As filed with the Securities and Exchange Commission on May 1, 2000
Securities Act File No. 33-20957
Investment Company Act File No. 811-05451
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
Registration Statement Under The Securities Act Of 1933 [X]
Pre-Effective Amendment No.__
Post-Effective Amendment No. 15 [X]
and/or
Registration Statement Under The Investment Company Act Of 1940 [X]
Amendment No. 16 [X]
(Check appropriate box or boxes)
USLICO SERIES FUND
(Exact Name of Registrant Specified in Charter)
20 Washington Avenue South, Route 1212,
Minneapolis, Minnesota 55401
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 333-6965
James M. Hennessy, Esq. With Copies To:
Pilgrim Investments, Inc. Jeffrey S. Puretz, Esq.
40 North Central Avenue, Suite 1200 Dechert Price & Rhoads
Phoenix, AZ 85004 1775 Eye Street, N.W.
(Name and Address of Agent for Service) Washington, D.C. 20006
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It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[X] on May 1, 2000 pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designated a new effective
date for a previously filed post-effective amendment.
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USLICO SERIES FUND
PROSPECTUS
May 1, 2000
The four Portfolios of the USLICO Series Fund are as follows:
The Stock Portfolio
The Money Market Portfolio
The Bond Portfolio
The Asset Allocation Portfolio
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of the prospectus. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is May 1, 2000
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TABLE OF CONTENTS
Page
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Types Of Investors For Whom The Fund Is Intended............................ 2
The Stock Portfolio......................................................... 3
Risk/Return Summary....................................................... 3
The Money Market Portfolio.................................................. 4
Risk/Return Summary....................................................... 4
The Bond Portfolio.......................................................... 4
Risk/Return Summary....................................................... 4
The Asset Allocation Portfolio.............................................. 5
Risk/Return Summary....................................................... 5
Performance Information For Last 10 Years................................... 6
Investment Objectives, Principal Investment Strategies,
and Related Risks of the Stock Portfolio.................................. 11
Investment Objectives, Principal Investment Strategies,
and Related Risks of the Money Market Portfolio........................... 12
Investment Objectives, Principal Investment Strategies,
and Related Risks of the Bond Portfolio................................... 14
Investment Objectives, Principal Investment Strategies,
and Related Risks of the Asset Allocation Portfolio....................... 15
General Portfolio Policies.................................................. 18
Risk Factors and Special Considerations..................................... 20
Management of the Portfolios................................................ 21
Pricing of Fund Shares...................................................... 23
Distribution and Taxes...................................................... 23
Financial Highlights........................................................ 23
To Obtain More Information Please Refer To The Back Cover.
TYPES OF INVESTORS FOR WHOM THE FUND IS INTENDED
Shares of the USLICO SERIES FUND (the "Fund") are sold only to insurance
companies and are used to fund variable life insurance policies ("Policies").
The Policies were offered by ReliaStar United Services Life Insurance Company
(now merged into ReliaStar Life Insurance Company) and ReliaStar Life Insurance
Company of New York (the "insurance companies") and sold with a prospectus
describing the Policies and with a prospectus of the Fund. The insurance
companies are affiliated with the Investment Adviser and Sub-Adviser of the
Fund. The Fund has four different Portfolios, each with different investment
objectives and strategies. The Portfolios are the (1) Stock Portfolio; (2) Money
Market Portfolio; (3) Bond Portfolio; and (4) Asset Allocation Portfolio.
Because Policy owners may instruct the insurance companies which Portfolio(s)
they want to use to fund their Policies, this prospectus gives you important
information about the Portfolios which you should know about before investing.
Please read this prospectus and keep it for future reference.
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THE STOCK PORTFOLIO
RISK/RETURN SUMMARY
Investment Goal:
The Stock Portfolio seeks intermediate and long-term growth of capital. Its
secondary objective is to receive a reasonable level of income.
Investment Focus:
U.S. Common Stocks with medium to large market capitalizations.
Principal Investment Strategies:
* Identifying companies with above-average growth potential.
* Investing primarily in common stocks.
* Investing at least 70% of total assets in securities of companies with
large market capitalizations (those with market capitalizations similar to
companies in the S&P 500 Index).
* Potentially investing in companies with smaller or medium market
capitalizations.
* Investing primarily in domestic issuers.
* Investing primarily in "value" stocks.
* Using fundamental analysis of each issuer's financial condition and
industry position and market and economic conditions to select investments.
Principal Investment Risks:
* STOCK MARKET VOLATILITY. Stock markets are volatile and can decline
significantly in response to adverse issuer, political, regulatory, market
or economic developments. Different parts of the market can react
differently to these developments.
* ISSUER-SPECIFIC CHANGES. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole. The value of
securities of smaller issuers can be more volatile than that of larger
issuers.
* FOREIGN EXPOSURE. Entities located in foreign countries can be affected by
adverse political, regulatory, market or economic developments in those
countries.
* CHANGES IN VALUES. When you sell your shares of the fund, they could be
worth more or less than what you paid for them. Loss of money is a risk.
Values are not guaranteed.
* NOT GUARANTEED BY FDIC. An investment in the Portfolio is not a deposit of
the bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
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THE MONEY MARKET PORTFOLIO
RISK/RETURN SUMMARY
Investment Goal:
Seeks as high a level of current income consistent with preservation of capital
and liquidity.
Investment Focus:
Short-term U.S. Governmental Securities and Money Market instruments.
Principal Investment Strategies:
Purchasing U.S. Governmental Securities and U.S. dollar denominated high quality
money market instruments rated A-1 by Standard & Poor's Ratings Group ("S&P") or
P-1 by Moody's Investor Services, Inc. ("Moody's"), and repurchase agreements,
as follows:
Principal Investment Risks:
* INSOLVENCY RISK. Defaults in paying principal and/or interest by an issuer.
* INTEREST RATE CHANGES. Interest rate increases can cause the price of a
U.S. Government or a money market security to decrease.
* FINANCIAL SERVICES EXPOSURE. Changes in government regulation or economic
downturns can have a significant negative affect on issuers in the
financial services sector.
* ISSUER-SPECIFIC CHANGES. A decline in the credit quality of an issuer or
the provider of credit support or a maturity-shortening structure for a
security can cause the price of a money market security to decrease.
* NOT GUARANTEED BY FDIC. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the Portfolio.
4
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THE BOND PORTFOLIO
RISK/RETURN SUMMARY
Investment Goal:
High level of income consistent with prudent risk and the preservation of
capital.
Investment Focus:
Investment grade bonds - rated in top four rating categories of either S&P or
Moody's.
Principal Investment Strategies:
* Investing in U.S. dollar-denominated investment-grade bonds.
* Managing the Portfolio to have similar overall interest rate risk to the
Lehman Brothers Aggregate Bond Index.
* Allocating assets across different market sectors and maturities.
* Analyzing a security's structural features, current pricing and trading
opportunities, and the credit quality of its issuer to select investments.
Principal Investment Risks:
* INSOLVENCY RISK. Default in payment of principal and/or interest by an
issuer.
* CREDIT RISK. A decline in the credit quality of an issuer can cause the
price of a bond to decrease.
* INTEREST RATE CHANGES. Interest rate increases can cause the price of a
debt security to decrease.
* FOREIGN EXPOSURE. Entities located in foreign countries can be affected by
adverse political, regulatory, market or economic developments in those
countries.
* PREPAYMENT. The ability of an issuer of a debt security to repay principal
prior to a security's maturity can cause greater price volatility if
interest rates change and less income if called in a lower interest rate
environment.
* ISSUER-SPECIFIC CHANGES. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
* CHANGES IN VALUES. Values are not guaranteed. When you sell your shares of
the Portfolio, they could be worth more or less than what you paid for
them.
* NOT GUARANTEED BY FDIC. An investment in the Portfolio is not a deposit of
the bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
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THE ASSET ALLOCATION PORTFOLIO
RISK/RETURN SUMMARY
Investment Goal:
Seeks to obtain high total return with reduced risk over the long term by
allocating its assets among stocks, bonds, and short-term instruments.
Investment Focus:
U.S. Common Stocks, investment grade bonds and money market instruments.
Principal Investment Strategies:
* Allocating the Portfolio's assets among stocks, bonds, and short-term money
market instruments.
* Adjusting allocation among asset classes.
* Investing primarily in domestic issuers.
* Analyzing an issuer using fundamental and/or quantitative factors and
evaluating each security's current price relative to estimated long-term
value to select investments.
* Entering into repurchase agreements maturing in seven days or less.
Principal Investment Risks:
* STOCK MARKET VOLATILITY. Stock markets are volatile and can decline
significantly in response to adverse issuer, political, regulatory, market
or economic developments. Different parts of the market can react
differently to these developments.
* INTEREST RATE CHANGES. Interest rate increases can cause the price of a
debt security to decrease.
* INSOLVENCY RISK. Default in payment of principal and/or interest by an
issuer.
* CREDIT RISK. A decline in the credit quality of an issuer can cause the
price of its bond to decrease.
* FOREIGN EXPOSURE. Foreign markets can be more volatile than the U.S. market
due to increased risks of adverse issuer, political, regulatory, market or
economic developments and can perform differently than the U.S. market.
* PREPAYMENT. The ability of an issuer of a debt security to repay principal
prior to a security's maturity can cause greater price volatility if
interest rates change and less income if called in a lower interest rate
environment.
* ISSUER-SPECIFIC CHANGES. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole. The value of
securities of smaller issuers can be more volatile than that of larger
issues.
* CHANGED IN VALUES. Values are not guaranteed, you may lose money. When you
sell your shares of the Portfolio, they could be worth more or less than
what you paid for them.
* NOT GUARANTEED BY FDIC. An investment in the Portfolio is not a deposit of
the bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
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PERFORMANCE INFORMATION FOR LAST 10 YEARS
The bar charts and the performance information listed on the following pages
illustrate the risks and volatility of investing in the Portfolios. The charts
shows the changes in each Portfolio's performance from year to year for the past
10 calendar years. The additional information shows the highest and lowest
returns for a quarter during those 10 years and compares its average annual
returns for 1, 5 and 10 years to an index. How each Portfolio has performed in
the past is not necessarily an indication of how it will perform in the future.
The bar charts reflect the management fees and expenses of the Fund but the
performance figures generally do not reflect charges assessed by the insurance
company separate accounts. If such charges had been reflected, the returns would
be less than those shown below. Performance assumes reinvestment of income and
capital gain distributions.
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PERFORMANCE OF THE STOCK PORTFOLIO(1)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-6.60 17.55 5.69 10.53 2.76 31.92 22.90 25.06 6.00 30.08
BEST AND WORST QUARTER DURING LAST 10 YEARS
Best Quarter Worst Quarter
30.04% -18.60%
Three months ending Three months ending
December 31, 1999 September 30, 1998
COMPARING RETURNS WITH THE S&P 500 INDEX
This table compares the Stock Portfolio's average annual total returns for 1, 5
and 10 years ending December 31, 1999 to those of the S&P 500 Index.
1 Year 5 Years 10 Years
------ ------- --------
Stock Portfolio 30.08 23.19 14.59
S&P 500 Index 21.04 28.54 18.19
INFORMATION ON THE S&P 500 INDEX
The S&P 500 Index contains 500 widely held common stocks. The index includes
industrial, technology, utility, financial and transportation stocks.
Calculations of its performance assumes reinvestment of dividends. You cannot
invest directly in the index. It does not have an investment adviser and does
not pay any commissions or expenses. If it had expenses, its performance would
be lower. In order to outperform the index over any specific time frame, a fund
must return to investors an amount greater than that provided by the index plus
total operating expenses.
- ----------
1. Prior to October 1, 1999, the Stock Portfolio was managed by a different
sub-adviser.
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PERFORMANCE OF THE MONEY MARKET PORTFOLIO
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
7.00 5.00 3.00 2.00 4.00 5.00 5.00 5.00 5.00 5.00
BEST AND WORST QUARTER DURING LAST 10 YEARS
Best Quarter Worst Quarter
1.80% 0.49%
Three months ending Three months ending
December 31, 1990 March 31, 1993
THE PORTFOLIO'S AVERAGE ANNUAL RETURNS
This table provides information on the Portfolio's average annual total returns
for 1, 5 and 10 years ending December 31, 1999:
1 Year 5 Years 10 Years
------ ------- --------
Money Market Portfolio 5.00% 5.00% 4.60%
THE PORTFOLIO'S SEVEN DAY YIELD
The Portfolio's 7-day yield, as of the end of December 31, 1999 was 5.14%.
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PERFORMANCE OF THE BOND PORTFOLIO
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
4.20 14.20 7.74 10.48 -3.72 18.07 2.70 7.09 4.30 -2.87
BEST AND WORST QUARTER DURING LAST 10 YEARS
Best Quarter Worst Quarter
6.58% -1.96%
Three months ending Three months ending
June 30, 1995 March 31, 1996
COMPARING RETURNS WITH THE LEHMAN BROTHERS AGGREGATE BOND INDEX
This table compares the Portfolio's average annual total returns for 1, 5 and 10
years ending December 31, 1999 to those of the Lehman Brothers Aggregate Bond
Index.
1 Year 5 Years 10 Years
------ ------- --------
Bond Portfolio -2.87 5.86 6.22
Lehman Brothers Aggregate -0.82 7.73 7.70
Bond Index
INFORMATION ON THE LEHMAN BROTHERS AGGREGATE BOND INDEX
The Lehman Brothers Aggregate Bond Index is a broad, unmanaged index of
securities of fixed income instruments. You cannot invest directly in an index.
It does not have an investment adviser and does not pay any commissions or
expenses. If had expenses, its performance would be lower. In order to
outperform the index over any specific time frame, a fund must return to
investors an amount greater than that provided by the index plus total operating
expenses.
10
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PERFORMANCE ON THE ASSET ALLOCATION PORTFOLIO(1)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
0.83 14.68 7.47 10.83 -1.33 25.15 12.44 16.62 5.51 15.10
BEST AND WORST QUARTER DURING LAST 10 YEARS
Best Quarter Worst Quarter
16.00% -8.51%
Three months ending Three months ending
December 31, 1999 September 30, 1998
COMPARING RETURNS WITH THE S&P 500 AND LEHMAN INDICES
This table compares the Portfolio's average annual total returns for 1, 5 and 10
years ending December 31, 1999 to those of the S&P 500 and Lehman Indices.
1 Year 5 Years 10 Years
------ ------- --------
Asset Allocation Portfolio 15.10 14.96 10.73
S&P 500 Index 21.04 28.54 18.19
Lehman Brothers Aggregate -0.82 7.73 7.70
Bond Index
INFORMATION ON THE S&P 500 AND LEHMAN INDICES
The Standard and Poor's ("S&P") 500 Index contains 500 widely held common
stocks. The index includes industrial, technology, utility, financial and
transportation stocks. Calculations of its performance assumes reinvestment of
dividends. The Lehman Brothers Aggregate Bond Index ("Lehman Bond Index") is a
broad, unmanaged Index of securities of fixed income instruments.
You cannot invest directly in either the S&P or the Lehman Bond Index. Neither
has an investment adviser and neither pays any commissions or expenses. If an
Index had expenses, its performance would be lower. In order to outperform an
index over any specific time frame, a fund must return to investors an amount
greater than that provided by the index plus total operating expenses.
- ----------
1. Prior to October 1, 1999, the equity portion of the Asset Allocation
Portfolio was managed by a different sub-adviser.
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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED RISKS OF THE
STOCK PORTFOLIO
The information below is intended to provide detailed information on the Stock
Portfolio's investment objectives, strategies used in seeking to achieve those
objectives and the risks of investing in this Portfolio.
INVESTMENT OBJECTIVES
The Stock Portfolio's primary objective is to achieve intermediate and long-term
growth of capital. Its secondary objective is to receive a reasonable level of
income.
PRINCIPAL INVESTMENT STRATEGIES
The Stock Portfolio invests primarily in U.S. common stocks listed on national
securities exchanges, and believed to offer above average growth potential.
Under normal circumstances at least 70% of its assets will be invested in such
common stocks and other equity securities. No more than 25% of the Portfolio's
assets are invested in a single industry and no more than 5% may be invested in
any single company. The investment managers of the Stock Portfolio are "value
oriented" in their investment philosophy, which means they proceed from the
premise that investment value and return can best be realized through buying
companies with a low price relative to current earnings. This "bottom up"
approach seeks to identify companies whose earnings growth suggests an
increasing stream of future dividend income and whose share price is believed to
be undervalued. Consistent with this investment philosophy, the Portfolio
typically consists of large cap stocks with relatively low valuations and high
current dividend yields.
The Portfolio's investments are rotated among various market sectors based on
the investment manager's research and view of the economy. The Portfolio may buy
and sell securities frequently, resulting in portfolio turnover and higher
transaction costs.
From time to time the Portfolio will, on its common stock portfolio, write
covered call options that are traded on a U. S. securities exchange or board of
trade. It will do so when the Portfolio manager believes the price of the stock
will remain relatively stable, thus allowing the Fund to enjoy the premium
income and enhance its return. (See "Options" under "Risk Factors and Special
considerations" in this prospectus.)
This Portfolio will retain a flexible approach to the investment of funds and
the Portfolio's composition may vary with the economic outlook. The Portfolio
may invest in U.S. Governmental securities, commercial paper, and other money
market instruments, including repurchase agreements maturing in seven days or
less with Federal Reserve System banks or with dealers in U.S. Government
Securities. When, in the judgment of the investment manager, current cash needs
or market or economic conditions warrant a temporary defensive position, the
Portfolio may invest to a greater degree in such short-term U.S. Government
securities, commercial paper, and other money market instruments. Taking
temporary defensive positions may reduce the chances of the Portfolio achieving
its investment objectives.
THE RISKS OF INVESTING
Since the Stock Portfolio invests primarily in U.S. common stocks, its returns
may, and probably will vary. Your cash values and maybe the death benefit of
your Policy will vary with the investment performance of the Portfolio(s) you
select. Poor performance could result in the cash values in your insurance
Policy declining. Loss of money is a risk of investing in the Stock Portfolio.
The Portfolio is intended as a long-term investment vehicle for variable life
insurance policies and is not designed to provide policy owners with a means of
speculating on short-term stock market movements. There is no assurance the
investment objectives will be achieved. While the Portfolio may compare its
performance returns, for benchmark purposes, to the performance returns of broad
based indices such as the S&P 500, the Portfolio is not managed to replicate the
securities contained in those indices, and may achieve returns less than those
indices.
12
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In entering into a Repurchase Agreement, the Portfolio bears the risk of loss in
the event the other party to the transaction defaults on its obligations. In
such a case the Portfolio would be delayed, or prevented from, exercising its
rights to dispose of the underlying securities, including the risk of possible
decline in the value of the underlying securities during the period in which the
Portfolio seeks to assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of losing all or part of the
income from the agreement.
Participation in the options market involves investment risks and transaction
costs, which the Portfolio would not be subject to if it didn't use this
strategy. If its predictions of price movement are inaccurate, the Portfolio
might be in a worse position than if the strategy were not used. Neither the
Fund, the investments of the Stock Portfolio, the Policies' cash values, nor its
death benefit are guaranteed by the Federal Deposit Insurance Corporation or any
other governmental agency.
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED RISKS OF THE
MONEY MARKET PORTFOLIO
The information below is intended to provide detailed information on the Money
Market Portfolio's investment objectives, strategies used in seeking to achieve
those objectives and the risks of investing in this Portfolio.
INVESTMENT OBJECTIVE
The Money Market Portfolio's primary objective is to seek maximum current income
consistent with the preservation of capital and the maintenance of liquidity by
investing in "money market" instruments meeting specified quality standards.
PRINCIPAL INVESTMENT STRATEGIES
The Money Market Portfolio may invest only in high-quality instruments with a
maturity or remaining maturity of 12 months or less from the date of purchase,
and may include the following: U.S. Government securities; commercial paper
maturing in nine months or less from the date of purchase if rated A-1 by S&P or
Prime-1 by Moody's, or debt obligations rated at least AA by S&P or at least Aa
by Moody's, repurchase agreements maturing in seven days or less with Federal
Reserve System banks or with dealers in U.S. Government securities; and
negotiable certificates of deposit, bankers' acceptances, fixed-time deposits,
and other obligations of federally chartered domestic banks, savings banks, or
savings and loan associations having total assets of $1 billion or more.
The Portfolio will not invest in any fixed-time deposit maturing in more than 7
days if, as a result, more than 10% of the value of its total assets would be
invested in such fixed-time deposits and other illiquid securities. The
Portfolio may also invest in fixed-time or other deposits with a state-chartered
bank that acts as custodian to the Fund, provided that any such bank has total
assets of $2 billion or more. The Portfolio may also purchase obligations that
mature in 12 months or less from the date of purchase if the obligation is
accompanied by a guarantee of principal and interest provided that the guarantee
is that of a bank or corporation whose certificates of deposit or commercial
paper may otherwise be purchased by the Portfolio. The Portfolio is required to
maintain an average weighted maturity of not more than 90 days and invest
exclusively in securities that mature within 397 days. All investments by the
Portfolio are limited to United States dollar-denominated investments. The
Portfolio may not invest more than 25% of its total assets in securities of any
one particular industry nor invest more than 5% of its assets in any one issuer,
except that these restrictions do not apply to investments in U.S. Government
securities and the 25% limit does not apply to the Money Market Portfolio for
securities or obligations issued by U.S. banks.
THE RISKS OF INVESTING
Since the Money Market Portfolio invests primarily in Money Market instruments,
one risk is a default by an issuer and its loss to the Portfolio of principal
and/or interest payments. An additional risk is the Portfolio not maintaining a
13
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value of $1.00 per share. When interest rates decline, the performance return
for this Portfolio will decline. In that environment your net performance return
may be relatively small. There is no assurance the investment objectives will be
achieved.
In entering into a Repurchase Agreement, the Portfolio bears the risk of loss in
the event the other party to the transaction defaults on its obligations. In
such a case the Portfolio would be delayed, or prevented from, exercising its
rights to dispose of the underlying securities, including the risk of possible
decline in the value of the underlying securities during the period in which the
Portfolio seeks to assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of losing all or part of the
income from the agreement.
Neither the Fund nor the investments of the Money Market Portfolio are
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED RISKS OF THE
BOND PORTFOLIO
The information below is intended to provide detailed information on the Bond
Portfolio's investment objectives, strategies used in seeking to achieve those
objectives and the risks of investing in this Portfolio.
INVESTMENT OBJECTIVES
The Bond Portfolio's primary objective is to provide a high level of income
consistent with prudent investment risk by investing primarily in
investment-grade intermediate to long-term corporate bonds and other debt
securities. As a secondary objective, the Portfolio seeks capital appreciation
when consistent with its principal objective.
PRINCIPAL INVESTMENT STRATEGIES
To achieve its objective, the Portfolio invests primarily in securities rated in
the top four rating categories of either S&P (AAA, AA, A, and BBB) or Moody's
(Aaa, Aa, A, and Baa) or, if not rated, of equivalent quality in the judgment of
the Adviser. The Portfolio may also invest in U.S. Government securities,
commercial paper, certificates of deposit, and other money market instruments
including repurchase agreements maturing in seven days or less with Federal
Reserve System banks or with dealers in U.S. Government. The Portfolio will not
invest in common stocks, rights, or other equity securities.
Generally turnover rates have been relatively low but on occasion, the Portfolio
has bought and sold securities frequently resulting in portfolio turnover and
higher transaction costs.
The weighted average maturity of the securities in the Portfolio will vary from
time to time depending upon the judgment of the Adviser as to prevailing
conditions in the economy and the securities markets and the prospects for
interest rate changes among different categories of fixed-income securities.
Under normal circumstances, more than 80% of the Portfolio's assets will be
invested in fixed-income securities, including convertible and non-convertible
debt securities.
THE RISKS OF INVESTING
Since shares of the Portfolio normally represent an investment primarily in debt
securities with market prices that may vary, the value of the Portfolio's shares
will vary as the aggregate value of the Portfolio's investments increases or
decreases. Although the Portfolio will invest only in investment-grade debt
securities, the market price of the Portfolio's securities will likely be
affected by changes in interest rates since the market value of debt obligations
may be expected to rise and fall inversely with interest rates generally. As
interest rates rise, the market value of fixed-income securities will likely
fall, adversely affecting the value of the Portfolio. Debt obligations with
longer maturities that typically provide the best yield will subject the
Portfolio to relatively greater price fluctuations than shorter-term
obligations. The Portfolio is intended as a long-term investment vehicle for
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variable life insurance policies. However, there is no assurance the investment
objectives will be achieved. While the Portfolio may compare its performance
returns, for benchmark purposes, to the performance returns of broad based
indices such as the Lehman Brothers Aggregate Bond Index, the Portfolio is not
managed to replicate the securities contained in those indices, and may achieve
returns less than those indices.
In entering into a Repurchase Agreement, the Portfolio bears the risk of loss in
the event the other party to the transaction defaults on its obligations. In
such a case the Portfolio would be delayed, or prevented from, exercising its
rights to dispose of the underlying securities, including the risk of possible
decline in the value of the underlying securities during the period in which the
Portfolio seeks to assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of losing all or part of the
income from the agreement.
