission merchant for each account on the list has been instructed to
send a Compliance Officer timely duplicate broker reports for that account.
You shall provide, on a copy of the form attached hereto as Appendix VII,
the following information for each Investment Transaction during the calendar
quarter just ended, to the extent that the duplicate broker reports for that
calendar quarter did not supply this information to PIMCO:
1. The date of the Investment Transaction, the title, the interest rate
and maturity date (if applicable), the number of shares or contracts,
and the principal amount of each Security or Futures Contract involved;
2. The nature of the Investment Transaction (i.e. purchase, sale or any
other type of acquisition or disposition);
3. The price of the Security or Futures Contract at which the transaction
was effected; and
4. The name of the broker, dealer, bank, or futures commission merchant
with or through which the transaction was effected.
You shall provide similar information for the fourth calendar quarter on a copy
of the form attached hereto as Appendix VIII, which form shall also be used for
the Annual Holdings Report described below.
Annual Holdings Reports
Beginning with calendar year 2000, a Compliance Officer will provide to
you, promptly after the end of the calendar year, a list of all accounts that
you have previously identified to PIMCO as a Personal Account or a Related
Account that held or was likely to hold a Security or Futures Contract during
that calendar year. Within 10 days after the end of that calendar year, you
shall make any necessary additions, corrections or deletions to that list and
return it to a
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Compliance Officer with a certification that: (a) the list, as modified (if
necessary), represents a complete list of the Personal Accounts and Related
Accounts that held Securities or Futures Contracts in which you had a Beneficial
Ownership interest as of the end of that calendar year and for which PIMCO
should have received or will receive an account statement of holdings as of the
end of that calendar year, and (b) the broker, dealer, bank or futures
commission merchant for each account on the list has been instructed to send a
Compliance Officer such an account statement.
You shall provide, on a copy of the form attached hereto as Appendix VIII,
the following information for each Security or Futures Contract in which you had
a Beneficial Ownership interest, as of the end of the previous calendar year, to
the extent that the previously referenced account statements have not supplied
or will not supply this information to PIMCO:
1. The title, quantity (e.g. in terms of numbers of shares, units or
contracts) and principal amount of each Security or Futures Contract
in which you had any Beneficial Ownership interest; and
2. The name of any broker, dealer, bank or futures commission merchant
with which you maintain an account in which any such Securities or
Futures Contracts have been held or are held for your benefit.
In addition, you shall also provide, on that same form, Investment Transaction
information for the fourth quarter of the calendar year just ended. This
information shall be of the type and in the form required for the quarterly
reports described above.
Related Accounts
The reporting and certification obligations described above also apply to
any Related Account (as defined in Appendix I) and to any Investment Transaction
in a Related Account.
It is important for you to recognize that the definitions of "Related
Account" and "Beneficial Ownership" in Appendix I may require you to provide, or
to arrange for the broker, dealer, bank or futures commission merchant to
furnish, copies of reports for any account used by or for a member of your
Immediate Family or a trust in which you or a member of your Immediate Family
has any vested interest, as well as for any other accounts in which you may have
the opportunity, directly or indirectly, to profit or share in the profit
derived from any Investment Transaction in that account.
Exemptions From Reporting
You need not report Investment Transactions in any account over which
neither you nor an Immediate Family Member has or had any direct or indirect
influence or control.
You also need not report Investment Transactions in Exempt Securities (as
defined in Appendix I) nor need you furnish, or require a broker, dealer, bank
or futures commission merchant to furnish, copies of confirmations or periodic
statements for accounts that hold only
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Exempt Securities. This includes accounts that only hold U.S. Government
Securities, money market interests, or shares in open-end mutual funds. This
exemption from reporting shall end immediately, however, at such time as there
is an Investment Transaction in that account in a Futures Contract or in a
Security that is not an Exempt Security.
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Prohibited Investment Transactions
Initial Public Offerings of Equity Securities
If you are a Portfolio Employee (as defined in Appendix I), you may not
acquire Beneficial Ownership of any equity Security in an Initial Public
Offering.
Private Placements and Initial Public Offering of Debt Securities
If you are a Portfolio Employee, you may not acquire a Beneficial Ownership
interest in any Security through a Private Placement (or subsequently sell it),
or acquire a Beneficial Ownership interest in any debt Security in an Initial
Public Offering unless you have received the prior written approval of the Chief
Executive Officer of PIMCO or of a Compliance Officer listed on Appendix X.
Approval will not be given unless a determination is made that the investment
opportunity should not be reserved for one or more Advisory Clients, and that
the opportunity to invest has not been offered to you by virtue of your position
with PIMCO.
If, after receiving the necessary approval, you have acquired a Beneficial
Ownership interest in Securities through a Private Placement, you must disclose
that investment when you play a part in any consideration of any investment by
an Advisory Client in the issuer of the Securities, and any decision to make
such an investment must be independently reviewed by a portfolio manager who
does not have a Beneficial Ownership interest in any Securities of the issuer.
PIMCO Advisors L.P.
You may not engage in any Investment Transaction in interests in PIMCO
Advisors L.P. ("PALP"), except in compliance with the Special Trading Procedures
applicable to such transactions./2/
Preclearance
All Investment Transactions in Securities and Futures Contracts in a
Personal Account or Related Account, or in which you otherwise have or will
acquire a Beneficial Ownership interest, must be precleared by a Compliance
Officer unless an Investment Transaction, Security or Futures Contract falls
into one of the following categories that are identified as "exempt from
preclearance."
Preclearance Procedure
Preclearance shall be requested by completing and submitting a copy of the
preclearance request form attached hereto as Appendix IX to a Compliance
Officer. No Investment Transaction subject to preclearance may be effected
prior to receipt of written authorization of
_______________________
/2/ As indicated in note 1, above, those procedures will expire and no longer
be effective after AZOA completes its acquisition of a majority interest in
PALP.
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the transaction by a Compliance Officer. The authorization and the date of
authorization will be reflected on the preclearance request form. Unless
otherwise specified, that authorization shall be effective, unless revoked,
until the earlier of: (a) the close of business on the day the authorization is
given, or (b) until you discover that the information on the preclearance
request form is no longer accurate.
The Compliance Officer from whom authorization is sought may undertake such
investigation as he or she considers necessary to determine that the Investment
Transaction for which preclearance has been sought complies with the terms of
this Code and is consistent with the general principles described at the
beginning of the Code.
Before deciding whether to authorize an Investment Transaction in a
particular Security or Futures Contract, the Compliance Officer shall determine
and consider, based upon the information reported or known to that Compliance
Officer, whether within the most recent 15 days: (a) the Security, the Futures
Contract or any Related Security is or has been held by an Advisory Client, or
(b) is being or has been considered for purchase by an Advisory Client. The
Compliance Officer shall also determine whether there is a pending buy or sell
order in the same Security or Futures Contract, or in a Related Security, on
behalf of an Advisory Client. If such an order exists, authorization of the
personal Investment Transaction shall not be given until the Advisory Client's
order is executed or withdrawn. This prohibition may be waived by a Compliance
Officer if he or she is convinced that: (a) your personal Investment Transaction
is necessary, (b) your personal Investment Transaction will not adversely affect
the pending order of the Advisory Client, and (c) provision can be made for the
Advisory Client trade to take precedence (in terms of price) over your personal
Investment Transaction.
Exemptions From Preclearance
Preclearance shall not be required for the following Investment
Transactions, Securities and Futures Contracts. They are exempt only from the
Code's preclearance requirement, and, unless otherwise indicated, remain subject
to the Code's other requirements, including its reporting requirements.
Investment Transactions Exempt From Preclearance
------------------------------------------------
Preclearance shall not be required for any of the following Investment
Transactions:
1. Any transaction in a Security or Futures Contract in an account that is
managed or held by a broker, dealer, bank, futures commission merchant,
investment adviser, commodity trading advisor or trustee and over which
you do not exercise investment discretion, have notice of transactions
prior to execution, or otherwise have any direct or indirect influence
or control. There is a presumption that you can influence or control
accounts held by members of your Immediate Family sharing the same
household. This presumption may be rebutted only by convincing
evidence.
2. Purchases of Securities under dividend reinvestment plans.
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3. Purchases of Securities by exercise of rights issued to the holders of
a class of Securities pro rata, to the extent they are issued with
respect to Securities in which you have a Beneficial Ownership
interest.
4. Acquisitions or dispositions of Securities as the result of a stock
dividend, stock split, reverse stock split, merger, consolidation,
spin-off or other similar corporate distribution or reorganization
applicable to all holders of a class of Securities in which you have a
Beneficial Ownership interest.
Securities Exempt From Preclearance
Regardless Of Transaction Size
------------------------------
Preclearance shall not be required for an Investment Transaction in the
following Securities or Related Securities, regardless of the size of that
transaction:
1. All "Exempt Securities" defined in Appendix I, i.e. U.S. Government
Securities, shares in open-end mutual funds, and high quality short-
term debt instruments.
2. All closed-end mutual funds (other than PIMCO Commercial Mortgage
Securities Trust, Inc.), and rights distributed to shareholders in
closed-end mutual funds.
3. All options on any index of equity Securities.
4. All Fixed Income Securities issued by agencies or instrumentalities of,
or unconditionally guaranteed by, the Government of the United States.
5. All options on foreign currencies or baskets of foreign currencies
(whether or not traded on an exchange or board of trade).
6. Except for Designated Equity Securities (as defined in Appendix I and
discussed below), all equity Securities or options, warrants or other
rights to equity Securities.
Securities Exempt from Preclearance
Depending On Transaction Size
-----------------------------
Preclearance shall not be required for an Investment Transaction in the
following Securities or Related Securities if they do not exceed the specified
transaction size thresholds (which thresholds may be increased or decreased by
PIMCO upon written notification to employees in the future depending on the
depth and liquidity of Fixed Income Securities or Tax-Exempt Municipal Bonds
market):
1. Purchases or sales of up to $1,000,000 (in market value or face amount
whichever is greater) per calendar month per issuer of Fixed Income
Securities issued by a Qualified Foreign Government.
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2. Purchases or sales of the following dollar values (measured in market
value or face amount, whichever is greater) of corporate debt
Securities, mortgage-backed and other asset-backed Securities, Tax-
Exempt Municipal Bonds, taxable state, local and municipal Fixed Income
Securities, structured notes and loan participations, and foreign
government debt Securities issued by non-qualified foreign governments
(hereinafter collectively referred to as "Relevant Debt Securities"):
a. Purchases or sales of up to $100,000 per calendar month per issuer
if the original issue size of any Relevant Debt Security being
purchased or sold was less than $50 million;
b. Purchases or sales of up to $500,000 per calendar month per issuer
if the original issue size of any Relevant Debt Security being
purchased or sold was at least $50 million but less than $100
million; or
c. Purchases or sales of up to $1,000,000 per calendar month per
issuer if the original issue size of any Relevant Debt Security
being purchased or sold was at least $100 million.
