As filed with the Securities and Exchange Commission on April 27, 2000
Securities Act File No. 33-73140
Investment Company Act File No. 811-8220
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM N-1A
Registration Statement Under The Securities Act Of 1933 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 17 [X]
and/or
Registration Statement Under The Investment Company Act Of 1940 [X]
Amendment No. 18 [X]
(Check appropriate box or boxes)
NORTHSTAR GALAXY TRUST
(to be renamed Pilgrim Variable Products Trust)
(Exact Name of Registrant Specified in Charter)
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 551-8643
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
----------
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 April 30, 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.
================================================================================
<PAGE>
PILGRIM (SM)
- ---------------------------
FUNDS FOR SERIOUS INVESTORS
Prospectus
Pilgrim Variable Products Trust
April 30, 2000
U.S. EQUITY PORTFOLIOS
Pilgrim VP MagnaCap Portfolio
Pilgrim VP Research Enhanced Index Portfolio
Pilgrim VP Growth Opportunities Portfolio
Pilgrim VP MidCap Opportunities Portfolio
Pilgrim VP Growth + Value Portfolio
Pilgrim VP SmallCap Opportunities Portfolio
INTERNATIONAL EQUITY PORTFOLIO
Pilgrim VP International Value Portfolio
INCOME PORTFOLIO
Pilgrim VP High Yield Bond Portfolio
This prospectus contains important
information about investing in the
Pilgrim Variable Products Trust
Portfolios. You should read it
carefully before you invest, and
keep it for future reference.
Please note that your investment:
is not a bank deposit; is not
insured or guaranteed by the FDIC,
the Federal Reserve Board or any
other government agency; and is
affected by market fluctuations --
there is no guarantee that the
Portfolios will achieve their
objectives. As with all mutual
funds, the Securities and Exchange
Commission (SEC) has not approved
or disapproved these securities nor
has the SEC judged whether the
information in this prospectus is
accurate or adequate. Any
representation to the contrary is a
criminal offense.
<PAGE>
WHAT'S INSIDE
- --------------------------------------------------------------------------------
[GRAPHIC] These pages contain a description of each of our portfolios,
including its objective, investment strategy, risks and
OBJECTIVE portfolio manager.
[GRAPHIC] You'll also find:
INVESTMENT What you pay to invest. A list of the fees and expenses you
STRATEGY pay -- both directly and indirectly -- when you invest in a
portfolio.
[GRAPHIC]
How the portfolio has performed. A chart that shows the
RISKS portfolio's financial performance since inception.
[GRAPHIC]
HOW THE
PORTFOLIO HAS
PERFORMED
U.S. EQUITY PORTFOLIOS
MagnaCap Portfolio 2
Research Enhanced Index Portfolio 4
Growth Opportunities Portfolio 6
MidCap Opportunities Portfolio 8
Growth + Value Portfolio 10
SmallCap Opportunities Portfolio 12
INTERNATIONAL EQUITY PORTFOLIO
International Value Portfolio 14
PILGRIM INCOME PORTFOLIO
High Yield Bond Portfolio 16
What You Pay to Invest 18
Management of the Portfolios 19
Information for Investors 22
Dividends, Distributions and Taxes 23
More Information About Risks 24
Financial Highlights 27
Where to go For More Information Back cover
Risk is the potential that your investment will lose money or not earn as much
as you hope. The Pilgrim Variable Products Trust Portfolios have varying degrees
of risk, depending on the securities they invest in. Please read this prospectus
carefully to be sure you understand the principal risks and strategies
associated with each of our portfolios. You should consult the Statement of
Additional Information (SAI) for a complete list of the risks and strategies.
<PAGE>
- -----------
U.S. Equity
Portfolios
- -----------
Adviser
PILGRIM VP MAGNACAP PORTFOLIO Pilgrim Investments, Inc.
- --------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Portfolio seeks growth of capital, with dividend income as a secondary
consideration.
INVESTMENT
STRATEGY
[GRAPHIC]
The Portfolio is managed with the philosophy that companies that can best meet
the Portfolio's objectives have paid increasing dividends or have had the
capability to pay rising dividends from their operations. The Portfolio normally
invests at least 65% of its assets in equity securities of companies that meet
the following disciplined criteria:
Consistent Dividends -- A company must have paid or had the financial capability
from its operations to pay a dividend in eight out of the last 10 years.