Neither the Fund nor the investments of the Portfolio are guaranteed by the
Federal Deposit Insurance Corporation or any other governmental agency.
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED RISKS OF THE
ASSET ALLOCATION PORTFOLIO
The information below is intended to provide detailed information on the
Portfolio's investment objectives, strategies used in seeking to achieve those
objectives and the risks of investing in this Portfolio.
INVESTMENT OBJECTIVE
The Portfolio's primary objective is to achieve high total return, consistent
with prudent investment risk by investing in common stocks and other equity
securities, investment grade intermediate to long-term debt obligations and high
quality money market instruments.
PRINCIPAL INVESTMENT STRATEGIES
The Portfolio allocates its assets into three broad categories: (1) U.S. common
stocks and other equity securities believed to offer above average growth
potential; (2) intermediate to long-term investment grade bonds; and (3) high
quality money market instruments. Under normal circumstances at least 30% of its
assets will be invested in common stocks and other equity securities, at least
20% in investment grade bonds and the remainder in money market instruments.
With certain exceptions for money market investments, no more than 25% of the
assets of the Portfolio are invested in a single industry and no more than 5%
may be invested in any single company. The portfolio manager of the stock
portion of the Portfolio are "value oriented" in their investment philosophy,
which means they proceed from the premise that investment value and return can
best be realized through buying companies with a low price relative to current
earnings. This "bottom up" approach seeks to identify companies whose earnings
growth suggests an increasing stream of future dividend income and whose share
price is believed to be undervalued. Consistent with this investment philosophy,
the stock portion of the Portfolio typically consists of large cap stocks with
low valuations and relatively high current dividend yields.
The equity investments are rotated among various market sectors based on its
portfolio manager's research and view of the economy. The Portfolio may buy and
sell equity securities frequently, resulting in portfolio turnover and higher
transaction costs.
From time to time the equity portion of the Portfolio will, on its common stock
portfolio, write covered call options that are traded on a U. S. securities
exchange or board of trade. It will do so when the portfolio manager believes
the price of the stock will remain relatively stable, thus allowing the Fund to
enjoy the premium income and enhance its return. (See "Options" under "Risk
Factors and Special Considerations" in this prospectus.)
15
<PAGE>
The bond portion of the Portfolio invests primarily in securities rated in the
top four rating categories of either S&P (AAA, AA, A, and BBB) or Moody's (Aaa,
Aa, A, and Baa) or, if not rated, of equivalent quality in the judgment of the
adviser. This Portfolio will retain a flexible approach to the investment of
funds and the portfolio composition may vary with the economic outlook. The
Portfolio may invest U.S. Governmental securities, commercial paper, and other
money market instruments, including repurchase agreements maturing in seven days
or less. When, in the judgment of the investment manager, current cash needs or
market or economic conditions warrant a temporary defensive position, the
Portfolio may invest to a greater degree in short-term U.S. Government
securities, commercial paper, and other money market instruments. Taking
temporary defensive positions may reduce the chances of the Portfolio achieving
its investment objectives.
The Money Market portion of the Portfolio may invest only in high-quality
instruments with a maturity or remaining maturity of 12 months or less from the
date of purchase, and may include the following: U.S. Government securities;
commercial paper maturing in nine months or less from the date of purchase if
rated A-1 by S&P or Prime-1 by Moody's, or debt obligations rated at least AA by
S&P or at least Aa by Moody's. The Portfolio may also invest in repurchase
agreements maturing in seven days or less with Federal Reserve System banks or
with dealers in U.S. Government securities; and negotiable certificates of
deposit, bankers' acceptances, fixed-time deposits, and other obligations of
federally chartered domestic banks, savings banks, or savings and loan
associations having total assets of $1 billion or more.
THE RISKS OF INVESTING
Since the Portfolio invests in U.S. common stocks, investment grade bonds and
Money Market instruments, its returns may, and probably will vary. Your cash
values and maybe the death benefit of your Policy will vary with the investment
performance of the Portfolio(s) you select. Poor investment performance may
result in the cash values in your insurance Policy declining. Loss of money is a
risk of investing in the Portfolio. There is no assurance the Portfolio's
investment objectives will be achieved. While the Portfolio may compare its
performance returns, for benchmark purposes, to the performance returns of broad
based indices such as the S&P 500 Index and the Lehman Brothers Aggregate Bond
Index ("Lehman Index"), the Portfolio is not managed to replicate the securities
contained in those indices, and may achieve returns less than those indices.
In entering into a Repurchase Agreement, the Portfolio bears the risk of loss in
the event the other party to the transaction defaults on its obligations. In
such a case the Portfolio would be delayed, or prevented from, exercising its
rights to dispose of the underlying securities, including the risk of possible
decline in the value of the underlying securities during the period in which the
Portfolio seeks to assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of losing all or part of the
income from the agreement.
Participation in the options market involves investment risks and transaction
costs which the Portfolio would not be subject to if it didn't use this
strategy. If its predictions of price movement are inaccurate, the Portfolio
might be in a worse position than if the strategy were not used.
Neither the Fund, the investments of the Portfolio, the Policies cash values,
nor the death benefit are guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
DIVERSIFICATION
Each Portfolio operates as a "diversified" fund. In addition, each Portfolio
intends to conduct its operations so that it will comply with diversification
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and qualify as a "regulated investment company." In order to
qualify as a regulated investment company, each Portfolio must limit its
investments so that at the close of each quarter of the taxable year, with
respect to at least 50% of its total assets, not more than 5% of its total
assets will be invested in the securities of a single issuer. The Code requires
that not more than 25% in value of each Portfolio's total assets may be invested
in the securities of a single issuer at the close of each quarter of the taxable
16
<PAGE>
year. These restrictions do not apply to investments in U.S. government
securities. The 25% limit does not apply to the Money Market Portfolio or the
Bond Portfolio for securities or obligations issued by U.S. Banks.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The following risk factors are applicable to all Portfolios:
GENERALLY
The value of a Portfolio's investments, and as a result the net asset value of
the Portfolio shares, will fluctuate in response to changes in the market and
economic conditions as well as the financial condition and prospects of issuers
in which the Portfolio invests. Because of the risks associated with the Fund's
investments, the Fund is intended as a long term investment vehicle for Variable
Life Insurance Policies and is not designed to provide policyholders with a
means of speculating on short-term stock or bond market movements. While the
Fund may compare its total returns for benchmarking purposes to the total
returns of broad based securities indices (such as the S&P 500), the Fund is not
managed to replicate the securities contained in such indices and therefore may
achieve returns which are less than such indices.
INVESTMENTS IN FOREIGN SECURITIES. There are certain risks in owning foreign
securities, including those resulting from: fluctuations in currency exchange
rates; devaluation of currencies; political or economic developments and the
possible imposition of currency exchange blockages or other foreign governmental
laws or restrictions; reduced availability of public information concerning
issuers; accounting, auditing and financial reporting standards or other
regulatory practices and requirements that are not uniform when compared to
those applicable to domestic companies; settlement and clearance procedures in
some countries that may not be reliable and can result in delays in settlement;
higher transaction and custody expenses than for domestic securities; and
limitations on foreign ownership of equity securities. Also, securities of many
foreign companies may be less liquid and the prices more volatile than those of
domestic companies. With certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation and limitations on the use
or removal of funds or other assets of the Portfolios, including the withholding
of dividends.
CORPORATE DEBT SECURITIES. Corporate debt securities are subject to the risk of
the issuer's inability to meet principal and interest payments on the obligation
and may also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the credit-worthiness of the issuer and
general market liquidity. When interest rates decline, the value of a
Portfolio's debt securities can be expected to rise, and when interest rates
rise, the value of those securities can be expected to decline. Debt securities
with longer maturities tend to be more sensitive to interest rate movements than
those with shorter maturities.
One measure of risk for fixed income securities is duration. Duration is one of
the tools used by a portfolio manager in selection of fixed income securities.
Historically, the maturity of a bond was used as a proxy for the sensitivity of
a bond's price to changes in interest rates, otherwise known as a bond's
"interest rate risk" or "volatility." According to this measure, the longer the
maturity of a bond, the more its price will change for a given change in market
interest rates. However, this method ignores the amount and timing of all cash
flows from the bond prior to final maturity. 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. For
point of reference, the duration of a noncallable 7% coupon bond with a
remaining maturity of 5 years is approximately 4.5 years, and the duration of a
noncallable 7% coupon bond with a remaining maturity of 10 years is
approximately 8 years. Material changes in interest rates may impact the
duration calculation.
U.S. GOVERNMENT SECURITIES. Some U.S. Government agency securities may be
subject to varying degrees of credit risk, particularly those not backed by the
full faith and credit of the United States Government. All U.S. Government
securities may be subject to price declines in the securities due to changing
interest rates.
17
<PAGE>
CONVERTIBLE SECURITIES. The price of a convertible security will normally
fluctuate in some proportion to changes in the price of the underlying equity
security, and as such is subject to risks relating to the activities of the
issuer and general market and economic conditions. The income component of
convertible securities causes fluctuations based upon changes in interest rates
and the credit quality of the issuer. Convertible securities are often lower
rated securities. A Portfolio may be required to redeem or convert a convertible
security before the holder would otherwise choose.
REPURCHASE AGREEMENTS. In entering into a repurchase agreement, the Portfolio
bears a risk of loss in the event that the other party to the transaction
defaults on its obligations and the Portfolio is delayed, or prevented from,
exercising its rights to dispose of the underlying securities, including the
risk of possible decline in the value of the underlying securities during the
period in which the Portfolio seeks to assert its rights to them, the risk of
incurring expenses associated with asserting those rights and the risk of losing
all or part of the income from the agreement.
TEMPORARY DEFENSIVE STRATEGIES. When the adviser or sub-adviser to a Portfolio,
as the case may be, anticipates unusual market or other conditions, the
Portfolio may temporarily depart from its principal investment strategies as a
defensive measure. To the extent that a Portfolio invests defensively, it likely
will not achieve capital appreciation.
The following risk factor is applicable to the Stock and Asset Allocation
Portfolios:
OPTIONS. Participation in the options market involves investment risks and
transaction costs to which the Portfolio would not be subject, absent the use of
this strategy. If predictions of movements in the direction of the securities
and interest rate markets are inaccurate, the adverse consequences to the
Portfolio may leave it in a worse position than if such strategy was not used.
Risks inherent in the use of options include: (a) dependency on the ability of
the Portfolio Manager, as the case may be, to predict correctly movements in the
direction of interest rates and securities prices; (b) imperfect correlation
between the price of options and movements in the prices of the securities; (c)
the fact that the skills needed to use these strategies are unique to this
investment technique; and (d) the possible need to defer closing out certain
positions.
MANAGEMENT OF THE PORTFOLIOS
INVESTMENT ADVISERS
Since April 1, 1995, ReliaStar Investment Research, Inc. ("RIRI") (formerly,
Washington Square Advisers, Inc.), 100 Washington Avenue, Minneapolis, MN 55401,
an affiliate of the insurance companies issuing the Policies, has served as the
investment adviser to the Fund's four Portfolios and is responsible for the
day-to-day management of the Money Market and Bond Portfolios, and the
non-equity portion of the Asset Allocation Portfolio and other business affairs.
RIRI and its predecessors have been managing investment assets for their
affiliated insurance companies since 1983 and currently manages $14.7 billion of
fixed income assets for their affiliates.
It furnishes continuous advice and recommendations concerning the Portfolios'
non-equity investments. It also furnishes certain administrative, compliance,
legal and accounting services for the Fund, and it or its affiliated companies
may be reimbursed by the Fund for its costs (up to a cap of 0.65% of Portfolio's
average daily net assets) in providing those services. In addition, employees of
companies affiliated with RIRI serve as officers of the Fund, and these
companies provide office space for the Fund and pay the salaries, fees and
expenses of certain Fund officers.
Under the Investment Advisory Agreement, the Adviser is compensated for its
services at a quarterly fee based on an annual percentage of the average daily
net assets of each Portfolio. For each Portfolio, the Fund pays the Adviser a
fee at a maximum annual rate based on the following schedule:
* 0.50% of the first $100 million of the average daily net assets of the
Portfolio
* 0.45% of the average daily net assets of the Portfolio in excess of $100
million
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<PAGE>
The table below shows the aggregate annual advisory fee paid by each Portfolio
for the most recent fiscal year as a percentage of that Portfolio's average
daily net assets.
Portfolio Advisory Fee
--------- ------------
Stock Portfolio 0.25%
Money Market Portfolio 0.25%
Bond Portfolio 0.25%
Asset Allocation Portfolio 0.25%
Effective October 1, 1999, the Fund, RIRI and Pilgrim Investments, Inc.
("Pilgrim Investments") (formerly Northstar Investment Management Corporation)
entered into a Sub-Advisory Agreement under which Pilgrim Investments, 40 North
Central Ave., Suite 1200, Phoenix, AZ 85004 provides advisory services to the
Stock Portfolio and the equity portion of the Asset Allocation Portfolio of the
Fund, and is responsible for the day-to-day management of those assets.
Pilgrim Investments is an indirect wholly-owned subsidiary of ReliaStar
Financial Corp. ("ReliaStar") (NYSE: RLR). Through its subsidiaries, ReliaStar
offers individuals and institutions life insurance and annuities, employee
benefits products and services, life and health reinsurance, retirement plans,
mutual funds, bank products, and personal finance education. Prior to April 30,
2000, Pilgrim Advisors, Inc. ("Pilgrim Advisors") served as investment
sub-adviser to the stock portfolio and the equity portion of the Asset
Allocation Portfolio. On April 30, 2000, Pilgrim Advisors, an indirect
wholly-owned subsidiary of ReliaStar, merged with Pilgrim Investments. Pilgrim
Advisors and Pilgrim Investments were sister companies and shared certain
resources and investment personnel.
Pilgrim Investments is a registered investment adviser that currently manages
over $16.6 billion in assets.
As compensation for the services provided by the Sub-Adviser under the
Sub-Advisory Agreement, the Advisor pays the Sub-Adviser at the end of each
calendar month an advisory fee computed daily at an annual rate equal to 0.45 of
1.00% of the average daily net asset value of the Portfolio assets managed by
the Sub-Advisor.
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<PAGE>
PORTFOLIO MANAGERS
Mary Lisanti has been responsible for the day-to-day management of the Stock
Portfolio and the equity portion of the Asset Allocation Portfolio since October
1, 1999. Ms. Lisanti joined Pilgrim Investments in May 1998. She has over 20
years of experience in small- and mid-cap investments. Before joining Pilgrim
Investments, Ms. Lisanti was a Portfolio Manager at Strong Capital Management
where she managed the Strong Small Cap Fund and co-managed the Strong Mid Cap
Fund. From 1993 to 1996, Ms. Lisanti was a Managing Director and Head of Small-
and Mid-Capitalization Equity Strategies at Bankers Trust Corp. where she
managed the BT Small Cap Fund and the BT Capital Appreciation Fund. Prior to
Bankers Trust, Ms. Lisanti was a Portfolio Manager with the Evergreen Funds. She
began her career as an Analyst specializing in emerging growth stocks with
Donaldson, Lufkin & Jenrette and Shearson Lehman Hutton, and was ranked the
number one Institutional Investor Emerging Growth Stock Analyst in 1989. She is
a Chartered Financial Analyst, and a Member of the New York Society of Security
Analysts and the Financial Analyst Federation.
The Money Market and Bond Portfolios, and that portion of the Asset Allocation
Portfolio which invests in bonds and money market assets, is managed by James L.
Mahnke. He has been the Portfolio Manager for these assets since August, 1997.
He is a Senior Vice President and Portfolio Manager of the Adviser, RIRI, where
he has served in its investment department since October, 1995. Previously he
was employed by Alliance Capital Management, L.P. from 1987 to 1995; first as an
Analyst and then as a Vice President and Portfolio Manager. He has a Masters
Degree in Agricultural Economics from Purdue University.
OTHER EXPENSES
The Fund bears all costs of its operations. Such costs include fees to the
Adviser, shareholder servicing costs, trustees' fees and expenses, legal,
accounting services, auditing fees, custodian fees, printing and supplies,
registration fees, and others. 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. In 1999, 1998 and 1997, the Fund paid $271,170, $206,668 and $240,886
respectively, for these services.
TOTAL EXPENSES
In 1999, the management fee (computed on an annualized basis as a percentage of
the net asset value of each Portfolio) and the total operating expenses as a
percentage of average net assets of each Portfolio were as follows:
Total Expenses
Portfolio Management Fee* (Including Management Fees)
- --------- -------------- ---------------------------
Common Stock Portfolio 0.25% 0.90%
Money Market Portfolio 0.25% 0.90%
Bond Portfolio 0.25% 0.90%
Asset Allocation Portfolio 0.25% 0.90%
*The Policies contain a contractual provision limiting the annual amount
Policyholders can be charged for management fees to 0.25%. Any management fees
above that amount are paid by the insurance companies. If this limit, which is
contractual, was not available, the management fees paid by the Portfolios would
have been: Stock, 0.45%; Money Market, 0.25%; Bond, 0.25%; and Asset Allocation,
0.36%.
PRICING OF PORTFOLIO SHARES
The price of Portfolio shares is based on the Portfolio's net asset value
("NAV"). All purchases, redemptions and exchanges will be processed at the NAV
next calculated after a request is received and accepted by the Portfolio. The
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<PAGE>
Portfolio's NAV is calculated at the close of the regular trading session of the
NYSE (normally 4:00 p.m. New York time) each day that the NYSE is open. The NAV
of Portfolio shares is not determined on days the NYSE is closed (generally, New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas). In order to receive a
day's price, the order must be received by the close of the regular trading
session of the NYSE. Securities are valued at market value or, if a market
quotation is not readily available, at their fair value determined in good faith
under procedures established by and under the supervision of the Trustees.
Short-term instruments maturing within 60 days are valued at amortized cost,
which approximates market value.
DISTRIBUTIONS AND TAXES
To avoid taxation, the Internal Revenue Code requires the Fund to distribute net
income and any net capital gains realized on its investments annually. The
Fund's income from dividends and interest and any net realized short-term
capital gains are paid to shareholders as ordinary income dividends. Net
realized long-term gains are paid to shareholders as capital gains
distributions.
As a contract owner invested in a Portfolio, you are entitled to a share of the
income and capital gains that the portfolio distributes. The amount you receive
is based on the number of shares you own.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each
Portfolio's financial performance for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned [or lost] on a
direct investment in the Portfolio (assuming reinvestment of all dividends and
distributions) but does not include charges and expenses attributable to any
insurance product.
The information for the years ended December 31, 1999, 1998, 1997, 1996 and 1995
has been audited by independent auditors whose report, along with the Fund's
financial statements, are included in the Fund's annual report, and is available
on request at no charge, by calling 1-800-333-6965.
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<PAGE>
USLICO SERIES FUND
STOCK PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of year $ 13.64 $ 13.50 $ 13.25 $ 12.62 $ 10.37
Income from investment operations:
Net investment income 0.12 0.20 0.27 0.34 0.36
Net Gains or Losses on Securities
(both realized and unrealized) 3.93 0.62 3.05 2.55 2.95
---------- ----------- ----------- ----------- -----------
Total from investment operations 4.05 0.82 3.32 2.89 3.31
Less Distributions:
Dividends from net investment income (0.13) (0.20) (0.27) (0.33) (0.37)
Distribution from capital gains (1.50) (0.48) (2.80) (1.93) (0.69)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 16.06 $ 13.64 $ 13.50 $ 13.25 $ 12.62
=========== =========== =========== =========== ===========
Total return 30.08% 6.00% 25.06% 22.90% 31.92%
RATIO/SUPPLEMENT DATA
Net assets, end of year $34,492,899 $27,774,017 $27,291,645 $23,558,091 $19,968,336
Ratio of expenses to average net assets 0.90% 0.75% 0.73% 0.75% 0.63%
Ratio of net investment income to average
net assets 0.84% 1.49% 1.87% 2.50% 3.07%
Portfolio turnover rate 305.87% 172.22% 88.55% 79.17% 62.51%
</TABLE>
22
<PAGE>
USLICO SERIES FUND
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income 0.04 0.05 0.05 0.05 0.05
Net Gains or Losses on Securities
(both realized and unrealized) -- -- -- -- --
--------- ---------- ---------- ---------- ----------
Total from investment operations 0.04 0.05 0.05 0.05 0.05
Less Distributions:
Dividends from net investment income (0.04) (0.05) (0.05) (0.05) (0.05)
Distribution from capital gains -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total return (1) 5.00% 5.00% 5.00% 5.00% 5.00%
RATIO/SUPPLEMENT DATA
Net assets, end of year $6,057,717 $5,963,727 $5,784,312 $5,979,861 $5,819,470
Ratio of expenses to average net assets 0.90% 0.75% 0.75% 0.75% 0.63%
Ratio of net investment income to average
net assets 4.27% 4.79% 4.88% 4.77% 5.37%
Portfolio turnover rate N/A N/A N/A N/A N/A
</TABLE>
23
<PAGE>
USLICO SERIES FUND
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of year $ 9.74 $ 10.00 $ 10.02 $ 10.38 $ 9.41
Income from investment operations:
Net investment income 0.46 0.55 0.59 0.64 0.66
Net Gains or Losses on Securities
(both realized and unrealized) (0.73) (0.13) 0.12 (0.36) 1.04
--------- ---------- ---------- ---------- ----------
Total from investment operations (0.27) 0.42 0.71 0.28 1.70
Less Distributions:
Dividends from net investment income (0.46) (0.55) (0.59) (0.64) (0.66)
Distribution from capital gains -- (0.13) (0.14) -- (0.07)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 9.01 $ 9.74 $ 10.00 $ 10.02 $ 10.38
========== ========== ========== ========== ==========
Total return (2.87)% 4.30% 7.09% 2.70% 18.07%
RATIO/SUPPLEMENT DATA
Net assets, end of year $2,765,136 $2,831,882 $2,802,374 $2,783,385 $3,068,825
Ratio of expenses to average net assets 0.90% 0.75% 0.75% 0.75% 0.63%
Ratio of net investment income to average
net assets 4.88% 5.50% 5.88% 6.45% 6.49%
Portfolio turnover rate 45.74% 90.97% 117.24% 47.37% 32.67%
</TABLE>
24
<PAGE>
USLICO SERIES FUND
ASSET ALLOCATION PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of year $ 11.92 $ 11.98 $ 11.85 $ 11.82 $ 10.18
Income from investment operations:
Net investment income 0.31 0.39 0.46 0.53 0.55
Net Gains or Losses on Securities
(both realized and unrealized) 1.48 0.27 1.51 0.94 2.01
---------- ----------- ----------- ----------- -----------
Total from investment operations 1.79 0.66 1.97 1.47 2.56
Less Distributions:
Dividends from net investment income (0.31) (0.39) (0.46) (0.53) (0.55)
Distribution from capital gains (0.72) (0.33) (1.38) (0.91) (0.37)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 12.68 $ 11.92 $ 11.98 $ 11.85 $ 11.82
=========== =========== =========== =========== ===========
Total return 15.10% 5.51% 16.62% 12.44% 25.15%
RATIO/SUPPLEMENT DATA
Net assets, end of year $18,179,732 $16,335,368 $15,900,094 $14,614,568 $13,675,779
Ratio of expenses to average net assets 0.90% 0.75% 0.74% 0.75% 0.63%
Ratio of net investment income to average
net assets 2.58% 3.19% 3.68% 4.39% 4.81%
Portfolio turnover rate 227.49% 135.68% 104.30% 61.98% 44.97%
</TABLE>
25
<PAGE>
FOR MORE INFORMATION
If you would like more information about the USLICO Series Fund and its four
Portfolios, the following documents are available free upon request:
ANNUAL AND SEMIANNUAL REPORT TO POLICY OWNERS
Additional information about the Fund's investments, including a list of its
Portfolios' holdings, is available in the Fund's annual and semiannual reports
to policy owners, which are incorporated herein by reference. In the Fund's
annual report, you will find, except for the Money Market Portfolio, a
discussion of the market conditions and investment strategies that significantly
affected each portfolio's performance during its most recent fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the Fund and is incorporated
herein by reference.
To receive a free copy of the latest annual or semiannual report or the SAI, or
to request additional information or make inquiries about the Fund, please
contact us as follows:
USLICO Series Fund
c/o ReliaStar Service Center
PO Box 5050
Minot, ND 58702-5050
1-877-884-5050
This information may also be reviewed or obtained from the SEC. In order to
review the information in person, you will need to visit the SEC's Public
Reference Room in Washington, D.C. or call 202-942-8090. Otherwise, you may
obtain the information for a fee by contacting the SEC at:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-0102
or at the e-mail address: [email protected]
Or obtain the information at no cost by visiting the SEC's Internet website at
http://www.sec.gov.
When contacting the SEC, you will want to refer to the Fund's SEC file number.
The file number is as follows:
File number 811-05451
28
<PAGE>
USLICO SERIES FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
USLICO Series Fund (the "Fund") is an open-end, diversified management
investment company consisting of four separate investment Portfolios: the Stock
Portfolio, the Money Market Portfolio, the Bond Portfolio, and the Asset
Allocation Portfolio.