Preclearance of Designated Equity Securities
--------------------------------------------
If a Compliance Officer receives notification from a Portfolio Employee
that an equity Security or an option, warrant or other right to an equity
Security is being considered for purchase or sale by PIMCO on behalf of one of
its Advisory Clients, the Compliance Officer will send you an e-mail message or
similar transmission notifying you that this equity Security or option, warrant
or other right to an equity Security is now a "Designated Equity Security." A
current list of Designated Equity Securities (if any) will also be available on
the PIMCO intranet site. You must preclear any Investment Transaction in a
Designated Equity Security or a Related Security during the period when that
designation is in effect.
Futures Contracts Exempt From Preclearance
Regardless Of Transaction Size
------------------------------
Preclearance shall not be required for an Investment Transaction in the
following Futures Contracts, regardless of the size of that transaction (as
indicated in Appendix I, for these purposes a "Futures Contract" includes a
futures option):
1. Currency Futures Contracts.
2. U.S. Treasury Futures Contracts.
3. Eurodollar Futures Contracts.
4. Futures Contracts an any index of equity Securities.
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5. Futures Contracts on physical commodities or indices thereof (e.g.
contracts for future delivery of grain, livestock, fiber or metals
whether for physical delivery or cash).
6. Privately-Traded Contracts.
Futures Contracts Exempt From Preclearance
Depending On Transaction Size
-----------------------------
Preclearance shall not be required for an Investment Transaction in the
following Futures Contracts if the total number of contracts purchased or sold
during a calendar month does not exceed the specified limitations:
1. Purchases or sales of up to 50 Publicly-Traded Futures Contracts to
acquire Fixed Income Securities issued by a particular Qualified
Foreign Government.
2. Purchases or sales of up to 10 of each other individual Publicly-Traded
Futures Contract if the open market interest for such Futures Contract
as reported in The Wall Street Journal on the date of your Investment
Transaction (for the previous trading day) is at least 1,000 contracts.
Examples of Futures Contracts for which this exemption would be
available include a Futures Contract on a foreign government debt
Security issued by a non-qualified foreign government as well as a 30-
day federal funds Futures Contract.
For purposes of these limitations, a Futures Contract is defined by its
expiration month. For example, you need not obtain preclearance to purchase 50
December Futures Contracts on German Government Bonds and 50 March Futures
Contracts on German Government Bonds. Similarly, you may roll over 10 September
Fed Funds Futures Contracts by selling those 10 contracts and purchasing 10
October Fed Funds Futures Contracts since the contracts being sold and those
being purchased have different expiration months. On the other hand, you could
not purchase 10 January Fed Funds Future Contracts if the open interest for
those contracts was less than 1,000 contracts, even if the total open interest
for all Fed Funds Futures Contracts was greater than 1,000 contracts.
Additional Exemptions From Preclearance
---------------------------------------
The Compliance Committee may exempt other classes of Investment
Transactions, Securities or Futures Contracts from the Code's preclearance
requirement upon a determination that they do not involve a realistic
possibility of violating the general principles described at the beginning of
the Code.
Preclearance Required
---------------------
Given the exemptions described above, preclearance shall be required for
Investment Transactions in:
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1. Designated Equity Securities.
2. Relevant Debt Securities (as defined under the section "Securities
Exempt from Preclearance Depending on Transaction Size, paragraph 2")
in excess of the per calendar month per issuer thresholds specified for
purchases or sales of those Securities.
3. More than $1,000,000 per calendar month in debt Securities of a
Qualified Foreign Government.
4. Related Securities that are exchangeable for or convertible into one of
the Securities requiring preclearance under (1), (2), or (3) above.
5. More than 50 Publicly-Traded Futures Contracts per calendar month to
acquire Fixed Income Securities issued by a particular Qualified
Foreign Government.
6. More than 10 of any other individual Publicly-Traded Futures Contract
or any Publicly-Traded Futures Contract for which the open market
interest as reported in The Wall Street Journal on the date of your
Investment Transaction (for the previous trading day) is less than
1,000 contracts, unless the Futures Contract is exempt from
preclearance regardless of transaction size.
7. Any other Security or Publicly-Traded Futures Contract that is not
within the "exempt" categories listed above.
8. PIMCO Commercial Mortgage Securities Trust, Inc.
Short-Term Trading Profits
You may not profit from the purchase and sale, or the sale and purchase,
within 60 calendar days, of Fixed Income Securities, Tax-Exempt Municipal Bonds
or Related Securities. Portfolio Employees may not profit from the purchase and
sale, or the sale and purchase, within 60 calendar days, of Designated Equity
Securities. Any such short-term trade must be unwound, or if that is not
practical, the profits must be contributed to a charitable organization.
This ban does not apply to Investment Transactions in U.S. Government
Securities, most equity Securities, mutual fund shares, index options or Futures
Contracts. This ban also does not apply to a purchase or sale in connection
with one of the four categories of Investment Transactions Exempt From
Preclearance described on pages 9-10, above.
You are considered to profit from a short-term trade if Securities in which
you have a Beneficial Ownership interest are sold for more than their purchase
price, even though the Securities purchased and the Securities sold are held of
record or beneficially by different persons or entities.
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Blackout Periods
You may not purchase or sell a Security, a Related Security or a Futures
Contract at a time when you intend or know of another's intention to purchase or
sell that Security or Futures Contract on behalf of any Advisory Client.
As noted previously in the description of the Preclearance Process, a
Compliance Officer may not preclear an Investment Transaction in a Security or a
Futures Contract at a time when there is a pending buy or sell order in the same
Security or Futures Contract, or a Related Security, until that order is
executed or withdrawn.
These prohibitions do not apply to Investment Transactions in any Futures
Contracts that are exempt from preclearance regardless of transaction size.
GIFTS AND SERVICE AS A DIRECTOR
Gifts
You may not accept any investment opportunity, gift, gratuity or other
thing of more than nominal value from any person or entity that does business,
or desires to do business, with PIMCO directly or on behalf of an Advisory
Client (a "Giver"). You may, however, accept gifts from a single Giver so long
as their aggregate annual value does not exceed $500, and you may attend
business meals, sporting events and other entertainment events at the expense of
a Giver (without regard to their aggregate annual value), so long as the expense
is reasonable and both you and the Giver are present.
Service As A Director
If you are an Advisory Employee, you may not serve on the board of
directors or other governing board of a publicly traded entity, other than of a
Fund for which PIMCO is an advisor or subadvisor, unless you have received the
prior written approval of the Chief Executive Officer and the Chief Legal
Officer of PIMCO. Approval will not be given unless a determination is made
that your service on the board would be consistent with the interests of our
Advisory Clients. If you are permitted to serve on the board of a publicly
traded entity, you will be isolated from those Advisory Employees who make
investment decisions with respect to the Securities of that entity, through a
"Chinese Wall" or other procedures.
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COMPLIANCE
Certifications
Upon Receipt Of This Code
Upon commencement of your employment or the effective date of this Code,
whichever occurs later, you shall be required to acknowledge receipt of your
copy of this Code by completing and returning a copy of the form attached hereto
as Appendix IV. By that acknowledgment, you will also agree:
1. To read the Code, to make a reasonable effort to understand its
provisions, and to ask questions about those provisions you find
confusing or difficult to understand.
2. To comply with the Code, including its general principles, its
reporting requirements, its preclearance requirements, and its
provisions regarding gifts and service as a director.
3. To advise the members of your Immediate Family about the existence of
the Code, its applicability to their personal trading activity, and
your responsibility to assure that their personal trading activity
complies with the Code.
4. To cooperate fully with any investigation or inquiry by or on behalf of
a Compliance Officer to determine your compliance with the provisions
of the Code.
In addition, your acknowledgment will recognize that any failure to comply with
the Code and to honor the commitments made by your acknowledgment may result in
disciplinary action, including dismissal.
Annual Certificate Of Compliance
You are required to certify on an annual basis, on a copy of the form
attached hereto as Appendix V, that you have complied with each provision of
your initial acknowledgment (see above). In particular, your annual
certification will require that you certify that you have read and that you
understand the Code, that you recognize you are subject to its provisions, that
you complied with the requirements of the Code during the year just ended and
that you have disclosed, reported, or caused to be reported all Investment
Transactions required to be disclosed or reported pursuant to the requirements
of the Code.
Post-Trade Monitoring
The Compliance Officers will review the duplicate broker reports and other
information supplied to them concerning your personal Investment Transactions so
that they can detect and prevent potential violations of the Code. The
Compliance Officers will perform such investigation and make such inquiries as
they consider necessary to perform this function. You agree to cooperate with
any such investigation and to respond to any such inquiry. You should
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expect that, as a matter of course, the Compliance Officers will make inquiries
regarding any personal Investment Transaction in a Security or Futures Contract
that occurs on the same day as a transaction in the same Security or Futures
Contract on behalf of an Advisory Client.
Remedial Actions
If you violate this Code, you are subject to remedial actions, which may
include, but are not limited to, disgorgement of profits, imposition of a fine,
censure, demotion, suspension or dismissal. As part of any sanction, you may be
required to reverse an Investment Transaction and to forfeit any profit or to
absorb any loss from the transaction.
The Compliance Committee shall have the ultimate authority to determine
whether you have violated the Code and, if so, the remedial actions it considers
appropriate. In making its determination, the Compliance Committee shall
consider, among other factors, the gravity of your violation, the frequency of
your violations, whether any violation caused harm or the potential of harm to
any Advisory Client, your efforts to cooperate with their investigation, and
your efforts to correct any conduct that led to a violation.
Reports To Directors And Trustees
Reports Of Significant Remedial Actions
The General Counsel of PIMCO Advisors L.P. and the directors or trustees of
any affected Fund that is an Advisory Client will be informed on a timely basis
of each significant remedial action taken in response to a violation of this
Code. For this purpose, a significant remedial action will include any action
that has a significant financial effect on the violator.
Reports of Material Changes To The Code
PIMCO will promptly advise the directors or trustees of any Fund that is an
Advisory Client if PIMCO makes any material change to this Code.