Substantial Dividend Increases -- A company must have increased its dividends or
had the financial capability from its operations to have increased its dividends
at least 100% over the past 10 years.
Reinvested Earnings -- Dividend payout must be less than 65% of current
earnings.
Strong Balance Sheet -- Long term debt should be no more than 25% of the
company's total capitalization or a company's bonds must be rated at least A- or
A-3.
Attractive Price -- A company's current share price should be in the lower half
of the stock's price/earnings ratio range for the past ten years, or the ratio
of the share price to its anticipated future earnings must be an attractive
value in relation to the average for its industry peer group or that of the
Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index).
The equity securities in which the Portfolio may invest include common stocks,
convertible securities, and rights or warrants. Normally, the Portfolio's
investments are primarily in larger companies that are included in the largest
500 U.S. companies. The remainder of the Portfolio's assets may be invested in
equity securities that the portfolio managers believe have growth potential
because they represent an attractive value.
In selecting securities for
the Portfolio, preservation of capital is also an important consideration.
Although the Portfolio normally will be invested as fully as practicable in
equity securities, assets that are not invested in equity securities may be
invested in high quality debt securities. The Portfolio may invest up to 5% of
its assets, measured at the time of investment, in foreign securities.
- --------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Portfolio. The Portfolio may be
affected by the following risks, among others:
Price Volatility -- the value of the Portfolio changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
Market Trends -- from time to time, the stock market may not favor the value
securities that meet the Portfolio's disciplined investment criteria. Rather,
the market could favor growth-oriented stocks or small company stocks, or may
not favor equities at all.
Debt securities -- the value of debt securities may fall when interest rates
rise. Debt securities with longer maturities tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter maturities.
Credit Risk -- the Portfolio could lose money if the issuer of a debt security
is unable to meet its financial obligations or goes bankrupt. This is especially
true during periods of economic uncertainty or economic downturns.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment.
2 Pilgrim VP MagnaCap Portfolio
<PAGE>
PILGRIM VP MAGNACAP PORTFOLIO
- --------------------------------------------------------------------------------
HOW THE
PORTFOLIO
HAS
PERFORMED
[GRAPHIC]
The Portfolio does not have performance history because it did not commence
operations until April 30, 2000.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim VP MagnaCap Portfolio 3
<PAGE>
- -----------
U.S. Equity
Portfolios
- -----------
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
J.P. Morgan
PILGRIM VP RESEARCH ENHANCED INDEX PORTFOLIO Investment Management Inc.
- --------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Portfolio seeks capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Portfolio invests primarily in large companies that make up the S&P 500
Index. Based on extensive research regarding projected company earnings and
dividends, a valuation model ranks companies in each industry group according to
their relative value. Using this valuation model, the portfolio managers select
stocks for the Portfolio. Within each industry, the Portfolio modestly
overweights stocks that are ranked as undervalued or fairly valued while
modestly underweighting or not holding stocks that appear overvalued. Industry
by industry, the Portfolio's assets are invested so that the Portfolio's
industry sector allocations and market cap weightings closely parallel those of
the S&P 500 Index.
By owning a large number of stocks within the S&P 500 Index, with an emphasis on
those that appear undervalued or fairly valued, and by tracking the industry
weightings and other characteristics of that index, the Portfolio seeks returns
that modestly exceed those of the S&P 500 Index over the long term with
virtually the same level of volatility.
Under normal market conditions, the Portfolio invests at least 80% of its total
assets in common stocks included in the S&P 500 Index. It may also invest in
other common stocks not included in the S&P 500 Index. The Portfolio may also
invest in certain higher-risk investments, including derivatives (generally
these investments will be limited to options on the S&P 500 Index).
- --------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Portfolio. The Portfolio may be
affected by the following risks, among others:
Price Volatility -- the value of the Portfolio changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Portfolio invests primarily in equity
securities of larger companies, which sometimes have more stable prices than
smaller companies. The portfolio managers try to remain fully invested in
companies included in the S&P 500 Index, and generally do not change this
strategy even temporarily, which could make the Portfolio more susceptible to
poor market conditions.