The Statement of Additional Information is intended to supplement the
information provided to investors in the Prospectus dated April 30, 2000, of the
USLICO Series Fund, and has been filed with the Securities and Exchange
Commission as part of the Fund's Registration Statement. This Statement of
Additional Information 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 Statement of Additional Information 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 number listed
below.
USLICO Series Fund
c/o ReliaStar Life Service Center
PO Box 5050
Minot, N.D. 58702-5050
(877) 884-5050
<PAGE>
TABLE OF CONTENTS
Page
----
TABLE OF CONTENTS........................................................... 2
INTRODUCTION................................................................ 3
GENERAL INFORMATION......................................................... 3
INVESTMENT RESTRICTIONS..................................................... 3
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES......................... 4
Mortgage-Related Securities............................................... 4
Bank Obligations.......................................................... 5
Corporate Debt Securities................................................. 5
Commercial Paper.......................................................... 5
Repurchase Agreements..................................................... 6
Options................................................................... 6
Risks Associated with Call Options on Securities.......................... 7
Temporary Defensive Policy................................................ 7
MANAGEMENT OF THE FUND...................................................... 7
Trustees.................................................................. 7
Compensation of Trustees.................................................. 9
Officers.................................................................. 12
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......................... 12
THE INVESTMENT ADVISER AND SUB-ADVISER...................................... 13
DISTRIBUTION OF FUND SHARES................................................. 15
Suspension of Redemptions................................................. 15
CUSTODIAN................................................................... 15
ADMINISTRATIVE SERVICES AGREEMENT........................................... 15
LEGAL COUNSEL............................................................... 16
INDEPENDENT AUDITORS........................................................ 16
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 16
Brokerage and Research Services........................................... 16
Portfolio Turnover........................................................ 17
NET ASSET VALUE............................................................. 17
CALCULATION OF PERFORMANCE DATA............................................. 18
THE MONEY MARKET PORTFOLIO YIELD............................................ 18
THE STOCK PORTFOLIO, THE BOND PORTFOLIO, AND THE ASSET
ALLOCATION PORTFOLIO - AVERAGE ANNUAL TOTAL RETURN........................ 19
THE STOCK PORTFOLIO, THE BOND PORTFOLIO, THE ASSET
ALLOCATION PORTFOLIO - CUMULATIVE TOTAL RETURN............................ 20
PERFORMANCE COMPARISONS..................................................... 20
TAXATION.................................................................... 20
Distributions............................................................. 21
ADDITIONAL INFORMATION...................................................... 21
Shareholder Meetings...................................................... 21
Liability................................................................. 21
FINANCIAL STATEMENTS........................................................ 21
APPENDIX A.................................................................. A-1
APPENDIX B.................................................................. B-1
B-2
<PAGE>
INTRODUCTION
This Statement of Additional Information is designed to elaborate upon the
discussion of certain securities and investment strategies which are described
in the Prospectus. 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
strategies.
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information or the Prospectus dated April 30, 2000, and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund. This Statement of Additional Information does not constitute an
offer to sell securities in any state or jurisdiction in which such offering may
not lawfully be made. The delivery of this Statement of Additional Information
at any time shall not imply that there has been no change in the affairs of the
Fund since the date hereof.
GENERAL INFORMATION
The Fund is an open-end diversified management investment company
registered under the Investment Company Act of 1940 and consists of four
separate series (Portfolios), each of which has its own investment objectives
and policies. The Fund was organized as a business trust under the laws of
Massachusetts on January 19, 1988. On January 17, 1995, ReliaStar United
Services Life Insurance Company (hereinafter "RUSL" and formerly known as
"United Services Life Insurance Company") and ReliaStar Life Insurance Company
of New York (herein after "RLNY" and formerly known as "ReliaStar Bankers
Security Life Insurance Company" and "Bankers Security Life Insurance Society")
became wholly-owned subsidiaries of ReliaStar Financial Corp. ("ReliaStar"),
previously the NWNL Companies, Inc., an insurance holding company based in
Minneapolis, Minnesota. On December 31, 1998, RUSL was merged into ReliaStar
Life Insurance Company ("RL").
Shares of the Portfolios are sold only to separate accounts of RL and RLNY
to serve as the investment medium for variable life insurance policies issued by
these companies. Each Portfolio share outstanding represents a beneficial
interest in the respective Portfolio and carries a par value of $.001. The Fund
has an unlimited number of shares authorized. All shares are non-assessable and
fully transfer when issued and paid for in accordance thereof. The Fund sends
its contract holders annual audited financial statements and six-month unaudited
financial statements.
INVESTMENT RESTRICTIONS
Each Portfolio's investment objective, together with the investment
restrictions 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 (i) 67% or more of the voting securities present at such
meeting, if the holders of more than 50% of the outstanding securities of such
portfolio are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities of such Portfolio, whichever is less.
Unless otherwise stated, each of the following policies applies to each of
the Portfolios. An existing Portfolio may not:
1. Purchase securities on margin or make short sales;
2. Invest more than 25% of its total assets in securities of any one
particular industry nor invest more than 5% of its assets in any one
issuer, except that these restrictions do not apply to investments in
U.S. Government securities and the 25% limit does not apply to the
Money Market or Bond Portfolios for securities or obligations issued
by U.S. banks;
3. Invest in more than 10% of any issuer's outstanding voting securities;
B-3
<PAGE>
4. Invest in securities of other investment companies;
5. Participate in the underwriting of securities;
6. Borrow, pledge, or hypothecate its assets, except that a Portfolio may
borrow from banks for temporary purposes, but any such borrowing is
limited to an amount equal to 25% of a Portfolio's net assets and a
Portfolio will not purchase additional securities while borrowing
funds in excess of 5% of that Portfolio's net assets;
7. Invest for the purpose of exercising control over any company;
8. Invest in commodities or commodity contracts;
9. Purchase warrants, or write, purchase, or sell puts, calls, straddles,
spreads, or combinations thereof, except the Stock and Asset
Allocation Portfolios may write covered call options as described in
their sections;
10. Make investments in real estate or mortgages except that a Portfolio
may purchase readily marketable securities of companies holding real
estate or interest therein, or in oil, gas, or development programs;
11. Purchase securities having legal or contractual restrictions on
resale;
12. Make any loans of securities or cash, except that a Portfolio may,
consistent with its investment objective and policies, (i) invest in
debt obligations including bonds, debentures, or other debt
securities, bank and other depository institution obligations, and
commercial paper, even though the purchase of such obligations may be
deemed the making of loans, and (ii) enter into repurchase agreements;
13. Issue senior securities; and
14. Invest more than 10% of its total assets in repurchase agreements
maturing in more than seven days or in portfolio securities that are
not readily marketable.
ADDITIONAL INVESTMENT RESTRICTIONS APPLICABLE
TO THE MONEY MARKET AND BOND PORTFOLIOS
The Fund has adopted the following investment restrictions applicable only to
the Money Market and Bond Portfolios under which such Portfolios may not do the
following:
1. Invest in common stocks or other equity securities; and
2. Invest in securities of companies which, together with predecessor
companies, have a record of less than five years continuous
operations.
If a percentage restriction is adhered to at the time of an investment for any
Portfolio, a later increase or decrease in percentage resulting from a change in
the value of portfolio securities or the amount of the Portfolio's net assets
will not be considered a violation of any of the foregoing restrictions.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
MORTGAGE-RELATED SECURITIES
The Bond and Asset Allocation Portfolios may invest in GNMA certificates
and FNMA and FHLMC mortgage-backed obligations. Mortgage-related securities are
interests in pools of mortgage loans made to residential homebuyers, including
mortgage loans made by savings and loan institutions, mortgage bankers,
commercial banks and others. Pools of mortgage loans are assembled as securities
for sale to investors by various governmental and government-related
organizations.
B-4
<PAGE>
GNMA Certificates: GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans for 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 FHA-insured or VA-guaranteed mortgages. 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.
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
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Association ("FHLMC"). FNMA, a federally-chartered and privately-owned
corporation, issues pass-through securities representing interest 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.
BANK OBLIGATIONS
Bank obligations in which all Portfolios may invest include certificates of
deposit, bankers' acceptances and fixed time deposits.
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 are
dependent upon the market conditions and the remaining maturity of obligations.
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 any security issued by a commercial bank
unless the bank is federally-chartered and has total assets of at least U.S. $1
billion, or the equivalent in other currencies. All Portfolios may invest in
obligations of savings banks. A Portfolio will not invest in any security issued
by a savings bank unless such institution is federally-chartered and has total
assets of at least $1 billion.
CORPORATE DEBT SECURITIES
All Portfolios may invest in corporate debt securities or obligations. The
investment return of corporate debt securities reflects interest earnings and
changes in the market value of the security. The market value of a corporate
debt obligation may also 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.
COMMERCIAL PAPER
All of the Portfolios may invest in commercial paper (including variable
amount master demand notes) issued by U.S. corporations (1) that have the rating
designated for the applicable Portfolio as described in the Prospectus, or (2)
if not rated, are determined to be of an investment quality comparable to rated
commercial paper in which a Portfolio may invest.
B-5
<PAGE>
REPURCHASE AGREEMENTS
All Portfolios may invest in repurchase agreements. 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 month (up to one year) from
the date of delivery. The resale price is in excess of the purchase price by an
amount which reflect 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.
Under the Investment Company Act of 1940 (the "1940 Act"), repurchase
agreements are considered to be loans by the purchaser collateralized by the
underlying securities. The adviser or subadviser, as the case may be, to a
Portfolio will monitor the value of the underlying securities at the time a
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 to a portfolio, in
accordance with procedures established by the Board of Trustees, will also
evaluate the creditworthiness and financial responsibility of the banks and
broker-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 ten percent
(10%) of the net assets of the 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
liquidation of the securities.
OPTIONS
In pursuing their investment objectives, the Stock and Asset Allocation
Portfolios may engage in the writing of call options on debt securities.
Writing Options on Securities: The Portfolios may write (sell) call options
on debt or other securities in standardized contracts traded on national
securities exchanges or boards of trade.
A call option on a security is a contract that gives the holder of the
call, in return for a premium, the right to buy the underlying security from the
writer of the option at a specified exercise price at any time during the term
of the option. The writer of a call option on a security has the obligation upon
exercise of the option to deliver the underlying security upon payment of the
exercise price.
A Portfolio may write call 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 placed in a segregated account by its custodian) upon conversion or
exchange of other securities held by the Portfolio.
If an option written by a Portfolio expires unexercised, the Portfolio
realizes a capital gain equal to the premium received at the time the option was
written. If an option purchased by a Portfolio expires unexercised, the
Portfolio realized a capital loss equal to the premium paid.
A Portfolio may purchase a call only in a "closing purchase transaction" to
terminate its obligation on a call that it has written. Prior to the earlier of
exercise or expiration of the call, an option may be closed out by an offsetting
purchase of a call option of the same series (type, exchange, underlying
security, exercise price and expiration). There can be no assurance, however,
that a closing purchase transaction can be effected when the Portfolio desires.
B-6
<PAGE>
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. The
principal factors affecting the market value of 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 received for an option written by a Portfolio is recorded as a
deferred credit. The value of the option is marked-to-market daily and is valued
at the closing price on the exchange or board of trade on which it is traded,
or, if no closing price is available, at the mean between the last bid and asked
prices.
RISKS ASSOCIATED WITH CALL OPTIONS ON SECURITIES
There are several risks associated with writing call options on securities.
For example, there are significant differences between the securities and option
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when, and how to use a call option 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 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 a writer
of a covered call option, a Portfolio foregoes, 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 written 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.
TEMPORARY DEFENSIVE POLICY
Each Portfolio will retain a flexible approach to the investment of funds
and the Portfolio's composition may vary with the economic outlook. The
Portfolio may invest in U.S. Governmental securities, commercial paper, and
other money market instruments, including repurchase agreements maturing in
seven days or less. When, in the judgment of the investment manager, current
cash needs or market or economic conditions warrant a temporary defensive
position, the Portfolio may invest to a greater degree in such short-term U.S.
Government securities, commercial paper, and other money market instruments.
Taking temporary defensive positions may reduce the chances of the Portfolio
achieving its investment objectives.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of its
Board of Trustees according to applicable laws of the Commonwealth of
Massachusetts and the Fund's Declaration and Agreement of Trust.
TRUSTEES
The Trustees of the Fund are listed below. An asterisk (*) has been placed
next to the name of each Trustee who is an "interested person," as that term is
defined in the 1940 Act, by virtue of that person's affiliation with the Fund's
Investment Adviser, ReliaStar Investment Research, Inc. ("RIRI"). Unless
otherwise noted, the mailing address of the Trustees is 40 North Central Avenue,
Suite 1200, Phoenix, Arizona 85004. The Board of Trustees governs the Fund and
is responsible for protecting the interests of shareholders. The Trustees are
experienced executives who oversee the Fund's activities, review contractual
arrangements with companies that provide services to the Fund, and review the
Fund's performance.
B-7
<PAGE>
The Trustees are as follows:
MARY A. BALDWIN, PH.D. (Age 60) Trustee. Realtor, Coldwell Banker Success Realty
(formerly, The Prudential Arizona Realty) for more than the last five years. Ms.
Baldwin is also Vice President, United States Olympic Committee (November 1996 -
Present), and formerly Treasurer, United States Olympic Committee (November 1992
- - November 1996). Ms. Baldwin is also a Director, Trustee, or a member of the
Advisory Board of each of the Funds managed by the Sub-Adviser.
AL BURTON. (Age 72) Trustee. President of Al Burton Productions for more than
the last five years; formerly Vice President, First Run Syndication, Castle Rock
Entertainment (July 1992 - November 1994). Mr. Burton is also a Director,
Trustee, or a member of the Advisory Board of each of the Funds managed by the
Sub-Adviser.
PAUL S. DOHERTY. (Age 66) Trustee. President, of Doherty, Wallace, Pillsbury and
Murphy, P.C., Attorneys. Mr. Doherty was formerly a Director of Tambrands, Inc.
(1993 - 1998). Mr. Doherty is also a Director and/or Trustee of each of the
Funds managed by the Sub-Adviser.
ROBERT B. GOODE. (Age 69) Trustee. Currently retired. Mr. Goode was formerly
Chairman of American Direct Business Insurance Agency, Inc. (1996 - 2000),
Chairman of The First Reinsurance Company of Hartford (1990-1991) and President
and Director of American Skandis Life Assurance Company (1987-1989). Mr. Goode
is also a Director and/or Trustee of each of the Funds managed by the
Sub-Adviser.
ALAN L. GOSULE. (Age 59) Trustee. Partner, Rogers & Wells (since 1991). Mr.
Gosule is a Director of F.L. Putnam Investment Management Co., Inc, Simpson
Housing Limited Partnership, Home Properties of New York, Inc., CORE Cap, Inc.
and Colonnade Partners. Mr. Gosule is also a Director and/or Trustee of each of
the Funds managed by the Sub-Adviser.
*MARK LIPSON. (Age 51) Trustee. Chairman and Director of Pilgrim Advisors, Inc.,
and Director of Pilgrim Funding, Inc. Mr. Lipson was formerly Chairman of
Pilgrim Capital Corporation and Northstar Distributors, Inc.; Director of
Northstar Administrators Corporation; President of Pilgrim Funding, Inc.;
Director, President and Chief Executive Officer of National Securities &
Research Corporation; and Director/Trustee and President of the National
Affiliated Investment Companies and certain of National's subsidiaries (prior to
August 1993). Mr. Lipson is also a Director and/or Trustee of each of the Funds
managed by the Sub-Adviser.
WALTER H. MAY. (Age 63) Trustee. Retired. Mr. May was formerly Managing Director
and Director of Marketing for Piper Jaffray, Inc. Mr. May is also a Director
and/or Trustee of each of the Funds managed by the Sub-Adviser.
JOCK PATTON. (Age 54) Trustee. Private Investor. Director of Hypercom
Corporation (since January 1999), and JDA Software Group, Inc. (since January
1999). Mr. Patton is, also, a Director of Buick of Scottsdale, Inc., National
Airlines, Inc., BG Associates, Inc. , BK Entertainment, Inc., Arizona
Rotorcraft, Inc. and Director and Chief Executive Officer of Rainbow Multimedia
Group, Inc. Mr. Patton was formerly Director of Stuart Entertainment, Inc.,
Director of Artisoft, Inc. (August 1994 - July 1998); President and Co-owner of
StockVal, Inc. (April 1993 - June 1997) and a Partner and Director of the law
firm of Streich, Lang, P.A. (1972 - 1993). Mr. Patton is also a Director,
Trustee, or a member of the Advisory Board of each of the Funds managed by the
Sub-Adviser.
DAVID W.C. PUTNAM. (Age 60) Trustee. President and Director of F.L. Putnam
Securities Company, Inc. and affiliates. Mr. Putnam is Director of Anchor
Investment Trusts, the Principled Equity Market Trust, and Progressive Capital
Accumulation Trust. Mr. Putnam was formerly Director of Trust Realty Corp. and
Bow Ridge Mining Co. Mr. Putnam is also a Director and/or Trustee of each of the
Funds managed by the Sub-Adviser.
B-8
<PAGE>
JOHN R. SMITH. (Age 76) Trustee. President of New England Fiduciary Company
(since 1991). Mr. Smith is Chairman of Massachusetts Educational Financing
Authority (since 1987), Vice Chairman of Massachusetts Health and Education
Authority (since 1979), Vice-Chairman of MHI, Inc. (Massachusetts non-profit
Energy Purchasers Consortium) (since 1996), and formerly Financial Vice
President of Boston College (1970-1991). Mr. Smith is also a Director and/or
Trustee of each of the Funds managed by the Sub-Adviser.
*ROBERT W. STALLINGS. (Age 51) Trustee. Chief Executive Officer and President.
Chairman, Chief Executive Officer and President of Pilgrim Group, Inc. ("Pilgrim
Group") (since December 1994); Chairman, Pilgrim Investments, Inc. (since
December 1994); Chairman, Pilgrim Securities, Inc. ("Pilgrim Securities") (since
December 1994); President and Chief Executive Officer of Pilgrim Funding, Inc.
(since November 1999); and Chairman, President and Chief Executive Officer of
Pilgrim Holdings Corporation (Pilgrim Capital Corporation merged into this
subsidiary October 29, 1999) (since August 1991). Mr. Stallings is also a
Director, Trustee, or a member of the Advisory Board of each of the Funds
managed by the Sub-Adviser.
*JOHN G. TURNER. (Age 60) Trustee. Chairman and Chief Executive Officer of Relia
Star Financial Corp. and Relia Star Life Insurance Co. (since 1993); Chairman of
ReliaStar United Services Life Insurance Company and ReliaStar Life Insurance
Company of New York (since 1995); Chairman of Northern Life Insurance Company
(since 1992); Director of Northstar Investment Management Corporation and
affiliates (since October 1993); Chairman and Director/Trustee of the Northstar
affiliated investment companies (since October 1993). Mr. Turner was formerly
President of ReliaStar Financial Corp. and ReliaStar Life Insurance Co.
(1989-1991) and President and Chief Operating Officer of ReliaStar Life
Insurance Company (1986-1991). Mr. Turner is also Chairman of each of the Funds
managed by the Sub-Adviser.
DAVID W. WALLACE. (Age 76) Trustee. Chairman of FECO Engineered Systems, Inc.
Mr. Wallace is President and Director/Trustee of the Robert R. Young Foundation,
Governor of the New York Hospital, Trustee of Greenwit Hospital and Director of
UMC Electronics and Zurn Industries, Inc. Mr. Wallace was formerly Chairman of
Lone Star Industries, Putnam Trust Company, Chairman of Todd Shipyards, Bangor
Punta Corporation, and National Securities & Research Corporation.Mr. Wallace is
also a Director and/or Trustee of each of the Funds managed by the Sub-Adviser.
COMPENSATION OF TRUSTEES
The regular meetings of the Board are held quarterly. [All Officers and
Interested Trustees of the Fund are compensated by RIRI or Pilgrim Investments,
Inc.] Trustees who are not "interested persons" are paid by the Fund . The Fund
also reimburses the Trustees for expenses incurred by them in connection with
such meetings. The Trustees who are not "interested persons" received $2,500 per
year payable on a quarterly basis. Such fees are allocated evenly among the
Portfolios.
B-9
<PAGE>
COMPENSATION TABLE*
<TABLE>
<CAPTION>
1999 Total
Compensation Compensation From
Pension or Registrant and
Retirement Fund Complex Paid
Aggregate Benefits Accrued Estimated Annual to Trustees and
Name and Compensation as Part of Fund Benefits Upon Number of
Position From Registrant Expense (1) Retirement Boards (1)
-------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Mary A. Baldwin, $ 625 N/A N/A $ 19,241
Trustee (2) (8 Boards)
Al Burton, $ 625 N/A N/A $ 20,717
Trustee (2) (13 Boards)
Paul S. Doherty, $ 625 N/A N/A $ 12,445
Trustee (3) (15 Boards)
Jeri A. Eckhart, $3,000 N/A N/A $ 3,000
Trustee (4) (1 Board)
Robert B. Goode, Jr., $ 625 N/A N/A $ 12,062
Trustee (3) (15 Boards)
Alan S. Gosule, $ 625 N/A N/A $ 10,769
Trustee (3) (15 Boards)
Wayne O. Jefferson, Jr., $3,000 N/A N/A $ 3,000
Trustee (4) (1 Board)
Richard C. Kaufman, $3,000 N/A N/A $ 3,000
Trustee (4) (1 Board)
Mark L. Lipson, $ 0 N/A N/A $ 0
Trustee (3) (5) (15 Boards)
Walter H. May, $ 625 N/A N/A $ 12,446
Trustee (3) (15 Boards)
Jock Patton, $ 625 N/A N/A $ 20,415
Trustee (2) (13 Boards)
David W.C. Putnam, $ 625 N/A N/A $ 11,202
Trustee (3) (15 Boards)
David H. Roe, $3,000 N/A N/A $ 3,000
Trustee (4) (1 Board)
John R. Smith, $ 625 N/A N/A $ 12,445
Trustee (3) (15 Boards)
Robert W. Stallings, $ 0 N/A N/A $ 0
Trustee (2) (5) (13 Boards)
John G. Turner, $ 0 N/A N/A $ 0
Trustee (3) (5) (15 Boards)
David W. Wallace, $ 625 N/A N/A $ 11,586
Trustee (3) (15 Boards)
</TABLE>
(1) Information provided for the fiscal year ended December 31, 1999. The fund
complex includes other investment companies in the Pilgrim group of funds.
(2) Elected a Trustee on November 16, 1999.
(3) Elected a Director/Trustee of Pilgrim Mutual Funds, Advisory Funds,
Investment Funds, Bank and Thrift Fund, Government Securities Income Fund
and Prime Rate Trust on October 26, 1999.
(4) Resigned as Trustee effective October 1, 1999.
(5) "Interested person" as defined in the Investment Company Act of 1940, of
the Fund. Officers and Trustees who are "interested persons" do not receive
any compensation from the Fund.
B-10
<PAGE>
OFFICERS
Unless otherwise noted, the mailing address of the officers is 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004. The following individuals
serve as officers for the Fund:
ROBERT W. STALLINGS, CHIEF EXECUTIVE OFFICER AND PRESIDENT. Mr. Stallings'
background is described above.
JAMES R. REIS, EXECUTIVE VICE PRESIDENT AND ASSISTANT SECRETARY. (Age 42)
Director, Vice Chairman (since December 1994), Executive Vice President (since
April 1995), and Director of Structured Finance (since April 1998), Pilgrim
Group, Inc. and Pilgrim Investments; Director (since December 1994) and Vice
Chairman (since November 1995) of Pilgrim Securities; Executive Vice President,
Assistant Secretary and Chief Credit Officer of Pilgrim Prime Rate Trust;
Executive Vice President and Assistant Secretary of each of the other Pilgrim
Funds. Chief Financial Officer (since December 1993), Vice Chairman and
Assistant Secretary (since April 1993) and former President (May 1991 - December
1993), Pilgrim Capital (formerly Express America Holdings Corporation).
Presently serves or has served as an officer or director of other affiliates of
Pilgrim Capital Corporation.
STANLEY D. VYNER, EXECUTIVE VICE PRESIDENT. (Age 49) President and Chief
Executive Officer (since August 1996), Pilgrim Investments; Executive Vice
President of most of the other Pilgrim Funds (since July 1996). Formerly Chief
Executive Officer (November 1993 - December 1995) HSBC Asset Management
Americas, Inc., and Chief Executive Officer, and Actuary (May 1986 - October
1993) HSBC Life Assurance Co.
JAMES M. HENNESSY, EXECUTIVE VICE PRESIDENT AND SECRETARY. (Age 50) Executive
Vice President and Secretary (since April 1998), Pilgrim Capital (formerly
Express America Holdings Corporation), Pilgrim Group, Pilgrim Securities and
Pilgrim Investments; Executive Vice President and Secretary of each of the other
Pilgrim Funds. Formerly Senior Vice President, Pilgrim Capital (April 1995 -
April 1998); Senior Vice President, Express America Mortgage Corporation (June
1992 - August 1994) and President, Beverly Hills Securities Corp. (January 1990
- - June 1992).