Annual Reports
PIMCO's management will furnish a written report annually to the General
Counsel of PIMCO Advisors L.P. and to the directors or trustees of each Fund
that is an Advisory Client. Each report, at a minimum, will:
1. Describe any significant issues arising under the Code, or under
procedures implemented by PIMCO to prevent violations of the Code,
since management's last report, including, but not limited to,
information about material violations of the Code or those procedures
and sanctions imposed in response to material violations; and
2. Certify that PIMCO has adopted procedures reasonably necessary to
prevent Advisory Employees from violating the Code.
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Recordkeeping
Beginning on the effective date of this Code, PIMCO will maintain, at its
principal place of business, the following records, which shall be available to
the Securities and Exchange Commission or any representative of the Commission
at any time and from time to time for reasonable periodic, special or other
examination:
1. PIMCO's Chief Compliance Officer shall maintain, in any easily
accessible place:
(a) a copy of PIMCO's current Code and of each predecessor of that
Code that was in effect at any time within the previous five (5)
years;
(b) a record of any violation of the Code, and of any action taken as
a result of the violation, for at least five (5) years after the
end of the fiscal year in which the violation occurred;
(c) a copy of each report made by an Advisory Employee pursuant to
this Code, including any duplicate broker report submitted on
behalf of that Advisory Employee, for at least two (2) years
after the end of the fiscal year in which that report was made or
that information was provided;
(d) a record of all persons, currently or within the past five (5)
years, who are or were required to make reports pursuant to this
Code or who are or were responsible for reviewing such reports;
and
(e) a copy of each report to the General Counsel of PIMCO Advisors
L.P. or to the directors or trustees of each Fund that is an
Advisory Client for at least two (2) years after the end of the
fiscal year in which that report was made.
2. PIMCO shall also maintain the following additional records:
(a) a copy of each report made by an Advisory Employee pursuant to
this Code, including any duplicate broker report submitted on
behalf of that Advisory Employee, for at least five (5) years
after the end of the fiscal year in which that report was made or
that information was provided;
(b) a copy of each report to the General Counsel of PIMCO Advisors
L.P. or to the directors or trustees of each Fund that is an
Advisory Client for at least five (5) years after the end of the
fiscal year in which that report was made; and
(c) a record of any decision, and the reasons supporting the
decision, to approve the acquisition by a Portfolio Employee of a
Beneficial Ownership interest in any Security in an Initial
Public Offering or in a
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Private Placement for at least five (5) years after the end of
the fiscal year in which such approval was granted.
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APPENDIX I
Definitions Of Capitalized Terms
The following definitions apply to the capitalized terms used in the Code:
Advisory Employee
The term "Advisory Employee" means: (1) a director, officer, general
partner or employee of PIMCO who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information regarding
the purchase or sale of a Security or Futures Contract by PIMCO on behalf of an
Advisory Client, or whose functions relate to the making of any recommendations
with respect to such purchases or sales, or (2) or a natural person in a control
relationship to PIMCO, or an employee of any company in a control relationship
to PIMCO, who: (a) makes, participates in, or obtains information regarding the
purchase or sale of a Security by a Fund that is an Advisory Client, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales, or (b) obtains information concerning recommendations to a
Fund with regard to the purchase or sale of a Security by the Fund.
Beneficial Ownership
As a general matter, you are considered to have a "Beneficial Ownership"
interest in a Security or a Futures Contract if you have the opportunity,
directly or indirectly, to profit or share in any profit derived from an
Investment Transaction in that Security or Futures Contract. You are presumed
to have a Beneficial Ownership interest in any Security or Futures Contract
held, individually or jointly, by you or a member of your Immediate Family (as
defined below). In addition, unless specifically excepted by a Compliance
Officer based on a showing that your interest in a Security or Futures Contract
is sufficiently attenuated to avoid the possibility of conflict, you will be
considered to have a Beneficial Ownership interest in a Security or Futures
Contract held by: (1) a joint account to which you are a party, (2) a
partnership in which you are a general partner, (3) a limited liability company
in which you are a manager-member, or (4) a trust in which you or a member of
your Immediate Family has a vested interest.
As a technical matter, the term "Beneficial Ownership" for purposes of this
Code shall be interpreted in the same manner as it would be under SEC Rule 16a-
1(a)(2) (17 C.F.R. (S)240.16a-1(a)(2)) in determining whether a person has a
beneficial ownership interest in a Security for purposes of Section 16 of the
Securities Exchange Act of 1934 and the rules and regulations thereunder.
Designated Equity Security
The term "Designated Equity Security" shall mean any equity Security,
option, warrant or other right to an equity Security designated as such by a
Compliance Officer, after receiving notification from a Portfolio Employee that
said Security is being considered for purchase or sale by PIMCO on behalf of one
of its Advisory Clients.
I-1
<PAGE>
Exempt Security
The term "Exempt Security" shall mean any Security not included within the
definition of Covered Security in SEC Rule 17j-l(a)(4) (17 C.F.R. (S) 17j-
1(a)(4)), including:
1. Direct obligations of the Government of the United States;
2. Shares issued by open-end Funds; and
3. Bankers' acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments, including repurchase
agreements. For these purposes, a "high quality short-term debt
instrument" means any instrument having a maturity at issuance of less
than 366 days and that is rated in one of the two highest rating
categories by a Nationally Recognized Statistical Rating Organization.
Fixed Income Security
For purposes of this Code, the term "Fixed Income Security" shall mean a
fixed income Security issued by an agency or instrumentality of, or
unconditionally guaranteed by, the Government of the United States, a corporate
debt Security, a mortgage-backed or other asset-backed Security, a taxable fixed
income Security issued by a state or local government or a political subdivision
thereof, a structured note or loan participation, a foreign government debt
Security, or a debt Security of an international agency or a supranational
agency. For purposes of this Code, the term "Fixed Income Security" shall not
be interpreted to include a U.S. Government Security or any other Exempt
Security (as defined above) nor shall it be interpreted to include a Tax-Exempt
Municipal Bond (as defined below).
Fund
The term "Fund" means an investment company registered under the Investment
Company Act.
Futures Contract
The term "Futures Contract" includes (a) a futures contract and an option
on a futures contract traded on a United States or foreign board of trade, such
as the Chicago Board of Trade, the Chicago Mercantile Exchange, the London
International Financial Futures Exchange or the New York Mercantile Exchange (a
"Publicly-Traded Futures Contract"), as well as (b) a forward contract, a swap,
a cap, a collar, a floor and an over-the-counter option (other than an option on
a foreign currency, an option on a basket of currencies, an option on a Security
or an option on an index of Securities) (a "Privately-Traded Contract").
Consult with a Compliance Officer prior to entering into a transaction in case
of any doubt. For purposes of this definition, a Publicly-Traded Futures
Contract is defined by its expiration month, i.e. a Publicly-Traded Futures
Contract on a U.S. Treasury Bond that expires in June is treated as a separate
Publicly-Traded
I-2
<PAGE>
Futures Contract, when compared to a Publicly-Traded Futures Contract on a U.S.
Treasury Bond that expires in July.
Immediate Family
The term "Immediate Family" means any of the following persons who reside
in your household or depend on you for basic living support: your spouse, any
child, stepchild, grandchild, parent, stepparent, grandparent, sibling, mother-
in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-
in-law, including any adoptive relationships.
Initial Public Offering
The term "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933 (15 U.S.C. (S) 77a), the issuer of
which, immediately before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. (S) 78m or (S) 78o(d)).
Investment Transaction
For purposes of this Code, the term "Investment Transaction" means any
transaction in a Security or Futures Contract in which you have, or by reason of
the transaction will acquire, a Beneficial Ownership interest, and includes,
among other things, the writing of an option to purchase or sell a Security.
Personal Account
The term "Personal Account" means the following accounts that hold or are
likely to hold a Security (as defined below) or a Futures Contract (as defined
above) in which you have a Beneficial Ownership interest: any account in your
individual name; any joint or tenant-in-common account in which you have an
interest or are a participant; any account for which you act as trustee,
executor, or custodian; any account over which you have investment discretion or
otherwise can exercise control (other than non-related clients' accounts over
which you have investment discretion), including the accounts of entities
controlled directly or indirectly by you; and any other account in which you
have a Beneficial Ownership interest (other than such accounts over which you
have no investment discretion and cannot otherwise exercise control).
Portfolio Employee
The term "Portfolio Employee" means: (1) a portfolio manager or any
employee of PIMCO (or of any company in a control relationship with PIMCO) who,
in connection with his or her regular functions or duties, makes or participates
in making recommendations regarding the purchase or sale of securities by a
Fund, or (2) any natural person who controls PIMCO and who obtains information
concerning recommendations made to a Fund that is an Advisory Client regarding
the purchase or sale of Securities by the Fund. For these purposes, "control"
has the same meaning as in Section 2(a)(9) of the Investment Advisers Act (15
U.S.C. (S) 80a-2(a)(9)).
I-3
<PAGE>
Private Placement
The term "Private Placement" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) or
Section 4(6) (15 U.S.C. (S) 77d(2) or (S) 77d(6)) or pursuant to SEC Rules 504,
505 or 506 (17 C.F.R. (S)(S) 230.504, 230.505, or 230.506) under the Securities
Act of 1933.
Qualified Foreign Government
The term "Qualified Foreign Government" means a national government of a
developed foreign country with outstanding Fixed Income Securities in excess of
fifty billion dollars. A list of Qualified Foreign Governments will be prepared
as of the last business day of each calendar quarter, will be available from the
Chief Compliance Officer, and will be effective for the following calendar
quarter.
Related Account
The term "Related Account" means any account, other than a Personal
Account, that holds a Security or Futures Contract in which you have a
Beneficial Ownership interest.
Related Security
The term "Related Security" shall mean any option to purchase or sell, and
any Security convertible into or exchangeable for, a Security that is or has
been held by PIMCO on behalf of one of its Advisory Clients or any Security that
is being or has been considered for purchase by PIMCO on behalf of one of its
Advisory Clients.
Security
As a general matter, the term "Security" shall mean any stock, note, bond,
debenture or other evidence of indebtedness (including any loan participation or
assignment), limited partnership interest or investment contract other than an
Exempt Security (as defined above). The term "Security" includes an option on a
Security, on an index of Securities, on a currency or on a basket of currencies,
including such an option traded on the Chicago Board of Options Exchange or on
the New York, American, Pacific or Philadelphia Stock Exchanges, as well as such
an option traded in the over-the-counter market. The term "Security" shall not
include a Futures Contract or a physical commodity (such as foreign exchange or
a precious metal).
As a technical matter, the term "Security" shall have the meaning set forth
in Section 2(a)(36) of the Investment Company Act of 1940 (15 U.S.C. (S) 80a-
2(a)(36)), which defines a Security to mean:
Any note, stock, treasury stock, bond debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing agreement,
collateral-trust certificate, preorganization certificate of subscription,
transferable share, investment contract, voting-trust certificate, certificate
of deposit for a security, fractional undivided interest in oil, gas, or other
I-4
<PAGE>
mineral rights, any put, call, straddle, option, or privilege on any security
(including a certificate of deposit) or on any group or index of securities
(including any interest therein or based on the value thereof), or any put,
call, straddle, option, or privilege entered into on a national securities
exchange relating to foreign currency, or, in general, any interest or
instrument commonly known as a "security", or any certificate of interest or
instrument commonly known as a "security", or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, warrant or right to subscribe to or purchase, any of the foregoing, except
that the term "Security" shall not include any Security that is an Exempt
Security (as defined above), a Futures Contract or a physical commodity (such as
foreign exchange or precious metal).
Tax-Exempt Municipal Bond
The term "Tax-Exempt Municipal Bond" shall mean any Fixed Income Security
exempt from federal income tax that is issued by a state or local government or
a political subdivision thereof.
I-5
<PAGE>
Appendix IV
ACKNOWLEDGMENT OF RECEIPT
of the
Code of Ethics
and the
Insider Trading Policy and Procedures of
PACIFIC INVESTMENT MANAGEMENT COMPANY
I hereby certify that I have received the attached Code of Ethics and
Insider Trading Policy and Procedures. I hereby agree to read the Code, to make
a reasonable effort to understand its provisions and to ask questions about
those provisions I find confusing or difficult to understand. I also agree to
comply with the Code, including its general principles, its reporting
requirements, its preclearance requirements, and its provisions regarding gifts
and service as a director. I also agree to advise members of my Immediate
Family about the existence of the Code of Ethics, its applicability to their
personal trading activity, and my responsibility to assure that their personal
trading activity complies with the Code of Ethics. Finally, I agree to
cooperate fully with any investigation or inquiry by or on behalf of a
Compliance Officer to determine my compliance with the provisions of the Code.
I recognize that any failure to comply in all aspects with the Code and to honor
the commitments made by this acknowledgment may result in disciplinary action,
including dismissal.
Date: _____________________________ __________________________________
Signature
__________________________________
Print Name
<PAGE>
Appendix V
ANNUAL CERTIFICATION OF COMPLIANCE
with the
Code of Ethics of
PACIFIC INVESTMENT MANAGEMENT COMPANY
I hereby certify that I have complied with the requirements of the Code of
Ethics and Insider Trading Policy and Procedures that have applied to me during
the year ended December 31, 200_. In addition, I hereby certify that I have read
the Code and understand its provisions. I also certify that I recognize that I
am subject to the provisions of the Code and that I have disclosed, reported, or
caused to be reported all transactions required to be disclosed or reported
pursuant to the requirements of the Code. I recognize that any failure to comply
in all aspects with the Code and that any false statement in this certification
may result in disciplinary action, including dismissal.
Date: ______________________________ ___________________________________
Signature
___________________________________
Print Name
<PAGE>
Appendix VI
INITIAL REPORT OF ACCOUNTS
Pursuant to the
Code of Ethics of
PACIFIC INVESTMENT MANAGEMENT COMPANY
In accordance with the Code of Ethics, I have attached to this form copies
of the most recent statements for each and every Personal Account and Related
Account that holds or is likely to hold a Security or Futures Contract in which
I have a Beneficial Ownership interest, as well as copies of confirmations for
any and all Investment Transactions subsequent to the effective dates of those
statements./1/
In addition, I hereby supply the following information for each and every
Personal Account and Related Account in which I have a Beneficial Ownership
interest for which I cannot supply the most recent account statement:
(1) Name of employee: _____________________________
(2) If different than #1, name of the person
in whose name the account is held: _____________________________
(3) Relationship of (2) to (1): _____________________________
(4) Firm(s) at which Account is maintained: _____________________________
_____________________________
_____________________________
_____________________________
(5) Account Number(s): _____________________________
_____________________________
_____________________________
_____________________________
_____________________________
(6) Phone number(s) of Broker or Representative: _____________________________
_____________________________
_____________________________
_____________________________
________________________
/1/ The Code of Ethics uses various capitalized terms that are defined in
Appendix I to the Code. The capitalized terms used in this Report have the same
definitions.
<PAGE>
<TABLE>
<S> <C> <C> <C>
(7) Account holdings:
Name of Security Quantity Principal Amount Custodian
1. __________________ ___________ _______________ _______________
2. __________________ ___________ _______________ _______________
3. __________________ ___________ _______________ _______________
4. __________________ ___________ _______________ _______________
5. __________________ ___________ _______________ _______________
</TABLE>
(Attach additional sheets if necessary)
I also supply the following information for each and every Security or
Futures Contract in which I have a Beneficial Ownership interest, to the extent
this information is not available elsewhere on this form or from the statements
and confirmations attached to this form. This includes Securities or Futures
Contracts held at home, in safe deposit boxes, or by an issuer.
<TABLE>
<CAPTION>
Person Who Description
Owns the Security of the Security
Or Futures Contract Or Futures Contract Quantity Principal Amount Custodian
------------------- ------------------- -------- ---------------- ----------
<S> <C> <C> <C> <C>
1. __________________________ _______________________ _______________________ _______________________ ______________________
2. __________________________ _______________________ _______________________ _______________________ ______________________
3. __________________________ _______________________ _______________________ _______________________ ______________________
4. __________________________ _______________________ _______________________ _______________________ ______________________
5 __________________________ _______________________ _______________________ _______________________ ______________________
</TABLE>
(Attach additional sheets if necessary.)
I hereby certify that this form and the attachments (if any) identify all
of the Personal Accounts, Related Accounts, Securities and Futures Contracts in
which I have a Beneficial Ownership interest as of this date.
____________________________________
Signature
____________________________________
Print Name
Date: _______________
Attachments
<PAGE>
Appendix VII
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO FUNDS DISTRIBUTORS LLC
QUARTERLY REPORT OF INVESTMENT TRANSACTIONS
FOR THE QUARTER ENDED ______________
================================================================================
Please mark one of the following:
[_] No reportable Investment Transactions have occurred.
[_] Except as indicated below, all reportable Investment Transactions were
made through Personal Accounts and Related Accounts identified on the attached
list, which, except as indicated, represents a complete list of the Personal
Accounts and Related Accounts that hold Securities or Futures Contracts in which
I have or had a Beneficial Ownership interest and for which PIMCO should have
received or will receive timely duplicate broker reports for the calendar
quarter just ended./1/ I hereby certify that the broker, dealer, bank or futures
commission merchant for each such account has been instructed to send a
Compliance Officer timely duplicate broker reports for that account.
The following information for Investment Transactions during the calendar
quarter just ended does not appear on the duplicate broker reports referenced
above.
<TABLE>
<CAPTION>
Transaction Title, Interest Rate and Maturity Number of Shares or Contracts Nature of Transaction Transaction Broker, Dealer,
Date Date of Security or Futures Contract And Principal Amount (i.e., Buy or Sell) Price Bank or FCM
<S> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
SPECIAL NOTE TO PIMCO FUNDS DISTRIBUTORS LLC REGISTERED REPS AND ACCESS PERSONS:
You will not have to fill out an extra form for each quarter for PIMCO Funds
Distributors LLC.
SIGNED: _____________________________________
PRINT NAME: _____________________________________
DATE: _____________________________________
_____________________________
/1/ The Code of Ethics uses various capitalized terms that are defined in
Appendix I to the Code. The capitalized terms used in this Report have the same
definitions.
<PAGE>
<TABLE>
<S> <C>
1. Please see the Code of Ethics for a 10. Duplicate Broker Reports. Please
full description of the Investment remember that duplicates of all
Transactions that must be reported. trade confirmations, purchase and
sale reports, and periodic
2. Transaction Date. In the case of a statements must be sent to the firm
market transaction, state the trade by your broker. You should use the
date (not the settlement date). address above.
3. Title of Security or Futures
Contract. State the name of the
issuer and the class of the
Security (e.g., common stock,
preferred stock or designated issue
of debt securities). For Fixed
Income Securities, please provide
the Security's interest rate and
maturity date. For a Futures
Contract, state the title of any
Security subject to the Futures
Contract and the expiration date of
the Futures Contract.
4. Number of Shares or Contracts and
Principal Amount. State the number
of shares of Securities, the face
amount of Fixed Income Securities
or the units of other securities.
For options, state the amount of
securities subject to the option.
Provide the principal amount of
each Security or Futures Contract.
If your ownership interest was
through a spouse, relative or other
natural person or through a
partnership, trust, other entity,
state the entire quantity of
Securities or Futures Contracts
involved in the transaction. You
may indicate, if you wish, the
extent of your interest in the
transaction.
5. Nature of Transaction. Identify the
nature of the transaction (e.g.,
purchase, sale or other type of
acquisition or disposition).
6. Transaction Price. State the
purchase or sale price per share or
other unit, exclusive of brokerage
commissions or other costs of
execution. In the case of an
option, state the price at which it
is currently exercisable. No price
need be reported for transactions
not involving cash.
7. Broker, Dealer, Bank or FCM
Effecting Transaction. State the
name of the broker, dealer, bank or
FCM with or through which the
transaction was effected.
8. Signature. Sign and date the report
in the spaces provided.
9. Filing of Report. A report should
be filed NOT LATER THAN 10 CALENDAR
--------------------------
DAYS after the end of each calendar
----
quarter with:
PIMCO
ATTN: Compliance Officer
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
</TABLE>
<PAGE>
Appendix VIII
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO FUNDS DISTRIBUTORS LLC
ANNUAL HOLDINGS REPORT AND
FOURTH QUARTER REPORT OF INVESTMENT TRANSACTIONS
================================================================================
FOR THE YEAR AND QUARTER ENDED _________________
================================================================================
I hereby certify that, except as indicated below, all Securities or Futures
Contracts in which I had a Beneficial Ownership interest at the end of the 2000
calendar year were held in Personal Accounts or Related Accounts identified on
the attached list, for which PIMCO should have received or will receive an
account statement of holdings as of the end of that calendar year./1/ I hereby
certify that the broker, dealer, bank or futures commission merchant for each
such account has been instructed to send a Compliance Officer timely duplicate
broker reports, including a statement of holdings in that account as of the end
of the calendar year.