MICHAEL J. ROLAND, SENIOR VICE PRESIDENT AND PRINCIPAL FINANCIAL OFFICER. (Age
41) Senior Vice President and Chief Financial Officer, Pilgrim Group, Pilgrim
Investments and Pilgrim Securities (since June 1998); Senior Vice President and
Principal Financial Officer of each of the other Pilgrim Funds. He served in
same capacity from January, 1995 - April, 1997. Formerly, Chief Financial
Officer of Endeaver Group (April, 1997 to June, 1998).
ROBERT S. NAKA, SENIOR VICE PRESIDENT AND ASSISTANT SECRETARY. (Age 36) Senior
Vice President, Pilgrim Investments (since November 1999) and Pilgrim Group,
Inc. (since August 1999). Senior Vice President and Assistant Secretary of each
of the other Pilgrim Funds. Formerly Vice President, Pilgrim Investments (April
1997 - October 1999), Pilgrim Group, Inc. (February 1997 - August 1999).
Formerly Assistant Vice President, Pilgrim Group, Inc. (August 1995 - February
1997). Formerly Operations Manager, Pilgrim Group, Inc. (April 1992 - April
1995).
ROBYN L. ICHILOV, VICE PRESIDENT AND TREASURER. (Age 32) Vice President, Pilgrim
Investments (since August 1997), Accounting Manager (since November 1995). Vice
President and Treasurer of most of the other Pilgrim Funds. Formerly Assistant
Vice President and Accounting Supervisor for PaineWebber (June 1993 - April
1995).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On January 17, 1995, ReliaStar Financial Corp. ("ReliaStar") acquired
USLICO. USLICO was a holding company with two primary subsidiaries: United
Services Life Insurance Company (now merged into ReliaStar Life Insurance
Company "RL"), of Arlington, Virginia, and Bankers Security Life Insurance
Society (now known as ReliaStar Life Insurance Company of New York or "RLNY"),
of Woodbury, New York.
B-11
<PAGE>
USLICO Series Fund (the "Fund"), consisting of four distinct Portfolios, is
an investment vehicle for certain separate accounts of RL and RLNY. At the
present time, shares of the Fund are sold exclusively to RL and RLNY. The shares
serve as the investment medium for variable life insurance policies issued by
these companies.
Beneficial owners of more than 25% of the Fund's outstanding securities as
of April 3, 2000 were: ReliaStar United Services Variable Life Separate Account
I and ReliaStar Life Insurance Company of New York Variable Life Separate
Account I. For this purpose "control" means: (i) the beneficial ownership,
either directly or through one or more controlled companies, of more than 25% of
the voting securities of a company; (ii) the acknowledgment or assertion by
either the controlled or controlling party of the existence of control; or (iii)
an adjudication under the terms and conditions of the 1940 Act, which has become
final, that control exists.
As of April 3, 2000, no person owned of record or was known by the Fund to
own beneficially 5% or more of any Portfolio's outstanding equity securities,
except that ReliaStar United Services Variable Life Separate Account I, a
separate account of RUSL, 4601 N. Fairfax Drive, Arlington, VA 22201, owned ___%
of the ___________ Portfolio's shares of beneficial interest, and ReliaStar Life
Insurance Company of New York Variable Life Separate Account I, a separate
account of RLNY, 1000 Woodbury Road, Woodbury, L.I., New York 11797, owned ___%
of the ________ Portfolio's shares of beneficial interest.
On April 27, 2000, no Officer or Trustee of the Portfolios, owned
beneficially or of record or had an interest in shares of any Portfolio.
THE INVESTMENT ADVISER AND SUB-ADVISER
Since April 1, 1995, ReliaStar Investment Research, Inc. (formerly,
Washington Square Advisers, Inc.) has served as investment adviser to the Fund
pursuant to an Investment Advisory Agreement between it and the Fund. RIRI is a
wholly owned subsidiary of ReliaStar Financial Corp. From April 1988 through
April 1995, the adviser for the Fund was Bankers Centennial Management Corp.
RIRI is responsible for administering affairs of and supervising the investment
program for the Fund. RIRI also furnishes to the Board of Trustees, which has
overall responsibility for the business and affairs of the Fund, with periodic
reports on the investment performance of each Portfolio. RIRI's address is 100
Washington Ave. So., Minneapolis, MN 55401.
RIRI provides the Fund with all necessary office facilities and personnel
for servicing the Fund's investments, and compensates all personnel of RIRI
performing services relating to research, statistical and investment activities.
In addition, RIRI or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services necessary
for the operation of the Fund. These services include providing facilities for
maintaining the Fund's organization: supervising relations with custodians,
transfer and pricing agents, accountants, legal counsel, underwriters, and other
persons dealing with the fund; preparing all general shareholder communications
and conducting shareholder relations; maintaining the Fund's records and the
registration of the Fund's shares under federal securities laws and making
necessary filings under state securities laws; developing management and
shareholder services for the fund; and furnishing reports, evaluations, and
analyses on a variety of subjects to the Trustees.
Prior to April 30, 2000, Pilgrim Advisors, Inc. ("Pilgrim Advisors") served
as investment sub-adviser to the Stock Portfolio and the equity portion of the
Asset Allocation Portfolio of the Funds. On April 30, 2000, Pilgrim Advisors, an
indirect wholly-owned subsidiary of ReliaStar, merged with Pilgrim Investments.
Pilgrim Advisors and Pilgrim Investments were sister companies and shared
certain resources and investment personnel.
Pilgrim Investment serves as sub-adviser pursuant to a Sub-Advisory
Agreement dated October 1, 1999. The address of Pilgrim Investments is 40 North
Central Avenue, Suite 1200, Phoenix, AZ 85004. Pilgrim Investments has managed
assets since 1994. Prior to October 1, 1999 the Stock Portfolio and the equity
portion of the Asset Allocation Portfolio were managed by another subadviser.
B-12
<PAGE>
Subject to overall supervision of the Fund's Board of Trustees, RIRI
exercises overall responsibility for the investment and reinvestment of the
Fund's assets for which its has primary investment responsibility and
continuously monitors and supervises all aspects of Pilgrim Investments'
performance of its investment duties. In so doing, RIRI manages the day-to-day
investment operations of the Fund and the composition of the investment
portfolios of the Bond and Money Market Portfolios and the assets of the Asset
Allocation Portfolio not allocated to the management of Pilgrim Advisors,
including the purchase, retention and disposition of the investments, securities
and cash contained therein.
Subject to overall responsibility of the Fund's Board of Trustees and RIRI,
Pilgrim Investments will exercise overall responsibility for the investment and
reinvestment of the Stock Portfolio and the portion of the assets of the Asset
Allocation Portfolio allocated by RIRI to Pilgrim Investments. In so doing,
Pilgrim Investments will manage the day-to-day operations of the investment
portfolio of the Stock Portfolio and the portion of the Asset Allocation
Portfolio for which it has primary advisory responsibility, which includes all
equity investments.
Under the terms of the Advisory Agreement, RIRI is obligated to manage the
Fund's Portfolios in accordance with applicable laws and regulations.
The Advisory Agreement ("Agreement") was reapproved last by the Board of
Trustees, including a majority of the Trustees who are not parties to the
Agreement, or interested persons of such parties, at a meeting held on April 27,
2000, to be effective April 30, 2000. The Agreement will continue in effect
indefinitely, 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,
and (ii) a majority of the Trustees who are not parties to such Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party. The Board previously approved the Agreement on March 1, 1999. The
Agreement may be terminated without penalty on 60 days written notice by either
party to the Agreement and will terminate automatically if assigned.
The Board of Trustees approved the SubAdvisory Agreement between RIRI and
Pilgrim Investments, at its August 16, 1999 Board Meeting, subject to
shareholder approval. At the Shareholder Meeting on September 23, 1999, the
Agreement was approved by a "majority" of the outstanding shares (as defined in
the 1940 Act). The Agreement will continue in effect indefinitely, 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, and (ii) a majority
of the Trustees who are not parties to such SubAdvisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such party. The Agreement may be
terminated without penalty on 60 days written notice by either party to the
Agreement and will terminate automatically if assigned.
The Fund pays RIRI for its services under the Agreement a fee based on an
annual percentage of the average daily net assets of each Portfolio. For each
Portfolio, the Fund pays RIRI a fee at an annual rate not to exceed .50% of the
first $100 million of the average daily net assets of the Portfolio, and .45% of
the average daily net assets of the Portfolio in excess of $100 million. The
Fund does not pay Pilgrim Investments. For the years 1999, 1998 and 1997, the
Fund paid RIRI the following management fees: Stock Portfolio, $113,595, $98,513
and $64,509, respectively; Money Market Portfolio, $20,478, $19,255 and $14,571,
respectively; Bond Portfolio, $14,973, $12,107 and $7,027, respectively; Asset
Allocation Portfolio, $65,452, $57,991 and $38,430, respectively. By contractual
provision within the Policies, the management fees that can be charged against
the Policyholders for all investment advisory services are limited to .25% on an
annual basis. All management fees above that amount are paid for by the
Insurance Companies.
RIRI pays Pilgrim Investments at the rate of 0.45 of 1.00% of the average
daily net assets of the assets which Pilgrim Investments manages. [For the
period from October 1, 1999 through December 31, 1999, RIRI paid Pilgrim
Investments $46,078. For the period of January 1, 1999 through September 29,
1999 and for the fiscal years ending December 31, 1998 and 1997, RIRI paid the
previous subadviser $128,260, $__________ and $__________.]
B-13
<PAGE>
DISTRIBUTION OF FUND SHARES
Shares of the Fund are continuously distributed through Washington Square
Securities, Inc., a wholly-owned subsidiary of ReliaStar Financial Corp., which
is the 100% owner of RUSL and RLNY. The Fund entered into a distribution
agreement, with Washington Square Securities, Inc. on February 1, 1997 which was
last renewed on April 27, 2000. Washington Square Securities, Inc., a registered
broker-dealer under the Securities Act of 1934, as amended, and member of the
National Association of Securities Dealers, Inc., receives no remuneration from
the Fund for distributing shares of the Portfolio. Its address is 111 Washington
Ave. S., Minneapolis, MN 55401.
ReliaStar Financial Marketing Corporation, formerly known as USLICO
Securities Corp., a direct wholly-owned subsidiary of ReliaStar Financial Corp.
served as the Fund's Distributor from 1988 until February 1, 1997, pursuant to a
distribution contract. It received no compensation from the Fund.
SUSPENSION OF REDEMPTIONS
The Fund may suspend the right of redemption of shares of any Portfolio 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 Securities and Exchange Commission
determines that a state of emergency exists which may make payment or transfer
not reasonable practicable; (iii) as the Securities and Exchange Commission may
by order permit for the protection of the security holder 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.
CUSTODIAN
On October 1, 1997, State Street Bank and Trust Company ("State Street"), a
Massachusetts banking institution became Custodian for all the Fund's portfolios
and their cash. State Street's address is One Heritage Drive, North Quincy
Massachusetts, 02171. Previously Crestar Bank, a Virginia banking institution
served as custodian for the Fund's portfolios securities and cash. In its
capacity as Custodian, State Street maintains certain financial and accounting
books and records pursuant to a separate agreement with the Fund.
ADMINISTRATIVE SERVICES AGREEMENT
ReliaStar Life Insurance Company, successor by merger, on December 31,
1998, to ReliaStar United Services Life Insurance Company ("RUSL") acts as the
Fund's dividend disbursing and transfer agent and provides administrative, legal
and accounting services pursuant to an Administrative Services Agreement (the
"Administrative Agreement") by and between the Fund, RUSL, and RIRI.
As compensation, RUSL (now merged into RL) will be reimbursed for its costs
associated with providing services under the Administrative Agreement to the
Fund. Such reimbursements will be fair and reasonable and include all costs
incurred by RUSL up to a cap of 0.65% of each Portfolio's average daily net
assets.
The Administrative Services Agreement is renewable from year to year if the
Fund's Trustees, (including a majority of the Fund's disinterested Trustees)
approve the continuance of the Agreement. RUSL or the Fund may terminate the
Administrative Services Agreement on 90 days written notice to the other party.
Amendments to the Agreement may be effected if approved by the Trustees of the
Fund (including a majority of the disinterested trustees) and the Agreement is
not assignable by the Fund without the written consent of RUSL, or by RUSL
without the written authorization of the Fund's Board of Trustees.
During the fiscal years ending December 31, 1999, 1998 and 1997, RL
received $124,280, $________ and $________ for its services under the
Administrative Services Agreement.
B-14
<PAGE>
LEGAL COUNSEL
Dechert Price & Rhoads serves as legal counsel to the Fund and the
Portfolios
INDEPENDENT AUDITORS
The Board of Trustees of the Trust has selected the firm of KPMG LLP, to
serve as independent auditors for the Fund for the current fiscal year and to
audit the annual financial statements of the Fund, prepare the Fund's federal
and state tax returns, and consult with the Fund on matters of accounting and
federal and state income taxation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
BROKERAGE AND RESEARCH SERVICES
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
national stock exchanges and other agency transactions involve the payment of
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.
RIRI or Pilgrim Investments places all orders for the purchase and sale of
portfolio securities and options for a Portfolio through a substantial number of
broker-dealers. In executing transactions, RIRI or Pilgrim Investments will
attempt to obtain the best execution 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 effecting purchases and sales of portfolio
securities in transactions on national stock exchanges for the account of the
Fund RIRI or Pilgrim Investments may pay higher commission rates than the lowest
available when RIRI or Pilgrim Investments believes it is reasonable to do so in
light of the value of the brokerage and research services provided by the
broker-dealer effecting the transaction, as described below. 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 mark-up.
Some securities considered for investment by the Fund's Portfolios may also
be appropriate for other clients served by RIRI or Pilgrim Investments. If a
purchase or sale of securities consistent with the investment policies of a
Portfolio and one or more of these clients served by RIRI or Pilgrim Investments
is considered at or about the same time, transactions in such securities will be
allocated among the Portfolios and clients in a manner deemed fair and
reasonable by RIRI or Pilgrim Investments. Although there is no specified
formula for allocating such transactions, the various allocation methods used by
RIRI or Pilgrim Investments, and the results of such allocations, are subject to
periodic review by the Fund's Adviser and Board of Trustees.
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 for a Portfolio may receive research services from many
broker-dealers with which that adviser places the 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 in
advising its various clients (including the Fund), although not all of these
services are necessarily useful and of value in managing a Portfolio. The
management fee paid by the Portfolio is not reduced because the adviser and its
affiliates receive such services.
B-15
<PAGE>
As permitted by Section 28(e) of the Securities Exchange Act of 1934, RIRI
may cause a Portfolio to pay a broker-dealer which provides "brokerage and
research services" (as defined in that Act) to RIRI, 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.
The Fund paid aggregate brokerage commissions of $400,212, $157,552 and
$300,108 for the three years ended December 31, 1999.
PORTFOLIO TURNOVER
For reporting purposes, the portfolio turnover rate of each Portfolio 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 Portfolio's
securities (other than short-term securities) were replaced once during the
fiscal year. The portfolio turnover rate for each Portfolio will vary from year
to year, depending on market conditions. Because each Portfolio has a different
investment objective, each will have a different expected rate of portfolio
turnover. However, the portfolio turnover rate will not be a limiting factor
when management deems it appropriate to buy or sell securities for a particular
Portfolio.
The writing of call options by the Stock and Asset Allocation Portfolios
may result in higher turnover than otherwise would be the case and, therefore,
greater commission expenses.
It is anticipated that the annual portfolio turnover, as defined above,
will not exceed the following limits of the Portfolios under normal market
conditions: Money Market Portfolio -- 0%; Stock Portfolio -- 125%; Bond
Portfolio -- 100%; and Asset Allocation Portfolio -- 150%. Increased portfolio
turnover may result in greater brokerage commission. In 1999, the Portfolio
turnover rate was: Stock Portfolio -- 305.87%; Bond Portfolio -- 45.74%; and
Asset Allocation Portfolio -- 227.49%.
Market conditions and changes in interest rates may result in turnover at a
greater or lesser than anticipated.
NET ASSET VALUE
As indicated under "Net Asset Value" in the Prospectus, the Fund's net
asset value per share for the purpose of pricing purchase and redemption orders
is determined after 4:00 p.m. Eastern Standard Time, on each day the New York
Stock Exchange is open for trading. Net asset value will not be determined on
the following days: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Pursuant to an exemptive rule of the Securities and Exchange Commission,
the Money Market Portfolio's securities are valued by the amortized cost method.
This method of valuation involves valuing a security at its cost at the time of
purchase and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. 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 security. During periods of declining interest rates, the quoted
yield on shares of the Portfolio may tend to be higher than that of a fund or
Portfolio with identical investments which uses a method of valuation based on
market prices an estimates of market prices for all its portfolio securities.
Thus, if the use of amortized cost by the Portfolio resulted in lower aggregate
portfolio value on a particular day, a prospective investor in the Portfolio
would be able to obtain a somewhat higher yield of he purchased shares on that
day than he would be able to receive from a fund or Portfolio using solely
market values. Existing investors in the Portfolio would receive less investment
income. The converse is true in a period of rising interest rates.
B-16
<PAGE>
The Rule permitting the Portfolio to use the amortized cost method of
valuation requires that, under the direction of the Board of Trustees, certain
procedures be adopted to monitor and stabilize the price per share of the
Portfolio. Calculations are made to compare the value of its investments valued
at amortized cost with market values. Market valuations are obtained by using
actual quotations provided by issuers or market makers, estimates of market
value, or values obtained from yield data relating to classes of money market
instruments or U.S. Government securities published by reputable sources at the
mean between the bid and asked prices for the instruments. In the event that a
deviation of 1/2 of 1% or more exists between the Fund's $1.00 per share net
asset value and the net asset value calculated by reference to market
quotations, or if there is any other deviation which the Board of Trustees
believes would result in a material dilution of shareholders or purchasers, the
Board of Trustees will promptly consider what action, if any, should be
initiated.
Under the exemptive Rule of the Securities and Exchange Commission allowing
the Fund to use the amortized cost method of valuation of portfolio securities,
the Fund must maintain a dollar-weighted average portfolio maturity of 90 days
or less. In addition, with certain limited exceptions, the Fund cannot invest
more than 5% of its assets in the securities of a single issuer (other than
government securities). Investments in Second Tier securities in the aggregate
must be limited to 5% of the Fund's total assets, and investment in a single
Second Tier Security cannot exceed the greater of 1% of total assets or $1
million.
The Fund can only invest in instruments having remaining maturities of 397
days or less and can only invest in securities determined by RIRI to be of high
quality with minimal credit risks.
CALCULATION OF PERFORMANCE DATA
The Fund is the successor to the Separate Account I (a Stock Account),
Separate Account II (a Money Market Account), Separate Account III (a Bond
Account) and Separate Account IV (an Asset Allocation Account) of ReliaStar
United Services Life Insurance Company and Separate Account I (a Stock Account),
Separate Account II (a Money Market Account), Separate Account III (a Bond
Account) and Separate Account IV (an Asset Allocation Account) of ReliaStar Life
Insurance Company of New York (collectively, the "RUSL and RLNY Separate
Accounts"). On April 30, 1988, the investment-related assets and liabilities of
the RUSL and RLNY Separate Accounts were transferred to the Stock, Money Market,
Bond and Asset Allocation Portfolios of the Fund. Performance calculations are
based upon the RLNY Separate Accounts.
THE MONEY MARKET PORTFOLIO YIELD
To calculate a seven-day yield for the Money Market Portfolio, the Fund
uses a hypothetical, pre-existing account having a balance of $100 at the
beginning of the seven-day period. The net change in the value of the Portfolio
during the seven-day period (excluding any realized gains or losses from the
sale of securities and unrealized appreciation and depreciation) is divided by
the value of the Account at the beginning of the period and then multiplied by
365/7 to obtain the annual yield to the nearest hundredth of one percent. Since
the net change in the seven-day value is used, the values reflect the charges
made against the Portfolio.
The seven-day yield does not necessarily represent the future yield of the
Money Market Portfolio. Yields fluctuate on a daily basis and reflect quality,
length of maturities, rates of return and market conditions for money market
investments suitable for this Portfolio.
A hypothetical example of how we calculate the seven-day yield for the
period ending December 31, 1999, assuming the values used are as follows:
(1) Value on Dec. 24, 1999..................................... $100.00
(2) Value on Dec. 31, 1999 (exclusive of capital charges)...... 100.08
(3) Net change:(2) - (1)....................................... .08
(4) Net change divided by Value on Dec. 24, 1999:
(3) divided by (1)....................................... .0008
(5) Seven-day yield annualized (multiplied by 365/7)........... 4.17%
B-17
<PAGE>
THE BOND PORTFOLIO, THE COMMON STOCK PORTFOLIO,
THE ASSET ALLOCATION PORTFOLIO - SEC 30 DAY YIELD
Yield is computed by dividing the net investment income per share deemed
earned during the computation period by the maximum offering price per share on
the last day of the period according to the following formula:
a-b
-----------------------------
SEC YIELD = 2[( cd + 1)(6)-1]
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.
The SEC 30 day yield for the period ending December 31, 1999 for the Bond
Portfolio was 4.51%; the Common Stock Fund, -0.45%; and the Asset Allocation
Fund 3.87%
THE STOCK PORTFOLIO, THE BOND PORTFOLIO, AND THE ASSET
ALLOCATION PORTFOLIO - AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return is computed by finding the average annual
compounded rates of return over 1, 5, and 10 years that would equate the initial
amount invested to the ending redeemable value, according to the following
formula:
P(1+T) = ERV or T = ERV/P 1/n - 1
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and,
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
This calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts.
The average annual return for the Stock Portfolio for the one-year,
five-year and ten-year period ended December 31, 1999 are 30.08%, 23.19% and
14.59% respectively. The average annual return for the Bond Portfolio for the
one-year, five-year and ten-year period ended December 31, 1999 are -2.87%,
5.86% and 6.22% respectively. The average annual return for the Asset Allocation
Portfolio for the one-year, five-year and ten-year period ended December 31,
1999 are 15.10%, 14.96% and 10.73% respectively.
B-18
<PAGE>
THE STOCK PORTFOLIO, THE BOND PORTFOLIO, THE ASSET
ALLOCATION PORTFOLIO - CUMULATIVE TOTAL RETURN
Cumulative Total Return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CTR = ERV - P
------- *100
P
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period; and,
P = initial payment of $1,000.
This calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts.
The cumulative total return for the fiscal year ending December 31, 1999,
for each Portfolio was 30.08%, Stock Portfolio; -2.87%, Bond Portfolio; and,
15.10%, Asset Allocation Portfolio.
PERFORMANCE COMPARISONS
Comparative performance information may be used from time to time in
advertising each Portfolio's shares, including data from Lipper Analytical
Services, Inc., Morningstar, Inc. and other entities or organizations which
track the performance of investment companies. Each Portfolio's performance also
may be compared to the performance of its respective Comparison Index, if any,
as described in the Prospectus, and, additionally, to the performance of
unmanaged indices. Unmanaged indices may assume the reinvestment of dividends
but generally do not reflect deductions for administrative and management cost
and expenses.
Quotations of yield or total return for the Fund will not take into account
charges or deductions against the Separate Account to which the Fund shares are
sold or charges and deductions against the policies issued by RUSL and RLNY.
Performance information for a Portfolio reflects only the performance of a
hypothetical investment in the Portfolio during the particular time period on
which the calculation is based. Performance information should be considered in
light of the Portfolios' 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 elects 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 must, among
other things: (i) derive in each taxable year at least ninety percent (90%) of
its gross income from dividends, interest, payments with respect to securities
loan, 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 fifty
percent (50%) of the market value of the Portfolios' assets are represented by
cash, U.S. Government securities, the securities of other regulated investment
B-19
<PAGE>
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 five
percent (5%) of the value of the Portfolio's total assets and 10 percent (10%)
of the outstanding voting securities of such issuer, and (b) not more than
twenty-five percent (25%) of the value of its total assets is invested in the
securities of [more than one] issuer (other than U.S. Government securities or
the securities of other resulted investment companies); and (iii) distribute at
least ninety percent (90%) of its net investment income (which includes
dividends, interest, and net short-term capital gains in excess of and net
long-term capital losses) each taxable year.
As a regulated investment company, a Portfolio will not be subject to U.S.
federal income tax on its net investment 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 net investment 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 four percent (4%) excise tax. To avoid the tax, a Portfolio must
distribute during each calendar year, (i) at least ninety-eight percent (98%) of
its ordinary income (not taking into account any capital gains or losses) for
the calendar year, (ii) at least ninety-eight percent (98%) of its capital gains
in excess of its capital losses for the twelve-month period ending October 31 of
the calendar year, and (iii) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, each Portfolio intends to make these distributions in accordance
with the calendar year distribution requirement. A distribution will be treated
as paid during the calendar year if it is declared by a Portfolio before
December 31 of the year and paid by the Portfolio by January 31 of the following
year. Such distribution will be taxable to shareholders (the Separate Account)
in the year the distributions are declared, rather than the year in which the
distributions are received.