The following information describes other Securities or Futures Contracts in
which I had a Beneficial Ownership interest as of the end of the 2000 calendar
year:
<TABLE>
<CAPTION>
Title, Interest Rate and Maturity Number of Shares or Contracts Broker, Dealer,
Date of Security or Futures Contract And Principal Amount Bank or FCM
<S> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
___________________________________
/1/ The Code of Ethics uses various capitalized terms that are defined in
Appendix I to the Code. The capitalized terms used in this Report have the same
definitions.
<PAGE>
Except as indicated below, all reportable Investment Transactions during
the quarter ended _________________, were made through Personal Accounts and
Related Accounts identified on the attached list, which, except as indicated,
represents a complete list of the Personal Accounts and Related Accounts that
hold Securities or Futures Contracts in which I have or had a Beneficial
Ownership interest and for which PIMCO should have received or will receive
timely duplicate broker reports for the calendar quarter just ended.
The following information for Investment Transactions during the calendar
quarter just ended does not appear on the duplicate broker reports referenced
above.
<TABLE>
<CAPTION>
Transaction Title, Interest Rate and Maturity Number of Shares or Contracts Nature of Transaction Transaction Broker, Dealer,
Date Date of Security or Futures Contract And Principal Amount (i.e., Buy or Sell) Price Bank or FCM
<S> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
SPECIAL NOTE TO PIMCO FUNDS DISTRIBUTORS LLC REGISTERED REPS AND ACCESS PERSONS:
You will not have to fill out an extra form for each year for PIMCO Funds
Distributors LLC.
SIGNED: ____________________________________
PRINT NAME: ____________________________________
DATE: ____________________________________
<PAGE>
<TABLE>
<S> <C>
1. Please see the Code of Ethics for a 10. Duplicate Broker Reports. Please
full description of the Investment remember that duplicates of all trade
Transactions that must be reported. confirmations, purchase and sale
reports, and periodic statements must
2. Transaction Date. In the case of a be sent to the firm by your broker.
market transaction, state the trade You should use the address above.
date (not the settlement date).
3. Title of Security or Futures
Contract. State the name of the
issuer and the class of the
Security (e.g., common stock,
preferred stock or designated issue
of debt securities). For Fixed
Income Securities, please provide
the Security's interest rate and
maturity date. For a Futures
Contract, state the title of any
Security subject to the Futures
Contract and the expiration date of
the Futures Contract.
4. Number of Shares or Contracts and
Principal Amount. State the number
of shares of Securities, the face
amount of Fixed Income Securities
or the units of other securities.
For options, state the amount of
securities subject to the option.
Provide the principal amount of
each Security or Futures Contract.
If your ownership interest was
through a spouse, relative or other
natural person or through a
partnership, trust, other entity,
state the entire quantity of
Securities or Futures Contracts
involved in the transaction. You
may indicate, if you wish, the
extent of your interest in the
transaction.
5. Nature of Transaction. Identify the
nature of the transaction (e.g.,
purchase, sale or other type of
acquisition or disposition).
6. Transaction Price. State the
purchase or sale price per share or
other unit, exclusive of brokerage
commissions or other costs of
execution. In the case of an
option, state the price at which it
is currently exercisable. No price
need be reported for transactions
not involving cash.
7. Broker, Dealer, Bank or FCM
Effecting Transaction. State the
name of the broker, dealer, bank or
FCM with or through which the
transaction was effected.
8. Signature. Sign and date the report
in the spaces provided.
9. Filing of Report. A report should
be filed NOT LATER THAN 10 CALENDAR
--------------------------
DAYS after the end of each calendar
----
quarter with:
PIMCO
ATTN: Compliance Officer
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
</TABLE>
<PAGE>
Appendix IX
PRECLEARANCE REQUEST FORM
-------------------------
This form must be submitted to a Compliance Officer before executing any
Investment Transaction for which preclearance is required under the PIMCO Code
of Ethics. Before completing this form, you should review the PIMCO Code,
including the terms defined in that Code. The capitalized terms used in this
form are governed by those definitions. In addition, the Code provides
information regarding your preclearance obligations under the Code, and
information regarding the Transactions, Securities and Futures Contracts that
are exempt from the Code's preclearance requirement./1/
No Investment Transaction subject to preclearance may be effected prior to
receipt of written authorization of that Investment Transaction by a Compliance
Officer. Unless otherwise specified, that authorization shall be effective,
unless revoked, until the earlier of (a) the close of business on the date
authorization is given, or (b) until you discover that information on this
preclearance request form is no longer accurate.
<TABLE>
<CAPTION>
<S> <C>
(1) Your Name: _____________________________________
(2) If the Investment Transaction will be in someone else's name or
in the name of a trust, the name of that person or trust: _____________________________________
The relationship of that person or trust to you: _____________________________________
(3) Name of the firm (e.g., broker, dealer, bank, futures
---
commission merchant) through which the Investment Transaction
will be executed: ____________________________________
The relevant account number at that firm: ____________________________________
(4) Issuer of the Security or identity of the Futures Contract for
which preclearance is requested: ____________________________________
The relevant CUSIP number or call symbol: ____________________________________
(5) The maximum number of shares, units or contracts for which
preclearance is requested, or the market value or face amount of
the Fixed Income Securities for which preclearance is requested: ____________________________________
(6) The type of Investment Transaction for which preclearance is
requested (check all that apply): ____ Purchase ___ Sale ____ Market Order
____ Limit Order (Price Of Limit Order:_______)
Please answer the following questions TO THE BEST OF YOUR KNOWLEDGE AND BELIEF:
----------------------------------------
(a) Do you possess material nonpublic information regarding the Security or
Futures Contract identified above or regarding the issuer of that Security? ____ Yes ____ No
(b) Is the Security or Futures Contract identified above held by any PIMCO
Advisory Client or is it a Related Security (as defined in the PIMCO Code)? ____ Yes ____ No
</TABLE>
______________________________
/1/ Preclearance is required for any Investment Transaction in Securities,
Related Securities or Futures Contracts in a Personal Account or a Related
Account in which you have or will acquire a Beneficial Ownership interest.
<PAGE>
<TABLE>
<S> <C>
(c) Is there a pending buy or sell order on behalf of a PIMCO Advisory
Client for the Security or Futures Contract identified above or for a
Security for which the Security identified above is a Related Security? ____ Yes ____ No
(d) Do you intend or do you know of another's intention to purchase or sell
the Security or Futures Contract identified above, or a Security for which
the Security identified above is a Related Security, on behalf of a PIMCO ____ Yes ____ No
Advisory Client?
(e) Has the Security or Futures Contract identified above or a Related
Security been considered for purchase by a PIMCO Advisory Client within the
most recent 15 days? (Note: rejection of any opportunity to purchase the
Security or Futures Contract for an Advisory Client would require an
affirmative response to this question.) ____ Yes ____ No
(f) If you are a Portfolio Employee, is the Security being acquired in an
Initial Public Offering?/2/ ____ Yes ____ No
(g) If you are a Portfolio Employee, are you acquiring or did you acquire
Beneficial Ownership of the Security in a Private Placement?/3/ ____ Yes ____ No
(h) If you are seeking preclearance of a purchase or sale of Securities,
have you purchased or sold the same or similar Securities, or have you
acquired or disposed of a Beneficial Ownership interest in the same or
similar Securities, within the past 60 calendar days?/4/ ____ Yes ____ No
</TABLE>
By executing this form, you hereby certify that you have reviewed the PIMCO Code
of Ethics and believe that the Investment Transaction for which you are
requesting preclearance complies with the General Principles and the specific
requirements of the PIMCO Code.
________________________________________
Employee Signature
________________________________________
Print or Type name
________________________________________
Date Submitted
____________________________
/2/ Under the PIMCO Code, Portfolio Employees generally are not permitted to
acquire Securities in an Initial Public Offering.
/3/ The PIMCO Code applies special rules to the acquisition of Securities
through a Private Placement and to the disposition of Securities acquired
through a Private Placement.
/4/ Under the PIMCO Code, you may not profit from short-term trades in Fixed
Income Securities. A Portfolio Employee may not profit from short-term trades in
Designated Equities Securities and a Municipal Bond Portfolio Employee may not
profit from short-term trades in Tax-Exempt Municipal Bonds. This rule does not
apply to transactions in U.S. Government Securities, mutual fund shares, index
options or Futures Contracts.
<PAGE>
You are authorized to execute the Investment
Transaction described above. Unless indicated
otherwise below, this authorization remains
effective, unless revoked, until: (a) the close
of business today, or (b) until you discover that
the information on this request form is no longer
accurate.
_________________________________________________
Compliance Officer
_________________________________________________
Date of Authorization
<PAGE>
Appendix X
COMPLIANCE OFFICERS
PACIFIC INVESTMENT MANAGEMENT COMPANY
March 31, 2000
PIMCO's Compliance Officers, as of March 31, 2000, are:
Denise C. Seliga
(Chief Compliance Officer)
Mohan V. Phansalkar
Ernest L. Schmider
Richard M. Weil
<PAGE>
EXHIBIT (P)(11)
PERSONAL INVESTMENT POLICY
FOR
SSB CITI ASSET MANAGEMENT GROUP - NORTH AMERICA
AND CERTAIN REGISTERED INVESTMENT COMPANIES
SSB Citi Asset Management Group ("SSB Citi")/1/, and those U.S.-registered
investment companies advised or managed by SSB Citi that have adopted this
policy ("Funds"), have adopted this policy on securities transactions in order
to accomplish two goals: first, to minimize conflicts and potential conflicts of
interest between employees of SSB Citi and SSB Citi's clients (including the
Funds), and between Fund directors or trustees and their Funds, and second, to
------
provide policies and procedures consistent with applicable law, including Rule
17j-1 under the Investment Company Act of 1940, to prevent fraudulent or
manipulative practices with respect to purchases or sales of securities held or
to be acquired by client accounts. All U.S. employees of SSB Citi, including
employees who serve as Fund officers or directors, and all directors or trustees
("directors") of each Fund, are Covered Persons under this policy. Other
Covered Persons are described in Section II below.
I. Statement of Principles - All SSB Citi employees owe a fiduciary duty to
SSB Citi's clients when conducting their personal investment transactions.
Employees must place the interests of clients first and avoid activities,
interests and relationships that might interfere with the duty to make
decisions in the best interests of the clients. All Fund directors owe a
fiduciary duty to each Fund of which they are a director and to that Fund's
shareholders when conducting their personal investment transactions. At all
times and in all matters Fund directors shall place the interests of their
Funds before their personal interests. The fundamental standard to be
followed in personal securities transactions is that Covered Persons may
not take inappropriate advantage of their positions.