DISTRIBUTIONS
Distributions of any new investment income by a Portfolio are taxable to
the shareholder as ordinary income. Net capital gains will be treated, to the
extent distributed, as long-term capital gains in the hands of the shareholder.
ADDITIONAL INFORMATION
SHAREHOLDER MEETINGS
The Declaration of Trust does not require that the Fund hold annual or
regular meetings of shareholders. Meetings of the Shareholders may be called by
the Trustees and held at such times the Trustees may from time to time
determine, for the purpose of the elections of Trustees or such other purposes
as may be specified by the Trustees.
LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund, or Portfolio thereof,
organized as a Massachusetts business trust. The Declaration of Trust further
provides for indemnification out of the assets and property of the Fund, or
Portfolio thereof, for all loss and expense of any shareholder held personally
liable for the obligations of the Fund or Portfolio. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund or Portfolio would be unable to meet
its obligations.
EXPERTS
The financial statements incorporated in this prospectus by reference from
the Registrant's Annual Report to shareholders for the year ended December 31,
1999 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
FINANCIAL STATEMENTS
The audited Financial Statements for the Fund for the fiscal year ended
December 31, 1999 are incorporated herein by reference to the Registrant's 1999
Annual Report to Shareholders filed with the U.S. Securities and Exchange
Commission. No other portion of the Annual Report is so incorporated. Copies of
the Fund's Annual Report may be obtained without charge by contacting Pilgrim
Funds at 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004, (800)
992-0180.
B-20
<PAGE>
APPENDIX A
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
(a) Corporate Bonds: Bonds are rated Aa by Moody's Investors Service, Inc.
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 may
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 as 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 Corporation 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 have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
Standard & Poor's BBB rated bonds, or medium-grade category bonds, are
borderline between definitely sound obligations and those where the speculative
elements begin to predominate. These bonds have adequate asset coverage and
normally are protected by satisfactory earnings. Their susceptibility to
changing conditions, particularly 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.
(b) Commercial Paper: The ratings Prime-1 and Prime-2 are the two 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 within this Prime category may be given ratings 1, 2 or 3, depending on
the relative strengths of these factors.
Commercial paper rated A-1 or A-2 by Standard & Poor's has the following
characteristics: (1) liquidity ratios are adequate to meet cash requirements;
(2) 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; (3) the issuer
should have access to at least two additional channels of borrowing; (4) basic
earnings and cash flow should have an upward trend with allowance made for
unusual circumstances; and (5) 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 within this highest classification.
A-1
<PAGE>
APPENDIX B
GLOSSARY OF INVESTMENT TERMS
U.S. GOVERNMENT SECURITIES - are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Securities by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes, and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury (such as GNMA certificates). In these
securities, the payment of principal and interest is unconditionally guaranteed
by the U.S. Government, and thus they are of the highest possible credit
quality. Such securities are subject to variations in market value due to
fluctuations in interest rates, but, if held to maturity, will be paid in full.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of nor guaranteed by the Treasury.
However, they involve federal sponsorship in one way or another: some are
supported by the discretionary authority of the 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 Land Banks, Farmers
Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, and Federal Home Loan Banks. All of the Portfolios may invest in U.S.
Government securities.
MORTGAGE-RELATED SECURITIES - The Bond and Asset Allocation Portfolios may
invest in GNMA certificates and FNMA and FHLMC mortgage-backed obligations.
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 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.
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. Reinvestment of prepayments may occur at
higher or lower rates than the original yield on the certificates.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS: The Federal National Mortgage
Association ("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. The Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the United States, issues participation certificates which
represent an interest I a pool of conventional mortgage loans. FHLMC guarantees
the timely payment of interest and the ultimate collection of principal and
maintains reserves to protect holders against losses due to default, but the
certificates 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.
RISKS OF MORTGAGE-RELATED SECURITIES: In the case of mortgage pass-through
securities such as GNMA certificates or FNMA and FHLMC mortgage-backed
obligations, early repayment of principal arising from prepayments of principal
on the underlying mortgage loans due to the sale of the underlying property, the
refinancing of the loan, or foreclosure 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 mortgage-related security. Conversely, when interest rates
are rising, the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the mortgage-related security. 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. Therefore, the actual maturity and realized yield on
pass-through or modified pass-through mortgage-related securities will vary
based upon the prepayment experience on the underlying pool of mortgages.
REPURCHASE AGREEMENTS - are agreements by which the Portfolio purchases a
security and obtains a simultaneous commitment from the seller (a member bank of
the Federal Reserve System or a recognized securities dealer) to repurchase the
security at an agreed upon price and date. The resale price is in excess of the
purchase price and reflects an agreed upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford an opportunity for a
Portfolio to maintain liquidity and earn income over periods of time as short as
overnight.
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<PAGE>
The underlying securities on repurchase agreements are ordinarily U.S.
Government securities but may be other securities in which the Portfolio might
otherwise invest. A Portfolio will enter into repurchase agreements only if they
are fully collateralized. The market value of the collateral, including accrued
interest, will equal or exceed the repurchase price, and the collateral will be
in the actual or constructive possession of the Portfolio.
A Portfolio will enter only into repurchase agreements that mature in seven days
or less. A repurchase agreement subjects a Portfolio to the risk of the ability
of the seller to pay the repurchase price on the delivery date; however, the
underlying security constitutes the collateral for the seller's obligation. In
addition, the Adviser will enter into repurchase agreements with parties that it
considers creditworthy. In the event the seller does default, the Portfolio may
incur (i) a loss if the value of the collateral declines and (ii) disposition
costs in connection with liquidating the collateral. In the event bankruptcy
proceedings are commenced with respect to the seller, realization upon the
collateral by the Portfolio may be delayed or limited and a loss may be incurred
if the collateral securing the repurchase agreement declines in value during the
bankruptcy proceedings.
CERTIFICATES OF DEPOSIT - are certificates issued against funds deposited in a
bank, are for definite period of time, earn a specified rate of return, and are
normally negotiable.
BANKERS'ACCEPTANCES - are short-term credit instruments issued by corporations
to finance the import-export transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity. These instruments
reflect the obligation of both the bank and drawer to pay the face amount of the
instrument at maturity.
COMMERCIAL PAPER - All Portfolios may invest in commercial paper. Commercial
paper represents short-term unsecured promissory notes issued by bank holding
companies, corporations, and finance companies. The commercial paper purchased
by a Portfolio will consist of direct obligations of domestic issuers which, at
the time of investment, (i) meet the rating standard for particular Portfolios
as specified in the section on Investment Objectives and Policies, or (ii) if
not rated, are determined to be of an investment quality comparable to rated
commercial paper in which a Portfolio may invest.
CORPORATE DEBT SECURITIES - All Portfolios may invest in corporate debt
securities of domestic issuers. The debt securities in which a 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 or other standards set forth for that particular Portfolio, or,
if not so rated, are, in the Adviser's opinion, comparable in quality to
corporate debt securities in which a Portfolio may invest.
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 the 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.
OPTIONS - CALLS - The Stock Portfolio and the Asset Allocation Portfolio may
write (i.e., sell) call options ("calls") if (i) after any sale, not more than
25% of that Portfolio's total assets are subject to calls; (ii) the calls are
traded on a domestic securities exchange or board of trade; and (iii) the calls
are "covered." 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 placed in
a segregated account by its custodian) upon conversion or exchange of other
securities held by the Portfolio. When the Portfolio writes a call, it receives
a premium and agrees to sell the callable securities to a purchaser at a fixed
exercise price (which may differ from the market price of the underlying
security) regardless of market price changes during the call period. The
Portfolio may purchase a call only in a "closing purchase transaction" to
terminate its obligation on a call which it has written. For as long as the
Portfolio remains obligated as a writer of a call, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
call price. The principal objective in writing covered calls is to attempt to
attain, through the receipt of premiums from expired calls and net profits, if
any, from closing purchase transactions, a greater current return than might be
realized by holding the securities without writing calls.
B-2
<PAGE>
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Agreement and Declaration of Trust of USLICO Series Fund.(2)
(b) USLICO Series Fund Bylaws.(2)
(c) Not Applicable.
(d)(1) Investment Advisory Agreement by and between USLICO Series Fund and
ReliaStar Investment Research, Inc. (formerly, Washington Square
Advisers, Inc.).(1)
(2) Sub-Investment Advisory Agreement by and between Pilgrim Baxter
Value Investors, Inc. (formerly Newbold's Asset Management, Inc.)
and Washington Square Advisers, Inc.(2)
(3) Subadvisory Agreement by and between Pilgrim Advisors, Inc. and
ReliaStar Investment Research, Inc.(4)
(e) Distribution Agreement by and between USLICO Series Fund and
Washington Square Securities, Inc.(2)
(f) Not Applicable.
(g) Custodian Contract by and between USLICO Series Fund and State
Street Bank and Trust Company.(3)
(h) Administrative Services Agreement by and between USLICO Series
Fund, Washington Square Advisers, Inc. and ReliaStar United
Services Life Insurance Company.(2)
(i)(1) Opinion and Consent of Robert B. Saginaw.(2)
(2) Consent of Dechert Price & Rhoads (filed herewith).
(j) Consent of Deloitte & Touche LLP (filed herewith).
(k) Not Applicable.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o)(1) Code of Ethics of the Registrant and Pilgrim Investments, Inc.
(filed herewith).
C-1
<PAGE>
(2) Code of Ethics of ReliaStar Investment Research, Inc. (filed
herewith).
(p)(1) Powers of Attorney.(4)
(p)(2) Power of Attorney.(4)
- ----------
1. Incorporated by reference to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A as filed on April 30, 1996.
2. Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A as filed on April 30, 1997.
3. Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A as filed on April 29, 1998.
4. Incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A as filed on March 1, 2000.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
A chart identifying the subsidiaries of ReliaStar Financial Corp. and their
relationship to one another is incorporated by reference to Item 26 of Form N-4
Registration Statement of Separate Account One of Northern Life Insurance
Company, File No 333-32948, filed March 31, 2000.
ITEM 25. INDEMNIFICATION
Reference is made to Article V of the Registrant's Agreement and Declaration of
Trust, which is incorporated by reference herein.
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 ADVISERS
Information as to the directors and officers of ReliaStar Investment Research,
Inc., together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by the directors and officers
of ReliaStar Investment Research, Inc. in the last two years, is included in its
application for registration as an investment adviser on Form ADV (File No.
801-16715) filed under the Investment Advisers Act of 1940, as amended, and is
incorporated herein by reference thereto.
C-2
<PAGE>
Information as to the directors and officers of Pilgrim Investments, Inc.,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by the directors and officers of
Pilgrim Investments, Inc. in the last two years, is included in its application
for registration as an investment adviser on Form ADV (File No. 801-48282) filed
under the Investment Advisers Act of 1940 and is incorporated herein by
reference thereto.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Washington Square Securities, Inc. serves as the Fund's Distributor and as
the Distributor of ReliaStar Life Insurance Company of New York Variable
Annuity Contracts issued by subaccounts of its Separate Accounts P and Q,
pursuant to a distribution contract. It also acts as Distributor to
ReliaStar Life Insurance Company products: ReliaStar Select Variable
Account Annuity II; ReliaStar Select Variable Account Annuity III;
Select*Life Variable Account - Life I; Select* Life Variable Account - Life
II; Select*Life Variable Account - Life III; Select*Life Variable Account -
SVUL.
Washington Square Securities, Inc. also acts as Distributor to: Northern
Life Insurance Co. - Separate Account One - Advantage; and, ReliaStar Life
Insurance Company of New York - ReliaStar Variable Life New York.
(b) Information as to the directors and officers of Washington Square
Securities, Inc., together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by
the directors and officers of Washington Square Securities, Inc. in the
last two years, is included in its application for registration as a
broker-dealer on Form BD (File No. 008-13987) filed under the Securities
Exchange Act of 1934, as amended, and is incorporated herein by reference
thereto.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The account 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
thereunder will be maintained at c/o ReliaStar Life Insurance Company, 20
Washington Avenue S., Route 1212 Minneapolis, MN 55401, or c/o Pilgrim
Investments, Inc., 40 North Central Avenue, Suite 1200, Phoenix, AZ 85004.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, Registrant
certifies that it meets all the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the 1933 Act and has duly
caused this Post-Effective Amendment No. 15 to the Registrant's Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix and the State of Arizona on the ___ day of
May 2000.
USLICO SERIES FUND
By:
------------------------------------
Robert W. Stallings,*
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
Trustee, Chief Executive May __, 2000
- -------------------------- Officer and President
Robert W. Stallings*
Trustee May __, 2000
- --------------------------
Al Burton*
Trustee May __, 2000
- --------------------------
Mary A. Baldwin*
Trustee May __, 2000
- --------------------------
John G. Turner*
Trustee May __, 2000
- --------------------------
Mark L. Lipson*
Trustee May __, 2000
- --------------------------
Paul S. Doherty*
Trustee May __, 2000
- --------------------------
Robert B. Goode, Jr.*
Trustee May __, 2000
- --------------------------
David W. Wallace*
Trustee May __, 2000
- --------------------------
Walter May*
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
Trustee May __, 2000
- --------------------------
Alan L. Gosule*
Trustee May __, 2000
- --------------------------
Jock Patton*
Trustee May __, 2000
- --------------------------
David W.C. Putnam*
Trustee May __, 2000
- --------------------------
John R. Smith*
Senior Vice President and May __, 2000
- -------------------------- Principal Financial Officer
Michael J. Roland*
* By: /s/ James M. Hennessy
----------------------------
James M. Hennessy, Attorney-in-fact**
** Powers of Attorney for Trustees and Michael J. Roland are incorporated
herein by reference to Post-Effective Amendment No. 14 to the Registration
Statement on Form N-1A as filed on March 1, 2000.
<PAGE>
EXHIBIT LIST
Exhibit
Number Name of Exhibit
- ------ ---------------
(i)(2) Consent of Deloitte & Touche LLP
(j) Consent of Dechert Price & Rhoads
(o)(1) Code of Ethics of the Registrant and Pilgrim Investments, Inc.
(o)(2) Code of Ethics of ReliaStar Investment Research, Inc.
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees
USLICO Series Funds
We consent to the incorporation by reference in this Post-Effective Amendment
No. 14 and 15 to the Registration Statement on Form N-1A of USLICO Series Fund
filed under Securities Act of 1933 and the Investment Company Act of 1940 of
our report dated February 11, 2000, on the statement of assets and liabilities,
including the statement of investments, and the related statement of operations
as of and for the year ended December 31, 1999, and changes in net assets and
the condensed financial information for the years ended December 31, 1999 and
1998, as listed in Item 22 of such Registration Statement
We also consent to the reference to us under the heading "Experts" in the
Statement of Additional Information.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
April 27, 2000
[LETTERHEAD OF DECHERT PRICE & RHOADS]
April 28, 2000
USLICO Series Fund
c/o ReliaStar Life Insurance Company
20 Washington Avenue South
Route 1212
Minneapolis, MN 55401
Re: Post-Effective Amendment No. 15 to Registration Statement on
Form N-1A for USLICO Series Fund
(File Nos. 033-20957 and 811-05451)
Dear Sirs and Madams:
We hereby consent to the reference to our firm as counsel to USLICO Series
Fund (the "Trust") in the Statement of Additional Information contained in the
Registration Statement of the Trust.
Very truly yours,
/s/ Dechert Price & Rhoads
PILGRIM GROUP FUNDS
CODE OF ETHICS
STATEMENT OF GENERAL PRINCIPLES
Each of (i) The Pilgrim Group Mutual Funds (as more particularly described
on Exhibit A hereto and collectively referred to as the "Funds"), which are
registered investment companies under the Investment Company Act of 1940
(the "1940 Act"), (ii) Pilgrim Investments, Inc. ("PII"), a registered
investment adviser under the Investment Advisers Act of 1940, as amended,
which serves as the investment adviser for the Funds, and (iii) Pilgrim
Securities, Inc ("PSI"), a registered broker-dealer which serves as the
principal underwriter for the open-end Funds, hereby adopt this Code of
Ethics (hereinafter, the "Code"), pursuant to Rule 17j-1 promulgated by the
Commission under Section 17(j) of the 1940 Act.
In general, Rule 17j-1 imposes an obligation on registered investment
companies and their investment advisers and principal underwriters to adopt
written codes of ethics covering the securities activities of certain of
their directors, trustees, officers, and employees. This Code is designed
to ensure that those individuals who have access to information regarding
the portfolio securities activities of registered investment company
clients do not intentionally use information concerning such clients'
portfolio securities activities for his or her personal benefit and to the
detriment of such clients. For purposes of this Code, a Sub-Adviser of the
Fund shall be treated as an Adviser of the Fund unless the Boards of the
Funds have approved a separate code of ethics for that Sub-Adviser. It is
not the intention of this Code to prohibit personal securities activities
by Access Persons, but rather to prescribe rules designed to prevent actual
and apparent conflicts of interest. While it is not possible to define and
prescribe all-inclusive rules addressing all possible situations in which
conflicts may arise, this Code sets forth the policies of the Funds, PII,
and PSI regarding conduct in those situations in which conflicts are most
likely to develop.
In discharging his or her obligations under the Code, every Access Person
should adhere to the following general fiduciary principles governing
personal investment activities:
A. Every Access Person should at all times scrupulously place the interests of
the Funds' shareholders ahead of his or her own interests with respect to
any decision relating to personal investments.
B. No Access Person should take inappropriate advantage of his or her position
with a Fund, or with PII or PSI, as the case may be, by using knowledge of
any Fund's transactions to his or her personal profit or advantage.
C. Every Access Person should at all times conform to the Policies and
Procedures to Control The Flow And Use Of Material Non-Public Information
In Connection With Securities Activities, copy of which is attached and is
incorporated by reference into this Code of Ethics (that is, the policies
and procedures set forth are legally considered a part of this Code of
Ethics).
<PAGE>
II. DEFINITIONS
This Code defines directors, officers and employees of the Funds, PII, and
PSI into several categories, and imposes varying requirements by category
appropriate to the sensitivity of the positions included in the category.
As used herein and unless otherwise indicated, the following terms shall
have the meanings set forth below:
"PORTFOLIO MANAGER": means any employee of a Fund or of PII who is
entrusted with the direct responsibility and authority to make investment
decisions affecting an investment company, and who, therefore, may be best
informed about such Fund's investment plans and interests.
"INVESTMENT PERSONNEL": includes 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 the Fund
and includes the following individuals:all Finance Department staff of the
Adviser, Portfolio Managers of the Funds, the Portfolio support staff, and
traders who provide information and advice to a Portfolio Manager of a Fund
or who assist in the execution of such Portfolio Manager's decisions.
"ACCESS PERSONS": includes:
(i) any director, officer, general partner or Advisory Person of the
Funds or the Adviser to the Funds; and
(ii) any director or officer of PSI who, in the ordinary course of
business, makes, participates in or obtains information regarding
the purchase or sale of Securities by the Funds, or whose
functions or duties in the ordinary course of business relate to
the making of any recommendation to the Funds regarding the
purchase or sale of Securities.
This definition includes, but is not limited to, the following individuals:
Portfolio Managers, Investment Personnel, certain employees in Operations,
Marketing employees, Finance department employees, an Information Systems
member, an Accounting/Compliance Department member, and Executive
Management support staff members, as such individuals are defined by the
Company's Human Resource Department. Where the term Access Person is used
without specifying whether such person is an Access Person of a Fund, or of
PII or PSI, such term shall be interpreted to include all Access Persons of
each such entity.
"ADVISORY PERSON" includes each 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, participates in, or obtains
information regarding the purchase or sale of Securities by the Funds or
whose functions relate to the making of any recommendations with respect to
the purchases or sales.
"SEGREGATED PERSON" means an Access Person who in the ordinary course of
business does not have access to information regarding the trading
activities and/or current portfolio holdings of the Funds; does not
ordinarily maintain an office on the premises utilized by Investment
Personnel or Portfolio Managers; and who, by resolution, the Boards of the
Funds have determined may be a Segregated Person because he or she will not
be permitted access to information regarding the trading activities and/or
current portfolio holdings of the Funds.
<PAGE>
"EXEMPT PERSON": means a person who is, or could be, an Access Person who
does not ordinarily maintain an office on the premises utilized by
Investment Personnel or Portfolio Managers, and who, by resolution, the
Boards of the Funds have determined may be an Exempt Person not subject to
the Code because his or her responsibilities are ministerial in function
and therefore the risk of violation of the Code is highly remote.
"DISINTERESTED DIRECTOR": means a director/trustee of the Funds who is not
an "interested person" of the Funds within the meaning of Section 2(a)(19)
of the 1940 Act.
"PII INVESTMENT ADVISER REPRESENTATIVES": means any officer or director of
the investment adviser; any employee who makes any recommendation, who
participates in the determination of which recommendation should be made,
or whose functions or duties relate to the determination of which
recommendation shall be made. These individuals are identified on Form ADV,
Schedule F, Item 6.
"BEING CONSIDERED FOR PURCHASE OR SALE": means, with respect to any
security, that a recommendation to purchase or sell such security has been
made and communicated or, with respect to the person making the
recommendation, such person seriously considers making such recommendation.
"BENEFICIAL OWNERSHIP": An Access Person will be deemed to have "beneficial
ownership" of any Securities and commodities interests for any account held
(i) in the name of his or her spouse or their minor children, (ii) in the
name of another person (for example, a relative of the Access Person or his
or her spouse sharing the same home) if, by reason of any contract,
understanding, relationship or agreement or other arrangement, he or she
obtains benefits substantially equivalent to those of ownership of the
Securities, (iii) by a partnership of which he or she is a partner, (iv) by
a corporation of which he or she is a controlling person and which is used
by him or her alone or with a small group as a medium for investing or
trading in Securities, or (v) by a trust over which he or she has any
direct or indirect influence or control and of which he or she, or a member
of his or her immediate family (spouse, children, grandchildren or parents)
is a beneficiary. Exceptions may be made on a case-by-case basis by the
Designated Officer where the Access Person certifies in writing (and
annually re-certifies, as applicable) that he or she has no control over
the account of e.g., a trust or estate, or of a spouse whose transactions
in Securities are subject to a code of ethics of his or her employer. In
making such exceptions, the Compliance Officer may require the Access
Person to comply with various requirements under this Code, e.g., periodic
filing of holdings or transactions reports, as the Designated Officer deems
appropriate in the circumstances.
"CONTROL": shall have the same meaning as that set forth in Section 2(a)(9)
of the 1940 Act.
"DESIGNATED OFFICER": means, with respect to any Fund, or PII or PSI, the
President of such Fund or of PII or PSI, or such other officer as the board
of directors/trustees of such Fund, or of PII or PSI, as the case may be,
shall designate.
"FUNDS" OR "FUND": means The Pilgrim Group of Funds, or any fund within The
Pilgrim Group of Funds, respectively, as more particularly described on
Exhibit A hereto; provided that such terms shall not include any fund as to
which PII has appointed a sub-adviser if the Board of Directors/Trustees of
that fund has adopted the sub-adviser's code of ethics on behalf of that
fund.
<PAGE>
"PSI": means Pilgrim Securities, Inc.
"PII": means Pilgrim Investments, Inc. and Pilgrim Advisors, Inc..
"PERSONAL SECURITIES HOLDINGS" OR "PERSONAL SECURITIES TRANSACTIONS":
means, with respect to any person, any Security Beneficially Owned, or any
Security purchased or otherwise acquired, or sold or otherwise disposed of
by such person, including any Security in which such person has, or by
reason of such transaction acquires or disposes of, any direct or indirect
Beneficial Ownership in such Security and any account over which such
person has discretion; provided, however, that such terms shall not include
any holding or transaction in a Security held in or effectuated for an
account over which such person does not have any direct or indirect
influence and has certified such fact to the appropriate Designated
Officer. Personal Securities Transactions shall include all Securities or
commodity interests regardless of the dollar amount of the transaction or
whether the sale is in response to a tender offer.
"SECURITY": includes 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 or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas or other 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, or any put, call,
straddle, option or privilege entered into on a national securities
exchange relating to foreign currency. Securities also includes shares of
closed-end investment companies, various derivative instruments such as
ELKs, LEAPs and PERCs, limited partnership interests and private placement
common or preferred stocks or debt instruments. Commodity interests, which
includes futures contracts, and options on futures, relating to any stock
or bond, stock or bond index, interest rate or currency shall also be
included in this Code's definition of Security. Commodity interests in
agricultural or industrial commodities, such as agricultural products or
precious metals, are not covered under this Code.
Security does not include shares of registered open-end investment
companies, securities issued by the government of the United States and any
options or futures thereon, bankers' acceptances, bank certificates of
deposit and time deposits, commercial paper, repurchase agreements, and
such other money market instruments as designated by the board of
directors/trustees of such Fund, and shares of ReliaStar Financial
Corporation.
"SECURITY HELD OR TO BE ACQUIRED" by a Fund means: any Security which,
within the most recent fifteen (15) days, (i) is or has been held by such
Fund, or (ii) is being or has been considered by such Fund for purchase for
such Fund.
<PAGE>
"AUTOMATIC DISGORGEMENT." Where a violation results from a transaction
which can be reversed prior to settlement, such transaction should be
reversed, with the cost of the reversal being borne by the covered person;
or if reversal is impractical or impossible, then any profit realized on
such short-term investment, net of brokerage commissions but before tax
effect, shall be disgorged to the appropriate Fund, or if no fund is
involved then to a charity designated by PII.