All personal securities transactions by Covered Persons shall adhere to the
requirements of this policy and shall be conducted in such a manner as to
avoid any actual or potential conflict of interest, the appearance of such
a conflict, or the abuse of the person's position of trust and
responsibility. While this policy is designed to address both identified
conflicts and potential conflicts, it cannot possibly be written broadly
enough to cover all potential situations. In this regard, Covered Persons
are expected to adhere not only to the letter, but also the spirit of the
policies contained herein.
Employees are reminded that they also are subject to other Citigroup
policies, including policies on insider trading, the purchase and sale of
securities listed on any applicable SSB Citi restricted list, the receipt
of gifts and service as a director of a publicly traded company. Employees
must never trade in a security or commodity while in possession of
material, non-public information about the issuer or the market for those
securities or commodities, even if the employee has satisfied all other
requirements of this policy.
The reputation of SSB Citi and its employees for straightforward practices
and integrity is a priceless asset, and all employees have the duty and
obligation to support and maintain it when conducting their personal
securities transactions.
/1/ The investment advisory entities of SSB Citi covered by this policy include:
Salomon Brothers Asset Management Inc.; SSB Citi Fund Management LLC; Smith
Barney Asset Management Division of Salomon Smith Barney Inc.; Travelers
Investment Management Company; and the Citibank Global Asset Management Division
of Citibank, N.A. and Citicorp Trust, N.A.-California.
1
<PAGE>
II. Applicability - SSB Citi Employees - This policy applies to all U.S.
employees of SSB Citi, including part-time employees. Each employee,
including employees who serve as Fund officers or directors, must comply
with all of the provisions of the policy applicable to SSB Citi employees
unless otherwise indicated. Certain employees are considered to be
"investment personnel" (i.e., portfolio managers, traders and research
analysts (and each of their assistants)), and as such, are subject to
certain additional restrictions outlined in the policy. All other employees
of SSB Citi are considered to be "advisory personnel."
Generally, temporary personnel and consultants working in any SSB Citi
business are subject to the same provisions of the policy as full-time
employees, and their adherence to specific requirements will be addressed
on a case-by-case basis.
The personal investment policies, procedures and restrictions referred to
herein also apply to an employee's spouse and minor children. The policies
also apply to any other account over which the employee is deemed to have
beneficial ownership. This includes: accounts of any immediate family
members sharing the same household as the employee; accounts of persons or
other third parties for whom the employee exercises investment discretion
or gives investment advice; a legal vehicle in which the employee has a
direct or indirect beneficial interest and has power over investment
decisions; accounts for the benefit of a third party (e.g., a charity)
which may be directed by the employee (other than in the capacity of an
employee); and any account over which the employee may be deemed to have
control. For a more detailed description of beneficial ownership, see
Exhibit A attached hereto.
These policies place certain restrictions on the ability of an employee to
purchase or sell securities that are being or have been purchased or sold
by an SSB Citi managed fund or client account. The restrictions also apply
to securities that are "related" to a security being purchased or sold by
an SSB Citi managed fund or client account. A "related security" is one
whose value is derived from the value of another security (e.g., a warrant,
option or an indexed instrument).
Fund Directors - This policy applies to all directors of Funds that have
adopted this policy. The personal investment policies, procedures and
restrictions that specifically apply to Fund directors apply to all
accounts and securities in which the director has direct or indirect
beneficial ownership. See Exhibit A attached hereto for a more detailed
description of beneficial ownership.
Securities are defined as stocks, notes, bonds, closed-end mutual funds,
debentures, and other evidences of indebtedness, including senior debt,
subordinated debt, investment contracts, commodity contracts, futures and
all derivative instruments such as options, warrants and indexed
instruments, or, in general, any interest or instrument commonly known as a
"security."
III. Enforcement - It is the responsibility of each Covered Person to act in
accordance with a high standard of conduct and to comply with the policies
and procedures set forth in this document. SSB Citi takes seriously its
obligation to monitor the personal investment activities of its employees.
Any violation of this policy by employees will be considered serious, and
may result in disciplinary action, which may include the unwinding of
trades, disgorgement of profits, monetary fine or censure, and suspension
or termination of employment. Any violation of this policy by a Fund
director will be reported to the Board of Directors of the applicable Fund,
which may impose such sanctions as it deems appropriate.
2
<PAGE>
IV. Opening and Maintaining Employee Accounts - All employee brokerage
accounts, including spouse accounts, accounts for which the employee is
deemed to have beneficial ownership, and any other accounts over which the
employee and/or spouse exercise control, must be maintained either at
Salomon Smith Barney ("SSB") or at Citicorp Investment Services ("CIS").
/2/ For spouses or other persons who, by reason of their employment, are
required to conduct their securities, commodities or other financial
transactions in a manner inconsistent with this policy, or in other
exceptional circumstances, employees may submit a written request for an
exemption to the Compliance Department. If approval is granted, copies of
trade confirmations and monthly statements must be sent to the Compliance
Department. In addition, all other provisions of this policy will apply.
V. Excluded Accounts and Transactions - The following types of
accounts/transactions need not be maintained at SSB or CIS, nor are they
subject to the other restrictions of this policy:
1. Accounts at outside mutual funds that hold only shares of open-
end funds purchased directly from that fund company. Note:
transactions relating to closed-end funds are subject to the pre-
clearance, blackout period and other restrictions of this policy;
2. Estate or trust accounts in which an employee or related person
has a beneficial interest, but no power to affect investment
decisions. There must be no communication between the account(s)
and the employee with regard to investment decisions prior to
execution. The employee must direct the trustee/bank to furnish
copies of confirmations and statements to the Compliance
Department;
3. Fully discretionary accounts managed by either an internal or
external registered investment adviser are permitted and may be
custodied away from SSB and CIS if (i) the employee receives
permission from the Regional Director of Compliance and the
unit's Chief Investment Officer, and (ii) there is no
communication between the manager and the employee with regard to
investment decisions prior to execution. The employee must
designate that copies of trade confirmations and monthly
statements be sent to the Compliance Department;
4. Employees may participate in direct investment programs which
allow the purchase of securities directly from the issuer without
the intermediation of a broker/dealer provided that the timing
and size of the purchases are established by a pre-arranged,
regularized schedule (e.g., dividend reinvestment plans).
Employees must pre-clear the transaction at the time that the
dividend reinvestment plan is being set up. Employees also must
provide documentation of these arrangements and direct periodic
(monthly or quarterly) statements to the Compliance Department;
and
5. In addition to the foregoing, the following types of securities
are exempted from pre-clearance, blackout periods, reporting and
short-term trading requirements: open-ended mutual funds; open-
end unit investment trusts; U.S. Treasury bills, bonds and notes;
mortgage pass-throughs (e.g. Ginnie Maes) that are direct
obligations of the U.S. government; bankers acceptances; bank
/2/ This requirement will become effective as to all employees on a date to be
determined by the Compliance Department and may be subject to a phase-in
implementation process.
3
<PAGE>
certificates of deposit; commercial paper; and high quality
short-term debt instruments (meaning any instrument that has a
maturity at issuance of less than 366 days and that is rated in
one of the two highest rating categories by a nationally
recognized statistical rating organization, such as S&P or
Moody's), including repurchase agreements.
VI. Securities Holding Period/Short-Term Trading - Securities transactions
must be for investment purposes rather than for speculation. Consequently,
employees may not profit from the purchase and sale, or sale and purchase,
of the same or equivalent securities within sixty (60) calendar days,
calculated on a First In, First Out (FIFO) basis (i.e., the security may
be sold on the 61/st/ day). Citigroup securities received as part of an
employee's compensation are not subject to the 60-day holding period. All
profits from short-term trades are subject to disgorgement. However, with
the prior written approval of both a Chief Investment Officer and the
Regional Director of Compliance, and only in rare and/or unusual
circumstances, an employee may execute a short-term trade that results in
a significant loss or in break-even status.
VII. Pre-Clearance - All SSB Citi employees must pre-clear all personal
securities transactions (see Section V for a listing of accounts,
transactions and securities that do not require pre-clearance). A copy of
the pre-clearance form is attached as Exhibit B. In addition, employees
are prohibited from engaging in more than twenty (20) transactions in any
calendar month, except with prior written approval from their Chief
Investment Officer, or designee. A transaction must not be executed until
the employee has received the necessary approval. Pre-clearance is valid
only on the day it is given. If a transaction is not executed on the day
pre-clearance is granted, it is required that pre-clearance be sought
again on a subsequent day (i.e., open orders, such as limit orders, good
until cancelled orders and stop-loss orders, must be pre-cleared each day
until the transaction is effected). In connection with obtaining approval
for any personal securities transaction, employees must describe in detail
any factors which might be relevant to an analysis of the possibility of a
conflict of interest. Any trade that violates the pre-clearance process
may be unwound at the employee's expense, and the employee will be
required to absorb any resulting loss and to disgorge any resulting
profit.
In addition to the foregoing, the CGAM NA Director of Global Equity
Research, or his designate, must approve all personal securities
transactions for members of the CGAM Research Department prior to pre-
clearance from the Compliance Department as set forth in this section.
Pre-approval by the Director of Research, or his designate, is in addition
to and does not replace the requirement for the pre-clearance of all
personal securities transactions.
VIII. Blackout Periods - No Covered Person shall purchase or sell, directly or
indirectly, any security in which he/she has, or by reason of the
transaction acquires, any direct or indirect beneficial ownership if
he/she has knowledge at the time of such transaction that the security is
being purchased or sold, or is being considered for purchase or sale, by a
managed fund or client account or in the case of a Fund director, by the
director's Fund. In addition, the following Blackout Periods apply to the
categories of SSB Citi employees listed below:
1. Portfolio Managers and Portfolio Manager Assistants - may not buy
---------------------------------------------------
or sell any securities for personal accounts seven (7) calendar
days before or after managed funds or client accounts he/she
manages trade in that security.
4
<PAGE>
2. Traders and Trader Assistants - may not buy or sell any securities
-----------------------------
for personal accounts three (3) calendar days before or seven (7)
calendar days after managed funds or client accounts he/she
executes trades for trade in that security.
3. Research Analysts and Research Assistants - may not buy or sell
-----------------------------------------
any securities for personal accounts: seven (7) calendar days
before or after the issuance of or a change in any recommendation;
or seven (7) calendar days before or after any managed fund or
client account about which the employee is likely to have trading
or portfolio information (as determined by the Compliance
Department) trades in that security.
4. Advisory Personnel (see Section II for details) - may not buy or
-----------------------------------------------
sell any securities for personal accounts on the same day that a
managed fund or client account about which the employee is likely
to have trading or portfolio information (as determined by the
Compliance Department) trades in that security.
5. Unit Trust Personnel - all employees assigned to the Unit Trust
--------------------
Department are prohibited from transacting in any security when a
SSB Citi-sponsored Unit Trust portfolio is buying the same (or a
related) security, until seven business days after the later of
the completion of the accumulation period or the public
announcement of the trust portfolio. Similarly, all UIT employees
are prohibited from transacting in any security held in a UIT (or
a related security) seven business days prior to the liquidation
period of the trust.
Employees in categories 1, 2 and 5 above may also be considered
Advisory Personnel for other accounts about which the employee is
likely to have trading or portfolio information (as determined by the
Compliance Department).
Any violation of the foregoing provisions will require the employee's
trade to be unwound, with the employee absorbing any resulting loss
and disgorging any resulting profit. Advisory personnel are subject to
the unwinding of the trade provision; however, they may not be
required to absorb any resulting loss (at the discretion of the
Compliance Department and the employee's supervisor). Please be
reminded that, regardless of the provisions set forth above, all
employees are always prohibited from effecting personal securities
transactions based on material, non-public information.
Blackout period requirements shall not apply to any purchase or sale,
or series of related transactions involving the same or related
securities, involving 500 or fewer shares in the aggregate if the
issuer has a market capitalization (outstanding shares multiplied by
the current price per share) greater than $10 billion and is listed on
a U.S. Stock Exchange or NASDAQ. Note: Pre-clearance is still
required. Under certain circumstances, the Compliance Department may
determine that an employee may not rely upon this "Large Cap/De
Minimis" exemption. In such a case, the employee will be notified
prior to or at the time the pre-clearance request is made.
IX. Prohibited Transactions - The following transactions by SSB Citi employees
are prohibited without the prior written approval from the Chief Investment
Officer, or designee, and the Regional Compliance Director:
1. The purchase of private placements; and
2. The acquisition of any securities in an initial public offering
(new issues of municipal debt securities may be acquired subject
to the other requirements of this policy (e.g., pre-clearance).)
5
<PAGE>
X. Transactions in Options and Futures - SSB Citi employees may buy or sell
derivative instruments such as individual stock options, options and
futures on indexes and options and futures on fixed-income securities, and
may buy or sell physical commodities and futures and forwards on such
commodities. These transactions must comply with all of the policies and
restrictions described in this policy, including pre-clearance, blackout
periods, transactions in Citigroup securities and the 60-day holding
period. However, the 60-day holding period does not apply to individual
stock options that are part of a hedged position where the underlying stock
has been held for more than 60 days and the entire position (including the
underlying security) is closed out.
XI. Prohibited Recommendations - No Covered Person shall recommend or execute
any securities transaction by any managed fund or client account, or, in
the case of a Fund director, by the director's Fund, without having
disclosed, in writing, to the Chief Investment Officer, or designee, any
direct or indirect interest in such securities or issuers, except for those
securities purchased pursuant to the "Large Cap/De Minimis" exemption
described in Section VIII above. Prior written approval of such
recommendation or execution also must be received from the Chief Investment
Officer, or designee. The interest in personal accounts could be in the
form of:
1. Any direct or indirect beneficial ownership of any securities of
such issuer;
2. Any contemplated transaction by the person in such securities;
3. Any position with such issuer or its affiliates; or
4. Any present or proposed business relationship between such issuer
or its affiliates and the person or any party in which such person
has a significant interest.
XII. Transactions in Citigroup Securities - Unless an SSB Citi employee is a
member of a designated group subject to more restrictive provisions, or is
otherwise notified to the contrary, the employee may trade in Citigroup
securities without restriction (other than the pre-clearance and other
requirements of this policy), subject to the limitations set forth below.
Employees whose jobs are such that they know about Citigroup's
quarterly earnings prior to release may not engage in any transactions
in Citigroup securities during the "blackout periods" beginning on the
first day of a calendar quarter and ending on the second business day
following the release of earnings for the prior quarter. Members of
the SSB Citi Executive Committee and certain other senior SSB Citi
employees are subject to these blackout periods.
Stock option exercises are permitted during a blackout period (but the
simultaneous exercise of an option and sale of the underlying stock is
prohibited). With regard to exchange traded options, no transactions
in Citigroup options are permitted except to close or roll an option
position that expires during a blackout period. Charitable
contributions of Citigroup securities may be made during the blackout
period, but an individual's private foundation may not sell donated
Citigroup common stock during the blackout period. "Good `til
cancelled" orders on Citigroup stock must be cancelled before entering
a blackout period and no such orders may be entered during a blackout
period.
No employee may engage at any time in any personal transactions in
Citigroup securities while in possession of material non-public
information. Investments in Citigroup securities must be made with a
long-term orientation rather than for
6
<PAGE>
speculation or for the generation of short-term trading profits. In
addition, please note that employees may not engage in the following
transactions:
. Short sales of Citigroup securities;
. Purchases or sales of options ("puts" or "calls") on Citigroup
securities, except writing a covered call at a time when the
securities could have been sold under this policy;
. Purchases or sales of futures on Citigroup securities; or
. Any transactions relating to Citigroup securities that might
reasonably appear speculative.
The number of Citigroup shares an employee is entitled to in the
Citigroup Stock Purchase Plan is not treated as a long stock position
until such time as the employee has given instructions to purchase the
shares of Citigroup. Thus, employees are not permitted to use options
to hedge their financial interest in the Citigroup Stock Purchase
Plan.
Contributions into the firm's 401(k) Plan are not subject to the
restrictions and prohibitions described in this policy.
XIII. Acknowledgement and Reporting Requirements - SSB Citi Employees - All new
SSB Citi employees must certify that they have received a copy of this
policy, and have read and understood its provisions. In addition, all SSB
Citi employees must:
1. Acknowledge receipt of the policy and any modifications thereof,
in writing (see Exhibit C for the form of Acknowledgement);
2. Within 10 days of becoming an SSB Citi employee, disclose in
writing all information with respect to all securities
beneficially owned and any existing personal brokerage
relationships (employees must also disclose any new brokerage
relationships whenever established). Such information should be
provided on the form attached as Exhibit D;
3. Direct their brokers to supply, on a timely basis, duplicate
copies of confirmations of all personal securities transactions
(Note: this requirement may be satisfied through the transmission
----
of automated feeds);
4. Within 10 days after the end of each calendar quarter, provide
information relating to securities transactions executed during
the previous quarter for all securities accounts (Note: this
----
requirement may be satisfied through the transmission of automated
feeds);
5. Submit an annual holdings report containing similar information
that must be current as of a date no more than 30 days before the
report is submitted, and confirm at least annually all brokerage
relationships and any and all outside business affiliations (Note:
----
this requirement may be satisfied through the transmission of
automated feeds or the regular receipt of monthly brokerage
statements); and
6. Certify on an annual basis that he/she has read and understood the
policy, complied with the requirements of the policy and that
he/she has pre-cleared and disclosed or reported all personal
securities transactions and securities accounts required to be
disclosed or reported pursuant to the requirements of the policy.
7
<PAGE>
Fund Directors - Fund Directors shall deliver the information required by
Items 1 through 4 of the immediately preceding paragraph, except that a
Fund director who is not an "interested person" of the Fund within the
meaning of Section 2(a)(19) of the Investment Company Act of 1940, and
who would be required to make reports solely by reason of being a Fund
Director, is not required to make the initial and annual holdings reports
required by Item 2. Also, a "non-interested" Fund Director need not
supply duplicate copies of confirmations of personal securities
transactions required by Item 3, and need only make the quarterly
transactions reports required by Item 3 as to any security if at the time
of a transaction by the Director in that security, he/she knew or in the
ordinary course of fulfilling his/her official duties as a Fund Director
should have known that, during the 15-day period immediately preceding or
following the date of that transaction, that security is or was purchased
or sold by that Director's Fund or was being considered for purchase or
sale by that Director's Fund.
Disclaimer of Beneficial Ownership - The reports described in Items 2 and
3 above may contain a statement that the reports shall not be construed
as an admission by the person making the reports that he/she has any
direct or indirect beneficial ownership in the securities to which the
reports relate.
XIV. Handling of Disgorged Profits - Any amounts that are paid/disgorged by an
employee under this policy shall be donated by SSB Citi to one or more
charities. Amounts donated may be aggregated by SSB Citi and paid to such
charity or charities at the end of each year.
XV. Confidentiality - All information obtained from any Covered Person
pursuant to this policy shall be kept in strict confidence, except that
such information will be made available to the Securities and Exchange
Commission or any other regulatory or self-regulatory organization or to
the Fund Boards of Directors to the extent required by law, regulation or
this policy.
XVI. Other Laws, Rules and Statements of Policy - Nothing contained in this
policy shall be interpreted as relieving any person subject to the policy
from acting in accordance with the provision of any applicable law, rule
or regulation or, in the case of SSB Citi employees, any statement of
policy or procedure governing the conduct of such person adopted by
Citigroup, its affiliates and subsidiaries.
XVII. Retention of Records - All records relating to personal securities
transactions hereunder and other records meeting the requirements of
applicable law, including a copy of this policy and any other policies
covering the subject matter hereof, shall be maintained in the manner and
to the extent required by applicable law, including Rule 17j-1 under the
1940 Act. The Compliance Department shall have the responsibility for
maintaining records created under this policy.
XVIII. Monitoring - SSB Citi takes seriously its obligation to monitor the
personal investment activities of its employees and to review the
periodic reports of all Covered Persons. Employee personal investment
transaction activity will be monitored by the Compliance Department. All
noted deviations from the policy requirements will be referred back to
the employee for follow-up and resolution (with a copy to be supplied to
the employee's supervisor). Any noted deviations by Fund directors will
be reported to the Board of Directors of the applicable Fund for
consideration and follow-up as contemplated by Section III hereof.
8
<PAGE>
XIX. Exceptions to the Policy - Any exceptions to this policy must have the
prior written approval of both the Chief Investment Officer and the
Regional Director of Compliance. Any questions about this policy should
be directed to the Compliance Department.