III. GOVERNING LAWS, REGULATIONS AND PROCEDURES
All employees shall have and maintain knowledge of and shall comply
strictly with all applicable Federal and State laws and all rules and
regulations of any governmental agency or self-regulatory organization
governing his or her activities.
Each employee will be given a copy of the Code of Ethics at the time of his
or her employment and each Access Person is required to submit a statement
at least annually that he or she has reviewed the Codeof Ethics.
Each employee shall comply with all laws and regulations relating to the
use of material non-public information. Trading on "inside information" of
any sort, whether obtained in the course of research activities, through a
client relationship or otherwise, is strictly prohibited. All employees
shall comply strictly with procedures established by the Funds to ensure
compliance with applicable Federal and State laws and regulations of
governmental agencies and self-regulatory organizations. The employees
shall not knowingly participate in, assist, or condone any acts in
violation of any statute or regulation governing securities matters, nor
any act which would violate any provision of this Code of Ethics, or any
rules adopted thereunder.
Each employee having supervisory responsibility shall exercise reasonable
supervision over employeessubject to his or her control with a view to
preventing any violation by such of the provisions of the Code of Ethics.
Any employee encountering evidence that acts in violation of applicable
statutes or regulations or provisions of the Code of Ethics have occurred
shall report such evidence to the Designated Officer or the Board of
Directors/Trustees of each fund.
IV. CONFIDENTIALITY OF TRANSACTIONS
Information relating to each Fund's portfolio and research and studies
activity is confidential untilpublicly available. Whenever statistical
information or research is supplied to or requested by the Fund, such
information must not be disclosed to any persons other than persons
designated by the Designated Officer or the Board of Directors/Trustees of
the Fund. If the Fund is considering a particular purchase or sale of a
security, this must not be disclosed except to such duly authorized
persons.
Any employee authorized to place orders for the purchase or sale of
Securities on behalf of a Fund shall take all steps reasonably necessary to
provide that all brokerage orders for the purchase and sale of Securities
<PAGE>
for the account of the Fund will be so executed as to ensure that the
nature of the transactions shall be kept confidential until the information
is reported to the Securities and Exchange Commission or each Fund's
shareholders in the normal course of business.
If any employee of the Fund or Access Person should obtain information
concerning the Fund's portfolio (including, the consideration by the Fund
of acquiring, or recommending any security for the Fund's portfolio),
whether in the course of such person's duties or otherwise, such person
shall respect the confidential nature of this information and shall not
divulge it to anyone unless it is properly part of such person's services
to the Fund to do so or such person is specifically authorized to do so by
the Designated Officier of the Fund.
V. ETHICAL STANDARDS
A. INVESTMENT ACTIVITIES RELATED TO THE FUNDS. All Access Persons, in
making any investment recommendations or in taking any investment
action, shall exercise diligence and thoroughness, and shall have a
reasonable and adequate basis for any such recommendations or actions.
B. CONFLICTS. All Access Persons shall conduct themselves in a manner
consistent with the highest ethical standards. They shall avoid any
action, whether for personal profit or otherwise, that results in an
actual or potential conflict of interest, with a Fund or which may
otherwise be detrimental to the interest of a Fund. Therefore, no
Access Person shall undertake independent practice for compensation in
competition with the Fund.
Every employee or Access Person of the Funds who owns beneficially,
directly or indirectly, 1/2% or more of the stock of any corporation
is required to report such holdings to the President of the Funds.
C. OBLIGATION TO COMPLY WITH LAWS AND REGULATIONS. Every Access Person
shall acquire and maintain knowledge of, and shall comply strictly
with, all applicable federal and state laws and all rules and
regulations of any governmental agency or self-regulatory organization
governing such Access Person's activities. In addition, every Access
Person shall comply strictly with all procedures established by the
Funds, or by PII or PSI, to ensure compliance with such laws and
regulations. Access Persons shall not knowingly participate in, assist
or condone any acts in violation of any law or regulation governing
Securities transactions, nor any act which would violate any provision
of this Code.
D. SELECTION OF BROKER-DEALERS. Any employee having discretion as to the
election of broker-dealers to execute transactions in Securities for
the Funds shall select broker-dealers solely on the basis of the
services provided directly or indirectly by such broker-dealers as
provided in the registration statements for the Funds. An employee
shall not directly or indirectly, receive a fee or commission from any
source in connection with the sale or purchase of any security for a
Fund.
<PAGE>
In addition, the Funds shall take all actions reasonably calculated to
ensure that they engage broker-dealers to transact business with each
Fund whose partners, officers and employees, and their respective
affiliates, will conduct themselves in a manner consistent with the
provisions of this Section V.
E. SUPERVISORY RESPONSIBILITY. Every Access Person having supervisory
responsibility shall exercise reasonable supervision over employees
subject to his or her control in order to prevent any violation by
such persons of applicable laws and regulations, procedures
established by the Funds, or PII or PSI, as the case may be, or the
provisions of this Code.
ETHICAL STANDARDS CONTINUED
F. ACCOUNTABILITY. Any Access Person encountering evidence of any action
in violation of applicable laws or regulations, or of Fund procedures
or the provisions of this Code shall report such evidence to the
appropriate Designated Officer or the Board of Directors of each Fund.
G. INABILITY TO COMPLY WITH CODE. If, as a result of fiduciary
obligations to other persons or entities, an Access Person believes
that he or she, is unable to comply with certain provisions of this
Code, such Access Person shall so advise the Designated Officer of any
Fund for which such person is an Access Person in writing and shall
set forth with reasonably specificity the nature of his or her
fiduciary obligations and the reasons why such Access Person believes
that he or she cannot comply with the provisions of the Code.
VI. EXEMPTED TRANSACTIONS
The provisions of Article VII of this Code shall not apply to:
A. Purchases or sales effected in any account over which such Access
Person has no direct or indirect influence or control;
B. Purchases or sales of Securities which are not eligible for purchase
or sale by any Fund e.g. municipal securities.
C. Purchases or sales which are non-volitional on the part of either the
Access Person or a Fund; Purchases which are part of an automatic
dividend reinvestment plan or employee stock purchase plan;
D. 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, and sales of such rights so
acquired; and
E. Purchases or sales of Securities which receive the prior approval of
the appropriate Designated Officer because they (i) are only remotely
potentially harmful to each Fund, (ii) would be very unlikely to
affect a highly institutional market, or (iii) clearly are not related
economically to the Securities to be purchased, sold or held by each
Fund.
<PAGE>
F. Future elections into an employer sponsored 401(k) plan, in an amount
not exceeding $1,000 in any calendar month and any other transfers to
an open end fund. However, an exchange of a current account balance
into or from one of the closed end funds in an amount greater than
$1,000 would still need pre-clearance and be reportable at the end of
the quarter on the quarterly transaction reports.
G. The provisions of Article VII A, B and D of this Code shall not apply
to any Segregated Person EXCEPT with respect to transactions in
Securities where such Segregated Person knew, or in the ordinary
course of fulfilling his or her duties, should have known that such
Security was being purchased or sold by the Funds or that a purchase
or sale of such Security was being considered by or with respect to
the Funds. Pre-clearance approval WILL be required for purchases of
Securities in private transactions conducted pursuant to Section 4(2)
of the Securities Act of 1933 and Securities (debt or equity) acquired
in an initial public offering.
H. The provisions of this Code shall not apply to any Exempt Person
EXCEPT with respect to transactions in Securities where such Exempt
Person knew, or in the ordinary course of fulfilling his or her
duties, should have known that such Security was being purchased or
sold by the Funds or that a purchase or sale of such Security was
being considered by or with respect to the Funds.
VII. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
A. GENERAL. No Access Person shall purchase or sell, directly or
indirectly or for any account over which an Access Person has
discretion, any Security (including both publicly traded and private
placement Securities), in which he or she has, or by reason of such
transaction acquires, any direct or indirect Beneficial Ownership and
which he or she knows or should have known at the time of such
purchase or sale
1. is being considered for purchase or sale by a Fund; or
2. is being purchased or sold by a Fund.
B. PRE-CLEARANCE.
1. Every Access Person must pre-clear all Personal Securities
Transactions with the compliance department. In order to receive
pre-clearance for Personal Securities Transactions, an Access Person
must call the Compliance Officer or complete a Personal Trading
Approval form. A member of the compliance department is available each
business day to respond to pre-clearance requests. Access Persons are
directed to identify (i) the subject of the transaction and the number
of shares and principal amount of each security involved, (ii) the
date on which the Access Person desires to engage in the subject
transaction; (iii) the nature of the transaction (i.e., purchase,
sale, private placement, or any other type of acquisition or
<PAGE>
disposition); (iv) the approximate price at which the transaction will
be effected; and (v) the name of the broker, dealer, or bank with or
through whom the transaction will be effected. When granted, clearance
authorizations will be identified by authorization number and will be
effective for Day Orders for 24-hours from the time of authorization
(or in the case of a private placementpurchase, the closing of the
private placement transaction). In cases of Good Till cancelled Orders
(GTC) or Open Orders, authorizations will be effective until theend of
that calendar day, except for transactions in Pilgrim Capital
Corporation (PACC), formerly Express Holdings Corporation (EXAM),
stock for which authorizations will be effective for 30 days. If on
any particular day the Compliance Officer is not present in the
office, pre-clearance may be obtained by providing a completed
Personal Trading Approval form to a Senior Vice President or Vice
President of PII for authorization. The current list of designated
officers of PII authorized to provide pre-clearance trade approval is
attached as Exhibit B. Questions regarding pre-clearance procedures
should be directed to the compliance department.
2. In determining whether to grant approval of Personal Securities
Transactions of Investment Personnel who desire to purchase or
otherwise acquire Securities in private placement transactions
conducted pursuant to Section 4(2) of the Securities Act of 1933, the
appropriate Designated Officer will consider, among other factors,
whether the investment opportunity presented by such private placement
offering should be reserved for investment company and its
shareholders, and whether the opportunity is being offered to an
individual by virtue of his position with the Fund. In the event that
Investment Personnel who have been authorized to acquire Securities in
a private placement transaction later have any role in a Fund's
subsequent consideration of an investment in the issuer of the
Securities acquired in such prior private placement transaction, such
Investment Personnel must provide written notification of such prior
authorization and investment to the compliance department, immediately
upon learning of such Fund's subsequent consideration. In such
circumstances, the Fund's decision to purchase Securities of such
issuer will be subject to an independent review by Investment
Personnel with no personal interest in the issuer.
3. A disinterested Director of a Fund need only pre-clear a
transaction in a security if at the time such director/trustee
proposes to engage in such transaction, he or she knows , in the
ordinary course of fulfilling his or her official duties as a
director/trustee of such Fund, should know that, during the fifteen
(15) day period immediately preceding the date such director/trustee
proposed to engage in the transaction, such security was purchased or
sold by such Fund or was being considered by the Fund or its
investment adviser for purchase by the Fund.
COMPLIANCE OF TRANSACTIONS WITH THIS CODE BY ACCESS PERSONS MAY DEPEND ON THE
SUBSEQUENT INVESTMENT ACTIVITIES OF THE FUNDS, THEREFORE, PRE-CLEARANCE APPROVAL
OF A TRANSACTION BY THE DESIGNATED OFFICER DOES NOT NECESSARILY MEAN THE
TRANSACTION COMPLIES WITH THE CODE.
<PAGE>
C. INITIAL PUBLIC OFFERINGS. INITIAL PUBLIC OFFERINGS (IPOS AND HOT
IPOS). No Access Person (or account over which they have beneficial
ownership) may purchase any securities in an IPO or Hot IPO; provided,
however, an Access Person (or their beneficially owned accounts) may,
upon the prior written approval of a Designated Officer, participate
in the following IPOs:
(i) an IPO in connection with the de-mutualization of a savings
bank or the de mutualization of a mutual insurance company in
which the holder of the account owns a life insurance policy;
(ii) an IPO of a spin-off company where the Access Person
beneficially owns stock in the company that spins off the issuer;
(iii) an IPO of a company in which the Acess Person beneficially
owns stock in the company and the stock was acquired through
participation in a private placement previously approved by thier
Designated Officer; and
(iv) an IPO of the employer of the holder of the Access Persons
account.
An IPO generally means an offering of securities registered with
the Securities and Exchange Commission (SEC), the issuer of
which, immediately before the registration, was not required to
file reports with the SEC. See, rule 17j-1(a)(6). Hot IPOs are
securities of a public offering that trade at a premium in the
secondary market whenever such secondary market begins.
D. BLACKOUT PERIODS.
1. No Access Person may execute any Personal Securities
Transaction on a day during which any Fund has a pending "buy" or
"sell" order in that same security until such order is executed
or withdrawn.
2. Any purchase or sale of any Security by a Portfolio Manager
which occurs within seven (7) calendar days (exclusive of the day
of the relevant trade) from the day a Fund he or she manages
trades in such security will be subject to Automatic
Disgorgement. This seven day blackout period also applies to any
portfolio support staff member who recommends the purchase or
sale of the particular security to a Fund's Portfolio Manager.
<PAGE>
RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES (CONTINUED)
BAN ON SHORT-TERM TRADING PROFITS. Investment Personnel may not profit from
the purchase and sale, or sale and purchase, of the same (or equivalent)
Securities within sixty (60) calendar days, unless (i) such Securities were
not eligible to be purchased by any of the Funds under their respective
investment policies, or (ii) such Investment Personnel have requested and
obtained an exemption from this provision from the compliance department
with respect to a particular transaction. Violations of this policy will be
subject to Automatic Disgorgement.
GIFTS. Investment Personnel may not receive any fee, commission, gift or
other thing, or services, having a value of more than $100.00 each year
from any person or entity that does business with or on behalf of the
Funds.
SERVICES AS A DIRECTOR. Investment Personnel may not serve on the boards of
directors of publicly traded companies, unless (i) the individual serving
as a director has received prior authorization from the appropriate
Designated Officer based upon a determination that the board service would
be consistent with the interests of the Funds and their shareholders and
(ii) policies and procedures have been developed and maintained by the
board of directors/trustees of the Funds that are designed to isolate the
individual from those making investment decisions (a "Chinese Wall").
NAKED OPTIONS. Investment Personnel are prohibited from engaging in naked
options transactions. Transactions under any incentive plan sponsored by
PII or PSI are exempt from this restriction.
SHORT SALES. Short sales of Securities by Investment Personnel are
prohibited.
VIII. COMPLIANCE PROCEDURES
DISCLOSURE OF PERSONAL HOLDINGS. All Investment Personnel must disclose all
Personal Securities Holdings upon commencement of employment and thereafter
on an annual basis. Such annual disclosure shall be made by January 31st of
each year. Any person filing such report may state the report shall not be
deemed an admission that such person is the beneficial owner of any
Securities covered by the report.
DUPLICATE TRADE CONFIRMATION STATEMENTS AND ACCOUNT STATEMENTS. Every
Access Person must cause duplicate trading confirmations for all Personal
Securities Transactions and copies of periodic statements for all
Securities accounts to be sent to the compliance department, except that a
Segregated Person may satisfy this requirement by providing a statement to
the compliance department of an affiliate of the Adviser
<PAGE>
QUARTERLY TRANSACTIONS REPORTS.
1. PII Investment Adviser Representatives.
Quarterly reporting of transactions in Securities is required of all PII
Investment Adviser Representatives pursuant to the requirements of Rules
204-2(a)(12) or 204-2(a)(13) under the Investment Advisers Act of 1940. PII
must have a record of every Personal Securities Transaction including every
transaction in Securities in which PII or any of its "advisory
representatives" (as such term is defined in the rule) has (or by reason of
such transaction acquires) any direct or indirect beneficial interest and
any account over which an Access Person has discretion, except (i) any
Personal Securities Transaction effected in any account over which neither
PII, nor such advisory representative, has any direct or indirect influence
or control, (ii) any Personal Securities Transaction which is a direct
obligation of the United States and (iii) any Personal Securities
Transactions in shares of unaffiliated open-end funds Such record must
state (i) the title and amount of the Securities involved in the
transaction, (ii) the trade date and nature of the transaction (i.e.,
purchase, sale, private placement, or other 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, This report must be made no later than ten days following the end
of the calendar quarter in which such Personal Securities Transaction was
effected. A Segregated Person may satisfy this reporting requirement by
providing a statement to the compliance department of an affiliate of the
Adviser.
2. All Other Access Persons
All other Access Persons must prepare a quarterly report of all
transactions in Securities within 10 days following the end of each quarter
in which such Personal Securities Transaction was effected. The
transactional and reporting rules under the Code for these individuals do
not include shares of registered open-end investment companies, securities
issued by the government of the United States, bankers' acceptances, bank
certificates of deposit, commercial paper, and such other money market
instruments as designated by the board of directors/trustees of such Fund.
Such record must state (i) the title and amount of the Securities involved
in the transaction, (ii) the trade date and nature of the transaction
(i.e., purchase, sale, private placement, or other 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. This report must be made no later than ten days
following the end of the calendar quarter. A Segregated Person may satisfy
this reporting requirement by providing a statement to the compliance
department of an affiliate of the Adviser.
<PAGE>
COMPLIANCE PROCEDURES CONTINUED
D. CERTIFICATION OF COMPLIANCE WITH CODE OF ETHICS. All Access Persons will
be provided with a copy of this Code upon beginning his or her employment
with a Fund, or with PII or PSI, as the case may be, and must certify
annually that they have read and understand this Code, and that they
recognize that they are subject to the terms and provisions hereof.
Further, all Access Persons must certify by January 31st of each year that
they have complied with the requirements of this Code and that they have
disclosed all personal brokerage accounts and disclosed or reported all
Personal Securities Transactions required to be disclosed or reported
pursuant to the requirements herein.
IX. SANCTIONS
A. GENERALLY. The Designated Officer shall investigate all apparent
violations of this Code. If a Designated Officer for any Fund, or for PII
or PSI, discovers that an Access Person has violated any provision of this
Code, he or she may impose such sanctions as he or she deems appropriate,
including, without limitation, one or more of the following: warnings,
periods of "probation" during which all personal investment activities
(except for specifically approved liquidations of current positions), a
letter of censure, suspension with or without pay, termination of
employment, or Automatic Disgorgement of any profits realized on
transactions in violation of this Code. Any profits realized on
transactions in violation of Sections D and E of Article VII of this Code
shall be subject to Automatic Disgorgement.
B. PROCEDURES. Upon discovering that an Access Person of a Fund, or of PII
or PSI, has violated any provision of this Code, the appropriate Designated
Officer shall report the violation, the corrective action taken, and any
sanctions imposed to the relevant entity's board of irectors/trustees,
which may, at the request of the individual involved, review the matter. If
a transaction in Securities of a Designated Officer is under consideration,
another senior officer of the relevant Fund, or of PII or PSI, as the case
may be, shall act in all respects in the manner prescribed herein for a
Designated Officer.
X MISCELLANEOUS PROVISIONS
A. RECORDS. The Funds 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) under the 1940 Act and shall
be available for examination by representatives of the Commission:
a copy of this Code and any other code of ethics which is, or at any
time within the past five (5) years has been, in effect shall be
preserved in an easily accessible place;
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 (5) years following the end
of the fiscal year in which the violation occurs;
<PAGE>
a copy of each duplicate confirmation statement concerning Personal
Securities Transactions of Access Persons, made pursuant to this Code,
shall be preserved for a period of not less than five (5) years from
the end of the fiscal year in which the statement is provided, the
first two (2) years in an easily-accessible place; and
a copy of each report disclosing Personal Securities Holdings of
Investment Personnel, made pursuant to this Code, shall be preserved
for a period of not less than five (5) years from the end of the
fiscal year in which the report is made, the first two (2) years in an
easily-accessible place; and
a list of all persons who are, or within the past five (5) years have
been, required to pre-clear Personal Securities Transactions or make
reports disclosing Personal Securities Holdings pursuant to this Code
shall be maintained in an easily-accessible place.
CONFIDENTIALITY.
All pre-clearance requests pertaining to Personal Securities
Transactions, reports disclosing Personal Securities Holdings, and any
other information filed pursuant to this Code shall be treated as
confidential, but are subject to review as provided herein and by
representatives of the Commission.
All information relating to any Fund portfolio or pertaining to any
research activities is confidential until publicly available. Whenever
statistical information or research is supplied to or requested by a
Fund, such information must not be disclosed to any persons other than
persons designated by the appropriate Designated Officer or the board
of directors/trustees of such Fund. If the Fund is considering a
particular purchase or sale of a security, this fact must not be
disclosed except to such duly authorized persons.
Any employee authorized to place orders for the purchase or sale of
Securities on behalf of a Fund shall take all steps reasonably
necessary to provide that all brokerage orders for the purchase and
sale of Securities for the account of the Fund will be so executed as
to ensure that the nature of the transactions shall be kept
confidential until the information is reported to the Commission or
each Fund's shareholders in the normal course of business.
4. If any employee of a Fund or Access Person should obtain information
concerning such Fund's portfolio (including, the consideration by the
Fund of acquiring, or recommending any security for the Fund's
portfolio), whether in the course of such person's duties or
otherwise, such person shall respect the confidential nature of this
information and shall not divulge it to anyone unless it is properly
part of such person's services to such Fund to do so or such person is
specifically authorized to do so by the Designated Officer of the
Fund.5.No officer, director or employee shall disclose any non-public
information relating to a client's portfolio or transactions or to the
investment recommendations of PII, nor shall any officer,
director/trustee or employee disclose any non-public information
relating to the business or operations of PII, PSI or the Funds unless
properly authorized to do so.
<PAGE>
C. INTERPRETATION OF PROVISIONS. Each Fund's board of directors/trustees
may from time to time adopt such interpretation of this Code as such
board deems appropriate.
D. EFFECT OF VIOLATION OF THIS CODE. In adopting Rule 17j-1, the
Commission specifically noted, in Investment Company Act Release No.
IC-11421, that a violation of any provision of a particular code of
ethics, such as this Code, would not be considered a per se unlawful
act prohibited by the general anti-fraud provisions of this Rule. In
adopting this Code, it is not intended that a violation of this Code
necessarily is or should be considered to be a violation of Rule
17j-1.
<PAGE>
INITIAL CERTIFICATION OF CODE OF ETHICS
PILGRIM GROUP MUTUAL FUNDS
I AM FULLY FAMILIAR WITH THE EFFECTIVE CODE OF ETHICS AS ADOPTED BY EACH OF THE
PILGRIM GROUP MUTUAL FUNDS, PILGRIM INVESTMENTS, INC. AND PILGRIM SECURITIES,
INC., AND WILL COMPLY WITH SUCH CODE AT ALL TIMES DURING THE FORTHCOMING
CALENDAR YEAR.
Name (print):
Signature:
Date:
<PAGE>
EXHIBIT A
TO CODE OF ETHICS
Pilgrim Bank and Thrift Fund, Inc.
Pilgrim Advisory Funds, Inc.
Pilgrim LargeCap Leaders Fund
Pilgrim MidCap Value Fund
Pilgrim Asia-Pacific Equity Fund
Pilgrim Investment Funds, Inc.
Pilgrim MagnaCap Fund
Pilgrim High Yield Fund
Pilgrim Mutual Funds
Pilgrim Internationl Core Growth Fund
Pilgrim Worldwide Growth Fund
Pilgrim International SmallCap Growth Fund
Pilgrim Emerging Countries Fund
Pilgrim LargeCap Growth Fund
Pilgrim MidCap Growth Fund
Pilgrim SmallCap Growth Fund
Pilgrim Convertible Fund
Pilgrim Balanced Fund
Pilgrim High Yield Fund II
Pilgrim Strategic Income Fund
Pilgrim Money Market Fund
Pilgrim Government Securities Income Fund, Inc.
Pilgrim Prime Rate Trust
Pilgrim Equity Trust
Pilgrim MidCap Opportunities Fund
Northstar Galaxy Trust
Northstar Galaxy Emerging Growth Portfolio
Northstar Galaxy Growth + Value Portfolio
Northstar Galaxy High Yield Bond Portfolio
Northstar Galaxy International Value Portfolio
Northstar Galaxy Research Enhanced Index Portfolio
Pilgrim SmallCap Opportunities Funds
Pilgrim Growth Opportunities Fund
<PAGE>
Pilgrim Mayflower Trust
Pilgrim Emerging Markets Value Fund
Pilgrim High Growth + Value Fund
Pilgrim High Total Return Fund
Pilgrim High Total Return Fund II
Pilgrim International Value Fund
Pilgrim Research Enhanced Index Fund
USLICO Series Fund
The Stock Portfolio
The Money Market Portfolio
The Bond Portfolio
The Asset Allocation Portfolio
<PAGE>
EXHIBIT B
TO CODE OF ETHICS
Designated Officer of PII able to provide pre-clearance:
Lauren Bensinger
Senior Vice Presidents of PII able to provide pre-clearance:
James M. Hennessy
Rob Naka
Michael Roland
<PAGE>
POLICIES AND PROCEDURES TO CONTROL THE FLOW AND USE OF MATERIAL NON-PUBLIC
INFORMATION IN CONNECTION WITH SECURITIES ACTIVITIES
The reputation for integrity and high ethical standards in the conduct of its
affairs of the Pilgrim Group, Inc., Pilgrim Investments, Inc. and Pilgrim
Securities, Inc. (Pilgrim) is of paramount importance to all of us. To preserve
this reputation, it is essential that all transactions in securities be effected
in conformity with securities laws and in a manner which avoids the appearance
of impropriety. In particular, it has been Pilgrim 's long-standing policy that
there be no trading in securities of public companies on the basis of material
non-public or "inside" information or disclosure of such information to persons
who are in the position to trade on the basis of the information or transmit it
to others.