XX. Board Review - Fund management and SSB Citi shall provide to the Board of
Directors of each Fund, on a quarterly basis, a written report of all
material violations of this policy, and at least annually, a written
report and certification meeting the requirements of Rule 17j-1 under the
1940 Act.
XXI. Other Codes of Ethics - To the extent that any officer of any Fund is not
a Covered Person hereunder, or an investment subadviser of or principal
underwriter for any Fund and their respective access persons (as defined
in Rule 17j-1) are not Covered Persons hereunder, those persons must be
covered by separate codes of ethics which are approved in accordance with
applicable law.
XXII. Amendments - SSB Citi Employees - Unless otherwise noted herein, this
policy shall become effective as to all SSB Citi employees on March 30,
2000. This policy may be amended as to SSB Citi employees from time to
time by the Compliance Department. Any material amendment of this policy
shall be submitted to the Board of Directors of each Fund for approval in
accordance with Rule 17j-1 under the 1940 Act.
Fund Directors - This policy shall become effective as to a Fund upon the
approval and adoption of this policy by the Board of Directors of that
Fund in accordance with Rule 17j-1 under the 1940 Act or at such earlier
date as determined by the Secretary of the Fund. Any material amendment
of this policy that applies to the directors of a Fund shall become
effective as to the directors of that Fund only when the Board of
Directors of that Fund has approved the amendment in accordance with Rule
17j-1 or at such earlier date as determined by the Secretary of the Fund.
March 15, 2000
9
<PAGE>
EXHIBIT A
EXPLANATION OF BENEFICIAL OWNERSHIP
You are considered to have "Beneficial Ownership" of Securities if you have or
share a direct or indirect "Pecuniary Interest" in the Securities.
You have a "Pecuniary Interest" in Securities if you have the opportunity,
directly or indirectly, to profit or share in any profit derived from a
transaction in the Securities.
The following are examples of an indirect Pecuniary Interest in Securities:
1. Securities held by members of your immediate family sharing the same
household; however, this presumption may be rebutted by convincing
evidence that profits derived from transactions in these Securities
will not provide you with any economic benefit.
"Immediate family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-
law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
and includes any adoptive relationship.
2. Your interest as a general partner in Securities held by a general or
limited partnership.
3. Your interest as a manager-member in the Securities held by a limited
liability company.
You do not have an indirect Pecuniary Interest in Securities held by a
corporation, partnership, limited liability company or other entity in which you
hold an equity interest, unless you are a controlling equityholder or you have
or share investment control over the Securities held by the entity.
The following circumstances constitute Beneficial Ownership by you of Securities
held by a trust:
1. Your ownership of Securities as a trustee where either you or members
of your immediate family have a vested interest in the principal or
income of the trust.
2. Your ownership of a vested interest in a trust.
3. Your status as a settlor of a trust, unless the consent of all of the
beneficiaries is required in order for you to revoke the trust.
The foregoing is a summary of the meaning of "beneficial ownership". For
purposes of the attached policy, "beneficial ownership" shall be interpreted in
the same manner as it would be in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934 and the rules
and regulations thereunder
10
<PAGE>
SSB Citi Asset Management Group ("SSB Citi") EXHIBIT B
Employee Trade Pre-Approval Form
(PAGE 1)
Instructions:
All employees are required to submit this form to the Compliance Department
prior to placing a trade. The Compliance Department will notify the employee as
to whether or not pre-approval is granted. Pre-approval is effective only on the
date granted.
I. Employee Information
- --------------------------------------------------------------------------------
Employee Name: Phone Number:
- --------------------------------------------------------------------------------
Account Title:
- --------------------------------------------------------------------------------
Account Number:
- --------------------------------------------------------------------------------
Managed Account(s)/Mutual Fund(s) for which employee is a Covered Person:
- --------------------------------------------------------------------------------
II. Security Information
IPO [_] Yes [_] No Private Placement [_] Yes [_] No
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Security Name Security Type-e.g., Ticker Buy/Sell If Sale, Date First No. Large Cap
common stock, etc. Acquired/1/ Shares/Units Stock?/2/
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
III. Your position with the Firm:
(Please check one of the following) [_] Portfolio Manager / Portfolio Manager Assistant
[_] Research Analyst / Research Analyst Assistant
[_] Trader / Trader Assistant
[_] Unit Trust Personnel
[_] Other (Advisory Personnel)
</TABLE>
NOTE: . All Portfolio Managers must complete the reverse side of this form.
. All Research Analysts and Research Analyst Assistants located in
Connecticut must provide an additional form signed by Rama Krishna
----
or one of his designees.
IV. Certification
I certify that I will not effect the transaction(s) described above unless and
until pre-clearance approval is obtained from the Compliance Department. I
further certify that, except as described on an attached page, to the best of my
knowledge, the proposed transaction(s) will not result in a conflict of interest
with any account managed by SSB Citi (including mutual funds managed by SSB
Citi). I further certify that, to the best of my knowledge, there are no
pending orders for any security listed above or any related security for any
Managed Accounts and/or Mutual Funds for which I am considered a Covered Person.
The proposed transaction(s) are consistent with all firm policies regarding
employee personal securities transactions.
Signature____________________________ Date_________________
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
For Use By the Compliance Department
=======================================================================================
[_] Yes [_] No [_] Yes [_] No Reason not
Are Securities Pre-approval granted:
Restricted? Granted?
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Compliance Department Signature: Date: Time:
- ---------------------------------------------------------------------------------------
</TABLE>
/1./ All securities sold must have been held for at least 60 days.
/2./ For purposes of SSB Citi's personal trading policies, a Large Cap
Exemption applies to transactions involving 500 or fewer shares in
aggregate and the stock is one that is listed on a U.S. stock exchange or
NASDAQ and whose issuer has a market capitalization (outstanding shares
multiplied by current price) of more than $10 billion.
11
<PAGE>
SSB Citi Asset Management Group ("SSB Citi")
Page 2 - Portfolio Manager Certification
All portfolio managers must answer the following questions in order to obtain
pre-approval. All questions must be answered or the form will be returned. If
a question is not applicable, please indicate "N/A".
1. Have your client accounts purchased or sold the securities (or related
securities) in the past seven calendar days? Yes [_] No [_]
2. Do you intend to purchase or sell the securities (or related securities)
for any client accounts in the next seven calendar days? Yes [_] No [_]
3. Do any of your client accounts currently own the securities (or related
securities)? Yes [_] No [_]
3a. If yes, and you are selling the securities for your personal account,
please explain why the sale of the securities was rejected for client
accounts but is appropriate for your personal account:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
4. Have you, in the past 7 calendar days, considered purchasing the securities
(or related securities) for your client accounts? Yes [_] No [_]
4a. If yes, and you are purchasing securities for your personal account,
please explain why the purchase of the securities is appropriate for
your account but has been rejected for your client accounts:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
4b. If no, and you are purchasing securities for your personal account,
please explain why the purchase of the securities has not been
considered for your client accounts:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Certification
I certify that I will not effect the transaction(s) described above unless and
until pre-clearance approval is obtained from the Compliance Department. I
further certify that, except as described on an attached page, to the best of my
knowledge, the proposed transaction(s) will not result in a conflict of interest
with any account managed by SSB Citi (including mutual funds managed by SSB
Citi). I further certify that, to the best of my knowledge, there are no
pending orders for any security listed above or any related securities for any
Managed Accounts and/or Mutual Funds for which I am considered a Covered Person.
The proposed transaction(s) are consistent with all firm policies regarding
employee personal securities transactions.
_______________________________ _______________________
Signature Date
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
For Use By the Compliance Department
==============================================================================================================
[_] Yes [_] No [_] Yes [_] No Reason not granted:
Are Securities Pre-approval
Restricted? Granted?
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Compliance Department Signature: Date: Time:
- --------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Personal Investment Policy EXHIBIT C
For
SSB Citi Asset Management Group - North America
And Certain Registered Investment Companies
Acknowledgment
I acknowledge that I have received and read the Personal Investment Policy
for SSB Citi Asset Management Group - North America and Certain Registered
Investment Companies dated March 15, 2000. I understand the provisions of the
Personal Investment Policy as described therein and agree to abide by them.
Employee Name (Print): _____________________________
Signature: _____________________________
Date: _____________________________
- --------------------------------------------------------------------------------
Social Security Number: Date of Hire:
================================================================================
Job Function & Title: Supervisor:
- --------------------------------------------------------------------------------
Location:
- --------------------------------------------------------------------------------
Floor and/or Zone: Telephone Number:
- --------------------------------------------------------------------------------
NASD Registered Employee (Please check one) [_] Yes [_] No
- --------------------------------------------------------------------------------
If registered, list Registration \ License:
- --------------------------------------------------------------------------------
This Acknowledgment form must be completed and returned no later than March 30,
2000 to the Compliance Department - Attention: Vera Sanducci-Dendy, 388
Greenwich Street, 23rd Floor, New York, NY 10013.
13
<PAGE>
EXHIBIT D
SSB Citi Asset Management Group - North America Personal Investment Policy
Financial Services Firm Disclosure and Initial Report of Securities Holdings
This report must be signed, dated and returned within 10 days of employment to
the Compliance Department - Attention: Vera Sanducci-Dendy, 388 Greenwich
Street, 23/rd/ Floor
________________________________________________________________________________
Employee Name: ____________________________ Date of Employment:___________
________________________________________________________________________________
Brokerage Accounts:
[_] I do not have a beneficial interest in any account(s) with any financial
services firm.
[_] I maintain the following account(s) with the financial services firm(s)
listed below (attach additional information if necessary-e.g., a brokerage
statement). Please include the information required below for any broker,
dealer or bank where an account is maintained which holds securities for
your direct or indirect benefit as of the date you began your employment.
- --------------------------------------------------------------------------------
Name of Financial Service(s) Firm and Address Account Title Account Number
- --------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Securities Holdings:
Complete the following (or attach a copy of your most recent statement(s))
listing all of your securities holdings, with the exception of open-ended mutual
funds and U.S Government securities if:
. You own securities which are held by financial services firm(s) as described
above. If you submit a copy of a statement, it must include all of the
information set forth below. Please be sure to include any additional
securities purchased since the date of the brokerage statement which is
attached. Use additional sheets if necessary.
. Your securities are not held with a financial service(s) firm (e.g., dividend
reinvestment programs).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Title of Security Ticker Symbol # of Shares Principal Amt. Held Since Financial Services Firm
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
</TABLE>
[_] I have no securities holdings to report.
I certify that I have received the SSB Citi - North America Personal Investment
Policy and have read it and understood its contents. I further certify that the
above represents a complete and accurate description of my brokerage account(s)
and securities holdings as of my date of employment.
Signature: ____________________________ Date of Signature:_______________
14