Material non-public information is information not known to the public that: (1)
might reasonably be expected to affect the market value of securities and (2)
influence investor decisions to buy, sell or hold securities. It is not possible
to define with precision what constitutes "material" information. However,
advance information about the following:
* a merger, acquisition or joint venture;
* a stock split or stock dividend;
* earnings or dividends of an unusual nature;
* the acquisition or loss of a significant contract;
* a significant new product or discovery;
* a change in control or a significant change in management;
* a call of securities for redemption;
* the public or private sale of a significant amount of additional
securities;
* the purchase or sale of a significant asset;
* a significant labor dispute;
* establishment of a program to make purchases of the issuer's own
shares;
* a tender offer for another issuer's securities; and
* an event requiring the filing of a current report under the Act.
Pilgrim Prime Rate Trust, an affiliated regulated investment company
("PPR"), and Pilgrim Investments, Inc as part of its structured finance
activities are both frequently in possession of material non-public
information about public companies as a result of its investments in
participation interests in senior collateralized corporate loans.
The following policies and procedures are designed to help insure that Pilgrim
abides by the prohibition on trading on the basis of material non-public
information by limiting the use and restricting the disclosure of material
non-public information to persons within or outside the Pilgrim organization who
are in the position to trade on the basis of such information or transmit it to
others.
All employees must familiarize themselves with these policies and procedures and
abide by them. Compliance with the law and with the policies and procedures
described in this memorandum is the individual responsibility of each director,
<PAGE>
officer and employee of Pilgrim. It is each person's duty to see that the
policies and procedures set forth herein are followed in both spirit and letter.
In addition, all employees of Pilgrim should understand that supervisory
personnel have special responsibilities for taking appropriate action to prevent
insider trading violations. FAILURE TO COMPLY WITH THESE POLICIES WILL BE DEALT
WITH HARSHLY AND COULD LEAD TO TERMINATION OF EMPLOYMENT, PERSONAL LIABILITY OR
CRIMINAL PROSECUTION.
PERSONAL SECURITIES TRADING
It is a long-standing policy of Pilgrim that if an employee of Pilgrim or any of
its subsidiaries or affiliated investment companies possesses material
non-public information about a public company, the employee may not trade in or
recommend trading in the securities of that company nor disclose such
information to another person, whether within or outside the Pilgrim
organization, except in fulfillment of a legitimate business objective of
Pilgrim. Violations of this policy may result in severe civil and criminal
penalties under the Federal securities laws, as well as disciplinary action by
Pilgrim. Employees should refer to Pilgrim 's Policies and Procedures Governing
Securities Transactions for a complete statement of these policies.
"CHINESE WALL" POLICIES AND PROCEDURES APPLICABLE TO SECURITIES TRADING BY
PILGRIM
Employees of Pilgrim performing investment management related activities for
PPR/Structured Finance Vehicles ("PPR/Structured Finance Investment Activities
(and persons with supervisory or higher management responsibilities for such
employees) are likely to receive in the normal course of their activities
material non-public information about issuers of publicly-traded securities. The
following policies and procedures are designed to prevent the flow of material
non-public information about a public company or its securities from employees
engaged in PPR/Structured Finance Investment Activities to those performing
other "investment management activities." By following these policies and
procedures, Pilgrim can continue, in most instances, to engage in "investment
management activities," even though material non-public information about public
companies may be known to others within the Pilgrim organization who are
involved in performing PPR/Structured Finance Investment Activities.
"INVESTMENT MANAGEMENT ACTIVITIES," FOR PURPOSES OF THESE POLICIES AND
PROCEDURES, ARE ACTIVITIES OF EMPLOYEES OF PILGRIM WHOSE REGULAR FUNCTIONS OR
DUTIES PRINCIPALLY CONSIST OF MAKING, PARTICIPATION IN, OR OBTAINING INFORMATION
REGARDING, THE PURCHASE OR SALE OF PUBLICLY-TRADED SECURITIES OR MAKING, OR
OBTAINING INFORMATION ABOUT, RESEARCH AND RECOMMENDATIONS WITH RESPECT TO
PURCHASES OR SALES OF SUCH SECURITIES.
<PAGE>
GENERAL "CHINESE WALL" POLICY
IN ADDITION TO PILGRIM 'S GENERAL POLICY PROHIBITING TRADING ON THE BASIS OF
MATERIAL NON-PUBLIC INFORMATION OR DISCLOSURE OF SUCH INFORMATION TO OTHERS, IT
IS PILGRIM'S POLICY THAT ANY MATERIAL NON-PUBLIC INFORMATION ABOUT A PUBLIC
COMPANY OR ITS SECURITIES OBTAINED BY A DIRECTOR, OFFICER OR EMPLOYEE OF PILGRIM
OR ANY OF ITS AFFILIATED INVESTMENT COMPANIES, EITHER IN CONNECTION WITH HIS OR
HER PPR/STRUCTURED FINANCE INVESTMENT ACTIVITIES OR OTHERWISE, SHALL NOT BE
DISCLOSED TO ANY DIRECTOR, OFFICER OR EMPLOYEE OF PILGRIM OR ANY OF ITS
AFFILIATED INVESTMENT COMPANIES PERFORMING INVESTMENT MANAGEMENT ACTIVITIES, OR
ANY OTHER PERSON, EXCEPT AS SPECIFICALLY PERMITTED BY THESE POLICIES AND
PROCEDURES. THIS PROHIBITION APPLIES TO ORAL AS WELL AS WRITTEN DISCLOSURE AND
TO INFORMAL AS WELL AS FORMAL DISCLOSURE.
REPORTING MATERIAL NON-PUBLIC INFORMATION TO CHIEF COMPLIANCE OFFICER.
From time to time, a director, officer or employee of Pilgrim may come into
possession of material non-public information (of the type described on page 18
of these policies and procedures) about a company. If such information is
obtained in connection with the performance of such person's responsibilities as
a director, officer or employee of Pilgrim, then he or she shall immediately
report the information as follows:
a. A director, officer or employee of Pilgrim, other than a PPR/Structured
Finance staff member, shall report such information immediately to the
Compliance Department, which is responsible for taking appropriate action,
which may include restricting trading in the affected securities. Depending
on the nature of such information, such director, officer or employee may
have an ongoing duty to inform the Compliance Department of material
changes in the information or the status of the transaction which it
relates in order to permit the Compliance Department to take appropriate
action, including restricting or terminating restrictions on trading in the
affected securities.
b. PPR/Structured Finance staff members who in their normal course of
business deal with material non-public information are to follow the
SPECIFIC "CHINESE WALL" PROCEDURES as set forth below.
c. Such information need not be reported if, after reasonable inquiry, the
director, officer or employee is satisfied that the Compliance Department
has already received such information.
<PAGE>
SPECIFIC "CHINESE WALL" PROCEDURES
COMPLIANCE WITH SECTIONS 13(F) AND 13(G) OF THE SECURITIES EXCHANGE ACT OF 1934
("EXCHANGE ACT")
All directors, executive officers (or persons performing similar functions)
or Investment Personnel of ReliaStar Financial Corp. ("ReliaStar") shall not
have access to current information (less than 7 days old) that relates to the
voting and investment power of the securities held by the Pilgrim Funds'
portfolios. Such persons shall not have access to investment reports, Investment
Personnel, the premises of Investment Personnel or attend meetings of Investment
Personnel of PII, wherever located, except that such persons may attend meetings
of the Board of Directors/Trustees of the Pilgrim Funds based on the premise
that information concerning portfolio holdings is more than 7 days old.
Communications concerning the holdings, voting or investment power of the
Pilgrim Funds' portfolios between Investment Personnel of PII and directors,
executive officers (or persons performing similar functions) or Investment
Personnel of ReliaStar are prohibited. Exceptions may be permitted by the Chief
Compliance Officer where the Chief Compliance Officer believes such persons will
not act in concert with Investment Personnel of PII for purposes of transactions
in securities that would require reporting under Sections 13(f) and 13(g) of the
Exchange Act.
PILGRIM PRIME RATE TRUST
In order to contain material non-public information concerning a public
company or its securities within the immediate group of persons engaged in
performing PPR/Structured Finance Investment Activities who have a need to know
such information, and in order to ensure that such information does not flow to
those engaged in other investment management activities, the following policies
and procedures should be followed:
1. ORAL AND WRITTEN COMMUNICATIONS. Except as specifically permitted by these
policies and procedures, employees engaged in performing PPR/Structured Finance
Investment Activities should not discuss or exchange any written or oral
non-public information, whether or not material, about a company or its
securities with employees performing other investment management activities.
Any communication, whether written or oral, containing material non-public
information (of the type described on the attached copy of Pilgrim 's Policies
and Procedures to Control the Flow and Use of Material Non-Public Information in
Connection with Securities Activities) about an issuer or its securities shall
be restricted, on a need-to-know basis, to employees engaged in performing
PPR/Structured Finance Investment Activities and to the following persons:
a. directors and senior executives of Pilgrim who are not actually
involved in investment management decisions;
b. Compliance personnel; and
c. certain identified accountants, attorneys or other outside
professional advisers.
In addition, the Company involved shall be placed on PPR/Structured Finance's
Watch List/Inside Information List. Written communications containing material
non-public information shall be marked "confidential." Documents prepared for
presentation to PPR's Board of Directors shall be presumed to contain material
non-public information and shall be handled accordingly.
<PAGE>
2. ATTENDANCE AT MEETINGS. Attendance at meetings, whether held inside or
outside the Pilgrim organization, at which personnel performing PPR/Structured
Finance Investment Activities may be present, is limited as follows:
a. Attendance at meetings at which material non-public information
regarding a company or its securities are to be, or are likely to be,
discussed is restricted to employees, on a need-to-know basis, performing
PPR/Structured Finance Investment Activities and to the following persons:
i) directors and senior executives of Pilgrim who are not actually
involved in investment management decisions
ii) compliance personnel; and
iii) certain identified accountants, attorneys, or other outside
professional advisers.
<PAGE>
SPECIFIC "CHINESE WALL" PROCEDURES CONTINUED
Persons engaged in other investment management activities ARE PROHIBITED from
attending meetings at which material non-public information about a public
company or its securities is to be, or is likely to be, discussed, without the
specific authorization of the Compliance Department, after appropriate legal
consultation.
b. The preceding paragraph shall not prohibit investment management personnel
from preparing and participating in written or oral presentations and attending
meetings with persons performing PPR/Structured Finance Investment Activities in
order to develop products or marketing plans, to report on the financial
services of Pilgrim to existing or prospective clients or to discuss matters not
related to PPR/Structured Finance Investment Activities, provi ded, that such
persons shall leave such meetings if non-public matters are raised.
3. LIBRARY AND FILES. A separate credit file room has been established. The door
is closed and locked at all times except when an Authorized Person is working in
the room. NO OTHER PERSONS ARE ALLOWED IN THE PPR/STRUCTURED FINANCE FILE ROOM
EVEN IN THE COMPANY OF AN AUTHORIZED PERSON (AS DEFINED ABOVE) OTHER THAN REPAIR
OR MAINTENANCE PERSONNEL AND THEN ONLY IN THE PRESENCE OF AN AUTHORIZED PERSON.
The Library's access is to be monitored by an Authorized Person.
All information awaiting filing in the Library is to be under the supervision of
an Authorized Person at all times or locked in a PPR/Structured Finance staff
member's office or other lockable file cabinet.
Materials, which have been archived, are stored with a storage company whose
procedures restrict access to archived materials and where only a Pilgrim
Authorized Person may request retrieval of files from the archives.
4. PPR/STRUCTURED FINANCE OFFICES ARE TO BE LOCKED when not occupied or
supervised. Authorized Persons requiring keys must sign in/out for keys on a log
maintained by the Administrative Assistant.
5. COMPUTERS WITH ACCESS TO PPR/STRUCTURED FINANCE FILES ARE TO HAVE SEPARATE
ACCESS PASSWORDS. Pilgrim 's company-wide computer security has also been
reviewed to insure that all reasonable and practical measures have been taken to
limit the possibility that unauthorized access could be made to PPR/Structured
Finance (and all Pilgrim) computer files. Pilgrim 's MIS personnel are required
to notify in writing a PPR Senior Vice President of any file/systems maintenance
work, in advance of beginning any such work.
<PAGE>
6. THE (602) 417-8327 FAX MACHINE IS FOR THE EXCLUSIVE USE OF THE PPR/STRUCTURED
FINANCE CREDIT DEPARTMENT. It is to remain situated in direct proximity to the
PPR/Structured Finance Department Administrative Assistant for monitoring of
incoming/outgoing information. Any Authorized Person noting any unattended
information on the machine is required to take possession of that information
until it can be properly delivered to the appropriate PPR/Structured Finance
staff member.
If any Pilgrim employee should inadvertently receive PPR/Structured Finance
faxes, he/she is to immediately deliver it to a PPR/Structured Finance staff
member and should immediately report the occurrence to a Senior Vice President
of PPR. The Senior Vice President will decide if there has been any exposure of
non-public information and, if so, will immediately inform the Chief Compliance
Officer and place the issuer on the Restricted List.
7. ALL PPR/STRUCTURED FINANCE NON-PUBLIC DUPLICATE MATERIALS OR OTHER SUCH
REFUSE OF A CONFIDENTIAL NATURE MUST BE DISPOSED OF PROPERLY. A document
shredder is available for the use of each Authorized Person.
8. ALL PPR/STRUCTURED FINANCE MAIL IS TO BE DELIVERED UNOPENED TO THE PPR
DEPARTMENT ADMINISTRATIVE ASSISTANT (OR NEAREST AVAILABLE PPR/STRUCTURED FINANCE
STAFF MEMBER). If any Pilgrim employee should inadvertently receive
PPR/Structured Finance mail, he/she is to immediately hand deliver it to a
PPR/Structured Finance staff member. If the mail was opened before receipt by a
PPR/Structured Finance staff member, the occurrence should be immediately
reported to a Senior Vice President of PPR. The Senior Vice President will
decide if there has been any exposure of non-public information and, if so, will
immediately inform the Chief Compliance Officer and place the issuer on the
Restricted List.
9. PPR/STRUCTURED FINANCE'S MAIL DISTRIBUTION IS TO BE HANDLED AS FOLLOWS: Mail
is received and opened. Each item is reviewed to determine content. If the item
is found to contain material, non-public information, the company will be placed
on the Watch List/Inside Information List provided it is not currently in the
portfolio and, therefore, already on the Watch List/Inside Information List. All
items are distributed to the appropriate recipient.
<PAGE>
RESTRICTIONS ON TRADING
From time to time it may be appropriate to restrict or halt trading in a
security if Pilgrim is in possession of material non-public information about
the issuer of such security, particularly if such information is derived from a
significant transaction or proposed transaction involving PPR/Structured Finance
and the issuer. Whenever a trading restriction is in effect, Pilgrim 's
Compliance Department shall implement appropriate procedures to halt trading in
that security for any account for which Pilgrim Investments, Inc. acts as
discretionary investment manager or adviser.
Where PPR/Structured Finance is involved in a transaction, or is otherwise in
possession of material non-public information, the securities of the affected
company shall be placed on the Watch List/Inside Information List and trading in
such securities shall be monitored. Depending on individual circumstance, such
securities may also be considered for placement on Pilgrim 's Restricted List.
HANDLING OF OTHER SENSITIVE INFORMATION
Although the preceding policies deal in particular with the subject of MATERIAL
non-public information, employees of Pilgrim have an obligation to treat ALL
sensitive non-public information in strictest confidence. To safeguard this
information, the following procedures should be followed:
1. Papers relating to non-public matters concerning issuers of securities should
not be left lying in conference rooms or offices and should be locked in file
cabinets or desks overnight or during absence from the office. In addition,
sensitive information stored in computer systems and other electronic files
should be kept secure.
2. Appropriate controls for the reception and oversight of visitors to sensitive
areas should be implemented and maintained. For example, guests should be
escorted around Pilgrim 's offices and should not be left unattended.
3. Document control procedures, such as numbering counterparts and recording
their distribution, and shredding papers containing material non-public
information should be used where appropriate.
4. If an employee is out of the office on business, secretaries and
receptionists should use caution in disclosing the employee's location.
5. Business conversations should be avoided in public places, such as elevators,
hallways, restrooms and public transportation or in any other situation where
such conversations may be overheard.
QUESTIONS
Questions concerning the interpretation or application of these procedures
should be referred to the Compliance Department, who will consult with counsel
about matters requiring legal interpretations.
<PAGE>
POLICIES AND PROCEDURES GOVERNING SECURITIES TRANSACTIONS
RESTRICTIONS ON TRADING IN SECURITIES.
Pilgrim maintains a list of securities that are subject to trading restrictions
or monitoring in accordance with its Code of Ethics, Chinese Wall Procedures and
various provisions of the federal securities laws. These lists, referred to as
the Restricted List, the Watch List/Inside Information List and the Trading
Lists, are maintained and continuously updated under the supervision of the
Compliance Department. Securities included on the Restricted List may not be
purchased or sold in portfolio accounts, except for Pilgrim Prime Rate Trust
("PPR") and structured finance vehicles. Securities Watch List/Inside
Information List securities are securities of issuers with respect to which
there is a significant likelihood that PPR/Structured Finance is in possession
of material inside information. Trading List securities are those with respect
to which a portfolio manager has indicated an intent to trade or Structured
Finance/PPR public companies to which PPR/Structured Finance is a lender or
PPR/Structured Finance is, or within the preceding ninety (90) days has been, in
possession of material non-public information concerning such company. The
Restricted List, the Watch List/Inside Information List and the Trading Lists
will be prepared and maintained for all Pilgrim Funds; provided that exceptions
from the requirement for such lists may be granted on a case by case basis when
the Compliance Department determines that a portfolios manager's alternative
methodology is sufficient to achieve the purposes of such lists.
Each portfolio manager will maintain a separate Trading List, unless an
exception has been granted by the Compliance Department, as provided above. Each
portfolio manager will have access to his/her Trading List and the Restricted
List.
A. CHINESE WALL PROCEDURES.
Employees of Pilgrim performing investment management related activities for
PPR/Structured Finance ("PPR/Structured Finance Investment Activities") (and
persons with supervisory or management responsibilities for such employees) are
likely, in the normal course of their activities, to receive material non-public
information about issuers of publicly traded securities. If any employee of
Pilgrim possesses material non-public information about a public company,
regardless of its source, such employee may not trade in the securities of that
company or recommend trading in such securities to any person nor can they
disclose such information to another person, whether inside or outside the
Pilgrim organization, except in fulfillment of a legitimate business objective
of Pilgrim. Violations of this policy may result in severe civil or criminal
penalties under the federal securities laws, as well as in disciplinary action
by Pilgrim (including termination of employment). Pilgrim has adopted a series
of stringent procedures designed to prevent the flow of material non-public
information about a public company or its securities from employees engaged in
"PPR/Structured Finance Investment Activities" to employees performing other
"investment management activities." As a general matter, it is Pilgrim's policy
that any material non-public information about a public company or its
securities that is obtained by a director, officer or employee of Pilgrim,
either in connection with their PPR/Structured Finance Investment Activities or
otherwise, shall not be disclosed beyond the immediate group of persons involved
in a particular transaction, except as specifically permitted by the firm's
Chinese Wall Procedures. Employees should refer to Pilgrim 's Chinese Wall
Procedures.
<PAGE>
ALL DIRECTORS, OFFICERS AND EMPLOYEES OF PILGRIM MUST FAMILIARIZE THEMSELVES
WITH THESE POLICIES AND PROCEDURES AND ABIDE BY THEM. COMPLIANCE WITH THE LAW
AND THE POLICIES AND PROCEDURES DESCRIBED IN PILGRIM'S CHINESE WALL PROCEDURES
IS THE INDIVIDUAL RESPONSIBILITY OF EACH DIRECTOR, OFFICER OR EMPLOYEE OF
PILGRIM. IT IS EACH SUCH PERSON'S DUTY TO SEE THAT THE POLICIES AND PROCEDURES
SET FORTH IN PILGRIM 'S CHINESE WALL PROCEDURES ARE FOLLOWED IN BOTH SPIRIT AND
LETTER. FAILURE TO COMPLY WITH THE CHINESE WALL PROCEDURES WILL BE DEALT WITH
HARSHLY AND COULD LEAD TO TERMINATION OF EMPLOYMENT, PERSONAL LIABILITY OR
CRIMINAL PROSECUTION.
B. THE RESTRICTED LIST.
Securities are placed on the Restricted List: (i) in the unlikely event that
there is a failure of the Chinese Wall Procedures and material non-public
information is disseminated beyond persons performing PPR/Structured Finance
Investment Activities; (ii) upon a determination by the Compliance Department or
the Firm's General Counsel that the sensitivity of a transaction being
considered by PPR/Structured Finance, the nature of the information in the
possession of PPR/Structured Finance or other circumstances justify a halt in
trading activity in securities of an issuer; and (iii) in other circumstances as
determined by the Compliance Department or the Firm's General Counsel.
Portfolios managed by Pilgrim, other than PPR, may not trade in securities that
have been placed on the Restricted List. Pre-clearance requests for personal
securities transactions in securities of an issuer on the Restricted List will
not be approved. It is anticipated that few, if any, securities will be included
on the Restricted List.
C. WATCH LIST/INSIDE INFORMATION LIST.
Each company will be placed on the Watch List/Inside Information List if
PPR/Structured Finance is, or within the preceding ninety (90) days has been, in
possession of material non-public information concerning such company.
D. PREPARATION OF THE WATCH LIST/INSIDE INFORMATION LIST.
Persons performing PPR/Structured Finance Investment Activities must immediately
log the names of companies on the Watch List/Inside Information List upon the
receipt of material non-public information concerning such company.
PPR's/Structured Finance portfolio managers must advise the Compliance
Department of any changes in the status of such information which might permit
the removal of such securities from the Watch List/Inside Information List or
require placing them on the Restricted List. In addition, the Firm's General
Counsel may advise the Compliance Department to place the securities of a
particular company on the Watch List/Inside Information List. While portfolio
trading in securities on the Watch List/Inside Information List is NOT
prohibited, such trading is monitored frequently to detect any unusual trading
activity involving Watch List/Inside Information List securities. The Watch
List/Inside Information List is prepared by a PPR/Structured Finance Portfolio
Manager.
<PAGE>
E. TRADING LISTS. - OPEN-END FUNDS
A separate Trading List is maintained for each portfolio. A security of an
issuer is placed on a Trading List each Friday or commencing upon the date that
a portfolio manager determines to engage in a transaction involving such
security imminently (generally within seven (7) business days, subject to market
conditions) and for a period of five (5) business days following such
transaction. A portfolio manager's decision to place a security on a Trading
List should be made by reference to a number of factors, including, the
relationship between the target buy/sell price and the market price, the
volatility of the issue and consideration of other factors that may lead a
portfolio manager to trade in a particular security. Obviously, unforeseen
circumstances may lead to a rapid trading decision, in which case a security may
be placed on the Trading List at the same time as a trading order is placed.
Pre-clearance requests for personal securities transactions in securities of an
issuer on the Trading List will not be approved.
F. TRADING LIST - PPR AND STRUCTURED FINANCE VEHICLES
Public companies will be put on PPR/Structured Finance's Trading list if either
entity (I) owns a loan participation with respect to such company or (ii) is, or
within the preceding ninety (90) days has been, in possession of material
non-public information concerning such company. Pre-clearance requests for
personal securities transactions in securities of an issuer on the
PPR/Structured Finance Trading List will not be approved.
G. PERSONAL SECURITIES TRANSACTIONS.
Under Pilgrim's Code of Ethics, all employees, officers and directors of
Pilgrim, all directors/trustees of registered investment companies managed by
Pilgrim, as well as certain consultants and independent contractors who have
access to confidential information, other than Segregated Persons (collectively,
"Access Persons") must (i) obtain pre-clearance for personal securities
transactions involving beneficial ownership (as defined in Pilgrim 's Code of
Ethics) and (ii) cause duplicate trading confirmations for such personal
securities transactions to be sent to the Compliance Department A Segregated
Person, as that term is defined in Pilgrim's Code of Ethics, need only pre-clear
a transaction in a Security (as that term is defined in Pilgrim's Code of
Ethics) if at the time such Segregated Person proposed to engage in such
transaction, he or she knew, or in the ordinary course of fulfilling his or her
duties, should have known that such Security was being purchased or sold by the
Funds or that a purchase or sale of such Security was being considered by or
with respect to the Funds EXCEPT that pre-clearance approval WILL be required
for purchases of securities in private transactions conducted pursuant to
Section 4(2) of the Securities Act of 1933 and Securities (debt or equity)
acquired in an initial public offering.
All Pilgrim Registered Representatives not deemed to be Access Persons must also
pre-clear all Personal Securities Transactions with the Compliance Department.
In order to receive pre-clearance for Personal Securities Transactions, a
Registered Representative must call the Compliance Officer or complete a
Personal Trading Approval form. A member of the Compliance Department is
available each business day from 9:00 a.m. to 5:00 p.m. to respond to
pre-clearance requests. Registered Representatives are directed to identify (i)
the securities that will be the subject of the transaction and the number of
shares and principal amount of each security involved, (ii) the date on which
they desire to engage in the subject transaction; (iii) the nature of the
transaction (i.e., purchase, sale, private placement, or any other type of
acquisition or disposition); (iv) the approximate price at which the transaction
will be effected; and (vi) the name of the broker, dealer, or bank with or
through whom the transaction will be effected. Transactions in securities of an
issuer on the Restricted List or the Trading Lists will not be approved. In
<PAGE>
order to maintain the confidentiality of the Restricted List, the Watch
List/Inside Information List and the Trading Lists, callers will not be apprised
of the reason for the denial of the authorization to trade. If on any particular
day the Compliance Officer is not present in the office, pre-clearance may be
obtained by providing a completed Personal Trading Approval form to the
Compliance Analyst for authorization who will obtain the signature of an
appropriate designated officer. Questions regarding pre-clearance procedures
should be directed to the Compliance Department.
Exceptions - Certain Transactions No pre-clearance of a securities transaction
is required for the following transactions:
1. Shares of registered open-end investment companies,
2 Securities issued by the government of the United States, bankers'
acceptances, bank certificates of deposit and time deposits, commercial
paper, repurchase agreements and such other money market instruments as
designated by the board of directors/trustees of such Fund and shares of
ReliaStar Financial Corporation.
3. Purchases or sales effected in any account over which such Registered
Representative has no direct or indirect influence or control;
4. Purchases or sales of securities which are not eligible for purchase or
sale by any Fund e.g. municipal securities.
5. Purchases or sales which are non-volitional on the part of either the
Registered Representative or a Fund;
6. Purchases which are part of an automatic dividend reinvestment plan or
employee stock purchase plan;
7. 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, and sales of such rights so acquired.
8. Purchases or sales of securities which receive the prior approval of the
appropriate Designated Officer because they (i) are only remotely
potentially harmful to each Fund, (ii) would be very unlikely to affect a
highly institutional market, or (iii) clearly are not related economically
to the securities to be purchased, sold or held by each Fund.
9. Future elections into an employer sponsored 401(k) plan, in an amount
not exceeding $1,000 in any calendar month and any other transfers to an
open end fund. However, an exchange of a current account balance into or
from one of the closed end funds in an amount greater than $1,000 would
still need pre-clearance and be reportable at the end of the quarter on the
quarterly transaction reports.
<PAGE>
H. PERSONAL BROKERAGE ACCOUNTS
Access Persons and registered representatives pursuant to Article III, Section
28 of the NASD Rules of Fair Practice, are required to notify the securities
brokers with whom he or she opens personal brokerage accounts that he or she is
an affiliated person of PII or PSI as appropriate. This notification should take
place at the time the brokerage account is opened and applies to your personal
accounts and to any account in which you have a beneficial interest as defined
in Pilgrim 's Code of Ethics. If the securities account is with a non-member
institution (e.g., investment adviser, bank or other financial institution) you
are required to notify the Chief Compliance Officer prior to the execution of
any initial transactions, of your intention to open such account or place an
order.
For brokerage and/or non-member institution accounts established prior to your
association with PSI or PII, you are required to notify the Chief Compliance
Officer promptly after your hire date.
I. TRADE CONFIRMATIONS.
Access Persons (other than Segregated Persons) and registered representatives
shall cause broker-dealers maintaining accounts to deliver to Pilgrim duplicate
trade confirmations and statements with respect to all transactions in such
accounts. Pilgrim has prepared a form letter to be used such Access Persons to
direct brokerage firms maintaining such accounts to send duplicate trade
confirmations to the Compliance Department. A copy of this form letter is
attached as Exhibit C.
J. NEW ISSUES.
"Hot issues" are securities which, immediately after their initial public
distribution, sell at a premium in the secondary market. No Access Person nor
Registered Representative ("RR") may purchase hot issue securities during the
primary offering for his or her personal account, for any account in which the
individual has a direct or indirect financial interest, or for the account of
any member of the individual's immediate family. For this purpose, the term
"immediate family" includes parents, spouse, brothers, sisters, in-laws,
children or any other person who is directly or indirectly materially supported
by you.
Because of the difficulty in recognizing a potential "hot issue" until after
distribution, you and your immediate family may not purchase, for any account in
which you have a beneficial interest, any new issue of a security unless such
purchase has been approved in advance by the Chief Compliance Officer.
<PAGE>
EXHIBIT C
SAMPLE LETTER TO BROKERAGE FIRM
TO ESTABLISH DUPLICATE CONFIRMS AND PERIODIC STATEMENTS
(PAGE C12, H. TRADE CONFIRMATIONS)
January 2, 1996
Merrill Lynch, Pierce, Fenner & Smith, Inc.
111 W. Ocean Blvd., 24th Floor
Long Beach, CA 90802
RE: The Brokerage Account of Account Registration
Account No. Your Account Number
AE Name of Your Registered Representative
Dear Ladies/Gentlemen:
In accordance with the policies of Pilgrim Group, Inc., a financial services
firm with which I have become associated, effective immediately, please forward
duplicate trade confirmations and periodic statements on the above-captioned
accounts as follows:
Pilgrim Group, Inc.
ATTN: LAUREN D. BENSINGER
VP & CHIEF COMPLIANCE OFFICER
TWO RENAISSANCE SQUARE
40 North Central Avenue
Suite 1200
Phoenix, AZ 85004
Sincerely,
Your Name
RELIASTAR INVESTMENT RESEARCH, INC.
CODE OF ETHICS & POLICY STATEMENT
PURSUANT TO RULE 17J-1 UNDER THE INVESTMENT COMPANY ACT OF 1940
AND
POLICIES AND PROCEDURES TO PREVENT MISUSE OF NON-PUBLIC
INFORMATION PURSUANT TO SECTION 204A OF THE INVESTMENT
ADVISERS ACT OF 1940
INTRODUCTION
This Code of Ethics (the "Code") shall apply to all employees, officers, and
directors ("associated persons") of ReliaStar Investment Research, Inc. ("RIR"),
an investment adviser.
RIR's Policy Statement does not apply to personal transactions in securities
issued or guaranteed by the United States government or its agencies or
instrumentalities, banker's acceptances, bank demand or time deposits,
repurchase agreements, and shares of registered open-end investment companies.
Beneficial ownership, as referred to within this Code and Policy Statement,
includes both direct and indirect ownership and also includes, but is not
limited to, accounts held by immediate family members in the same household and
certain trust accounts if the associated person has influence or control over
those accounts.
THE CODE:
* sets forth general principles by which all associated persons shall conduct
their activities,
* governs conflicts of interest in personal securities transactions that may
arise when employees invest in securities that are held, or to be acquired,
by accounts for which RIR acts as the investment adviser ("managed
accounts"),
* prevents circumstances that may result in an actual or potential conflict
of interest or the appearance thereof,
* prevents abuse of an individual's position of trust and responsibility, and
* includes policies and procedures ("Policy Statement") required by Section
204A of the Investment Advisers Act of 1940, as amended, which are designed
to prevent any associated person from trading in securities while in
possession of material, non-public information ("insider trading").
EVERY ASSOCIATED PERSON MUST READ, ACKNOWLEDGE RECEIPT AND UNDERSTANDING OF, AND
RETAIN THIS CODE AND POLICY STATEMENT. ANY QUESTIONS REGARDING THE CODE AND
POLICY STATEMENT SHOULD BE REFERRED TO THE DIRECTOR OF COMPLIANCE.
<PAGE>
THE CODE AND POLICY STATEMENT
I. STATEMENT OF GENERAL PRINCIPLES AND PROHIBITED CONDUCT
A. GENERAL PRINCIPLES.
As fiduciaries, all associated persons have a duty at all times to
place the interests of clients above their own interests, and never to
take inappropriate advantage of their position. All associated persons
are prohibited from engaging in, or recommending, any securities
transaction which places or appears to place their own interests above
that of any client, and shall ensure that all personal securities
transactions are conducted consistent with this Code and in such a
manner as to avoid any actual, potential or appearance of a conflict
of interest or any abuse of an associated person's position of trust
and responsibility.
B. PROHIBITED CONDUCT.
1. SUBSTANTIAL INTEREST IN A TRANSACTION: All associated persons
shall refrain from participating in any transaction in which they
or a related party have a substantial interest; i.e., a
transaction in which there is, or might appear to be, a conflict
by reason of his or her association as an employee or otherwise
with another nonaffiliated business or corporation. Accordingly,
no associated person shall participate in the discussion,
analysis, or negotiation of, or vote or otherwise act upon the
making of any loan to, or the making of any investment in the
stock or other securities of, or the purchase or sale by the
company of anything of value from or to, any nonaffiliated
corporation or firm in which he or she or a member of his or her
family is an officer, director, member, or employee, or in which
he or she or a family member has a substantial interest as a
stockholder or otherwise, or from which he or she or a family
member receives any fee or other remuneration, or gratuity having
more than a nominal value.
Without limiting the meaning of a substantial interest, it shall
be understood that an associated person, or a member of his or
her family will be deemed to have a substantial interest in any
firm or corporation in which such person is an officer or
director, or owns 1% or more of the outstanding stock or other
securities, or in which such person's ownership of stock and
other securities amounts to 10% or more of such person's total
net worth. Any loan to or from or interest in the non-publicly
traded stock of a nonaffiliated firm or corporation will be
regarded as a substantial interest. The existence of an
2
<PAGE>
interest-bearing loan, at normal rates prevailing at the time of
the actual borrowing, from a recognized financial institution
will not be regarded as a substantial interest.
2. DISCLOSURE OF PERSONAL INTEREST IN SECURITIES/ISSUERS: In
addition to the restrictions set forth in the above Section
(I.B.1.), all associated persons are prohibited from recommending
securities transactions to any client without disclosing his or
her beneficial interest, if any, in the issuer.
If the associated person is required to make a disclosure
pursuant to this section, they must disclose:
a) any direct or indirect beneficial ownership of any
securities of such issuer;
b) any contemplated transaction by such person in such
securities;
c) any position with such issuer or its affiliates;
d) any present or proposed business relationship between such
issuer or its affiliates and such person or any party in
which such person has a significant interest.
3. CONFIDENTIAL INFORMATION. All associated persons are prohibited
from divulging clients' current portfolio positions, and current
and anticipated portfolio transactions to anyone unless it is
properly within his or her duties to do so.
Additionally, all associated persons are prohibited from engaging
in any securities transaction for their own benefit or the
benefit of others, while in possession of MATERIAL, NON-PUBLIC
INFORMATION concerning such securities. MATERIAL INFORMATION
means information which there is a substantial likelihood that a
reasonable investor would consider important in making his or her
investment decisions, or information that is reasonably certain
to have an effect on the price of a company's securities.
Information is NON-PUBLIC until it has been effectively
communicated to the marketplace. Information in your possession
that you identify as material and non-public may not be
communicated to anyone, including other employees who are not
authorized to have access to such information. In addition, care
should be taken so that such information is secure. For example,
files containing material, non-public information should be
locked and access to computer files containing material
non-public information should be restricted.
PENALTIES FOR TRADING ON OR MERELY COMMUNICATING MATERIAL,
NON-PUBLIC INFORMATION ARE SEVERE, BOTH FOR THE INDIVIDUALS
INVOLVED IN SUCH UNLAWFUL CONDUCT AND THEIR EMPLOYERS. A PERSON
3
<PAGE>
CAN BE SUBJECT TO SOME OR ALL OF THE FOLLOWING PENALTIES EVEN IF
HE OR SHE DOES NOT PERSONALLY BENEFIT FROM THE VIOLATION.
PENALTIES INCLUDE: (1) TREBLE DAMAGES (FINES 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); (2)
CIVIL FINES (FOR THE EMPLOYER OR OTHER CONTROLLING PERSON) TO THE
GREATER OF $1 MILLION OR THREE TIMES THE AMOUNT OF THE PROFIT
GAINED OR LOSS AVOIDED; (3) CRIMINAL PENALTIES (OF UP TO $2.5
MILLION); (4) JAIL SENTENCES (OF UP TO 10 YEARS); (5)
DISGORGEMENT OF PROFITS; AND (6) CIVIL INJUNCTIONS.
Additionally, employees are prohibited from trading, both for
their accounts in which they have a beneficial interest and for
clients' accounts, in securities that are on the RESTRICTED LIST.
The Restricted List contains issuers as to which either RIR, or
its investment adviser affiliate Washington Square Advisers, Inc.
("WSA"), may be in possession of material non-public information.
In the event that an associated person comes into possession of
material non-public information about an issuer of securities,
that person shall promptly notify the Director of Compliance, so
that this issuer can be placed on the Restricted List.
4. INITIAL PUBLIC OFFERINGS. Associated persons are prohibited from
acquiring any securities in an initial public offering.
5. CLIENT SECURITIES. Except for stock and bond securities of
ReliaStar Financial Corporation ("RFC") and RFC stock options
issued pursuant to an employee stock option plan, associated
persons are prohibited from acquiring any securities, options on
such securities, or short-selling any security or option that is
issued by a RIR or WSA advisory client.
6. PRIVATE PLACEMENTS. Associated persons are prohibited from
investing in private placements of an Issuer if any securities of
that Issuer is held in any managed account (including managed
accounts of WSA). Any other private placement investment will
require prior written approval of the employee's supervisor and
RIR's Director of Compliance. After receipt of the necessary
approval and the acquisition, associated persons are required to
disclose that investment and not participate in any subsequent
consideration of any investment in the same issuer for a managed
account. A managed account will have priority in any transaction
in which the investment is suitable for the managed account.
4
<PAGE>
7. BLACKOUT PERIODS. Associated persons will not knowingly purchase
or sell a security within seven days of a purchase or sale of any
security of the Issuer in a RIR or WSA managed account (based on
trade date).
8. GIFTS. No investment personnel may accept a gift (other than one
of de minimis value) from any person that does business with, or
on behalf of, ReliaStar Investment Research, Inc.
9. SERVICE AS DIRECTORS. No investment personnel may serve on the
Board of Directors of a publicly traded company without prior
authorization of RIR's senior management. Authorization shall be
granted only where such service is consistent with the interests
of all managed accounts, and procedures shall be established to
prevent conflicts of interest with respect to any investment
considered by a managed account in the issuer on whose Board the
associated person is serving.
In addition to the penalties set forth in I(B)(3), penalties for
violations of Rule 17j-1 of the Investment Company Act of 1940,
as amended, may include fines of up to $10,000, as well as jail
sentences of up to five years.
Any violation of this Code and Policy Statement can also be
expected to result in serious sanctions within ReliaStar
Investment Research, Inc. including dismissal of the persons
involved and the imposition of monetary sanctions, and any
profits realized in a transaction in violation of this Code shall
be disgorged in accordance with procedures established by senior
management.
5
<PAGE>
II. REPORTING OF PERSONAL SECURITIES TRANSACTIONS
NOTE: ALL OFFICERS AND DIRECTORS OF RIR WHO ARE NOT ACTIVE IN THE
DAY-TO-DAY MANAGEMENT OF THE FIRM WILL SUBMIT THE INFORMATION REQUESTED IN
SECTION II TO THE LEGAL DIVISION OF RELIASTAR FINANCIAL CORP. A SUMMARY
REPORT WILL BE PRODUCED BY THE LEGAL DIVISION AND REVIEWED BY RIR'S
PRESIDENT AND DIRECTOR OF COMPLIANCE.
A. Within 30 days of receiving this Code and Policy Statement, all
associated persons must submit to the Director of Compliance a
statement of all securities in which he or she presently has any
direct or indirect beneficial ownership. Such statement shall be in
the format contained in Exhibit A. Such statement will also be
submitted by all new employees upon their employment by RIR. If, after
submitting the Statement of Security Holdings as described in Exhibit
A, an associated person opens a brokerage account, he or she is
required to send written notification of such fact to the Director of
Compliance PRIOR TO engaging in any transactions through such account.
B. All associated persons engaging in personal securities transactions
shall have duplicate confirmation of such securities transactions sent
by their broker/dealer(s) to the attention of the Director of
Compliance at RIR. The Director of Compliance shall send a letter, as
shown in Exhibit B (which shall be signed by the associated person),
to the broker/dealer(s) or other entity in order to ensure receipt of
duplicate confirmation. All information relating to personal
securities transactions received by the Director of Compliance shall
be treated as "personal and confidential" but will be available for
inspection by the Board of Directors, General Counsel, and the RIR's
appropriate regulatory agencies. In addition to review by the Director
of Compliance, personal securities transactions (with the omission of
the associated persons' names) are reviewed on a monthly basis by the
President of RIR, the President of RIR's research affiliate, WSA, and
RIR's General Counsel.
C. Quarterly, each associated person shall complete a Personal Securities
Transactions Report in the form of Exhibit C which shall certify
thereon that all personal transactions are reported for the period or
the associated person completed no transactions.
D. Yearly, each associated person shall complete a certification in the
form of Exhibit D that they have read and understand the Code and
Policy Statement, and have complied in all respects with the
requirements thereof, including reporting all personal transactions
required to be reported.
6
<PAGE>
III. WAIVERS AND INTERPRETATIONS
In unusual circumstances, an associated person may obtain a waiver of
specific provisions of this Code. To obtain a waiver, the associated person
must submit an application for a waiver, in writing, setting out the
reasons for the requested waiver and certifying that actions taken pursuant
to the waiver will not involve any improper use of information or position.
A request for a waiver must be approved by the President and the Director
of Compliance.
The Director of Compliance shall have the authority to interpret the
provisions of this Code.
7
<PAGE>
EXHIBIT A
STATEMENT OF SECURITY HOLDINGS
As of __________
1. Attach a list of all securities in which you, your immediate family, any
other member of your immediate household, or any trust or estate of which
you or your spouse is a trustee or fiduciary or beneficiary, or any person
for whom you direct or effect transactions under a power of attorney or
otherwise maintain a beneficial interest. SECURITIES ISSUED OR GUARANTEED
BY THE U.S. GOVERNMENT OR ITS AGENCIES OR INSTRUMENTALITIES, BANKER'S
ACCEPTANCES, BANK CERTIFICATES OF DEPOSIT AND TIME DEPOSITS, COMMERCIAL
PAPER, REPURCHASE AGREEMENTS AND SHARES OF REGISTERED OPEN-END INVESTMENT
COMPANIES NEED NOT BE LISTED.
Check if none
2. List below or in an attachment the name and address of all broker/dealers
with whom you maintain an account (including account numbers).
----------------------------------- -----------------------------------
----------------------------------- -----------------------------------
----------------------------------- -----------------------------------
----------------------------------- -----------------------------------
Check if none
3. List below or in an attachment an individual gift greater than $100 in
value, or all gifts from a single source with a value which exceeds $250 or
all gifts if their combined value exceeds $500, that you have received in
the previous year from persons doing business with ReliaStar Investment
Research, Inc., the approximate value of the gift received, the individual
that gave you the gift, and the firm that the individual is associated
with.
----------------------------------- -----------------------------------
----------------------------------- -----------------------------------
----------------------------------- -----------------------------------
----------------------------------- -----------------------------------
Check if none
I certify that the statements made by me on this form are true, complete, and
correct to the best of my knowledge and belief, and are made in good faith.
Date: Signature:
------------------------------- -----------------------------
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<PAGE>
EXHIBIT B
(On RIR Letterhead)
Date
Contact
Broker/Dealer or Other Entity
Address
Dear Sir or Madame:
This letter will serve as our request for duplicate trade confirms pertaining to
the account referenced below (an employee of ReliaStar Investment Research,
Inc.) to be sent to the Director of Compliance at the address indicated on this
letterhead:
Account Name ______________
Account Number ____________
Thank you for your assistance with this matter.
Cordially,
Director of Compliance
I hereby notify you that I am an associated person of RIR. Please comply with
the request set forth above.
Cordially,
----------------------------------------
Signature
----------------------------------------
Print Name
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<PAGE>
EXHIBIT C
TO:
FROM: Steve Buchert
RIR, Route 5750
DATE:
RE: Personal Securities Transactions Report
REPLY REQUIRED ASAP
Federal Regulations, enforced by surprise inspections, require RIR to keep a
record of its associates personal securities transactions. Even if you have not
had any personal transactions, you must respond to this memo. If you receive
this memo, no trades were reported for your account for the previous quarter.
IF YOU HAD SECURITIES TRANSACTIONS in the 3rd quarter of 1996, please enter the
details of those transactions below, or attach a copy of the confirmation, then
return this memo to me. In the future, you MUST arrange for your broker to send
duplicate confirmations directly to me at Route 5750.
IF YOU HAVE NOT HAD PERSONAL SECURITIES TRANSACTIONS in the last quarter, write
"none" below and return this memo to Route 5750.
There are detailed rules for transactions by trusts, estates, or other accounts
you control. You may need to report transactions by relatives who live with you.
You do not need to report mutual fund transactions, or purchases or receipts of
stock through an employee benefit plan. Full instructions are available on the
EMail compliance bulletin board. Please feel free to call with any questions.
In order to comply with federal regulations, please make every effort to
reply as soon as possible, but in no more than 10 days.
Transactions to be reported. Give name of security, date, quantity, total price,
buy or sell, and brokerage firm. If none, write "none".
Signature ______________________________
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<PAGE>
EXHIBIT D
CERTIFICATION
CODE OF ETHICS/STATEMENT OF POLICY
The undersigned hereby certifies:
That I have read and understand RIR's Code of Ethics and Policy Statement
and have complied in all respects with the requirements hereof since the
inception of the Code or the commencement of my employment with ReliaStar
Investment Research, Inc., whichever is more recent, through the date of
this certification.
I also understand that any violations of such Code and Policy Statement may
subject me to sanctions, including dismissal, from ReliaStar Investment
Research, Inc.
----------------------------------------
Signature
----------------------------------------
Name (Printed)
----------------------------------------
Date:
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<PAGE>
ADDENDUM
BROKER RELATIONS
Employees of ReliaStar Investment Research, Inc. ("RIR") direct substantial
business to brokers and other intermediaries. It is important that the selection
of brokerage firms, the registered representatives of such firms, and the
continuing relationship with them, be based upon objective criteria. In dealings
with such firms and registered representatives, it is necessary to avoid
conflicts of interest and also situations which could create the appearance of
conflicts of interest. In this regard an employee should be sensitive to how his
or her actions would appear to the general public. For example, where an analyst
makes investment evaluations for a client, the employee's action for his own
personal trading should not be inconsistent with recommended actions for the
client. An employee should not use a registered representative for his own
personal trading if that registered representative is used for firm business. An
employee should not receive a discount from a broker firm if it creates the
appearance of improper conduct. Nor should an analyst purchase or sell
securities in the industry in which he or she specializes in if such conduct
would give rise to an appearance of improper conduct.
It should be remembered that the above are not intended to present an exclusive
list of examples but merely to emphasize that both actual and appearances of
conflicts of interest need to be avoided.
PURCHASES AND SALES OF RELIASTAR SECURITIES
All RIR employees need to exhibit care when purchasing or selling securities
issued by ReliaStar Financial Corp. ("RFC"). RIR is responsible for providing
investment advise to RFC and its affiliated companies, and as such, its
employees may have information about RFC's affairs which could have an impact on
earnings, potential acquisitions or dispositions or other significant events.
All employees need to consider, prior to acquiring or disposing of RFC
securities, if they are in possession of such non-public material information.
If there is any question whether an employee would be trading on insider
information, the person needs to review, prior to the trade, the contemplated
transaction with the Director of Compliance. Along with the President of RIR, a
determination could be made when such information would be considered "publicly
available" or whether the information is material or not. Releases of
information, and their dissemination to the general public would be taken into
account to determine if information is no longer "non-public".
It is understood that RFC maintains certain ESOP programs on behalf of its
employees. Generally, an employee's acquisition of RFC's securities through such
programs are not within the employee's ability to time the acquisition, and as
such, would not be considered purchases based on material non-public
information.
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<PAGE>
GIFTS
No employee shall accept gifts, payments, fees, services, discounts, valuable
privileges or other favors, where they would or might appear to influence
improperly the individuals in the performance of duties for RIR and no employee
shall provide or give gifts or favors to others where these might appear
designed to improperly influence others in their relations with RIR.
This is not intended to preclude the acceptance or the giving of common
courtesies usually associated with accepted business practices, including
business functions such as luncheons, dinners and entertainment as long as they
are reasonably related to a valid business purpose and, under the circumstances,
reasonable with respect to the situation. As a guideline it should be kept in
mind that generally single gifts should not exceed $100, gifts from any single
source should be within $250 in any year and total gifts in any year should not
exceed $500.
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