Market Trends -- from time to time, the stock market may not favor the large
company securities that are ranked as undervalued or fairly valued in which the
Portfolio invests. Rather, the market could favor small company stocks,
growth-oriented stocks, or may not favor equities at all.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivative instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Portfolio. The use of derivatives may reduce
returns for the Portfolio.
4 Pilgrim VP Research Enhanced Index Portfolio
<PAGE>
PILGRIM VP RESEARCH ENHANCED INDEX PORTFOLIO
- --------------------------------------------------------------------------------
HOW THE
PORTFOLIO
HAS
PERFORMED
[GRAPHIC]
The bar chart and table below show the Portfolio's annual returns and long-term
performance, and illustrate the variability of the Portfolio's returns. The
Portfolio's past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Portfolio by showing changes in the performance of the Portfolio's shares from
year to year.(1)
Year by Year Total Return (%)(1)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
14.97 12.53 6.15 1.02 5.79
Best and worst quarterly performance during this period:
4th quarter 1999: up 12.76%
3rd quarter 1999: down 6.60%
The table below compares the Portfolio's long-term performance with the combined
performance of the Lehman Government/Corporate Bond Index (selected in light of
the Portfolio's previous investment objective and strategies) and the S&P 500
Index.
Average Annual Total Return
Index
Portfolio Return(1)(2)
--------- ------------
One year, ended
December 31, 1999 % 5.79 9.95
Five years, ended
December 31, 1999 % 7.98 10.14
Since inception(3) % 7.28 9.25
- ----------
(1) The Portfolio commenced operations on May 6, 1994 as the Northstar
Multi-Sector Bond Fund with the investment objective of maximizing current
income consistent with the preservation of capital. From inception through
April 29, 1999, the Portfolio operated under this investment objective and
related investment strategies. Effective April 30, 1999, the Portfolio
changed its name to the Research Enhanced Index Portfolio and changed its
investment objective and strategies to invest primarily in equity
securities of larger companies that make up the S&P 500 Index. Accordingly,
beginning April 30, 1999, the benchmark index for the Portfolio has been
changed from the Lehman Government/ Corporate Bond Index to the S&P 500
Index.
(2) The Index Return showing the one year, five year and since inception
average annual total returns is a calculation that reflects the Lehman
Government/Corporate Bond Index for the period May 6, 1994 (inception of
the Portfolio) to April 30, 1999 and the S&P 500 Index for the period May
1, 1999 to December 31, 1999. The Lehman Brothers Government/ Corporate
Bond Index measures the performance of U.S. government bonds, U.S.
corporate bonds and Yankee bonds. The S & P 500 Index measures the
performance of approximately 500 large capitalization stocks.
(3) The Portfolio commenced operations on May 6, 1994.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim VP Research Enhanced Index Portfolio 5
<PAGE>
- -----------
U.S. Equity
Portfolios
- -----------
Adviser
PILGRIM VP GROWTH OPPORTUNITIES PORTFOLIO Pilgrim Investments, Inc.
- --------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
This Portfolio seeks long-term growth of capital.
INVESTMENT
STRATEGY
[GRAPHIC]
The Portfolio invests primarily in U.S. companies that the portfolio manager
feels have above average prospects for growth.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in securities purchased on the basis of the potential for capital
appreciation. These securities may be from large-cap, mid-cap or small-cap
companies.
The portfolio managers use a "top-down" disciplined investment process, which
includes extensive database screening, frequent fundamental research,
identification and implementation of a trend-oriented approach in structuring
the portfolio and a sell discipline. The portfolio managers seek to invest in
companies expected to benefit most from major social, economic and technological
trends that are likely to shape the future of business and commerce over the
next three to five years, and attempt to provide a framework for identifying the
industries and companies expected to benefit most. This top down approach is
combined with rigorous fundamental research (a bottom up approach) to guide
stock selection and portfolio structure.
- --------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Portfolio. The Portfolio may be
affected by the following risks, among others:
Price Volatility -- the value of the Portfolio changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Portfolio invests in companies that
the portfolio manager feels have the potential for rapid growth, which may give
the Portfolio a higher risk of price volatility than a fund that emphasizes
other styles, such as a value-oriented style. The Portfolio may invest in small
and medium-sized companies, which may be more susceptible to price swings than
larger companies because they have fewer financial resources, limited product
and market diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Portfolio invests. Rather, the market could favor
value-oriented stocks, or may not favor equities at all.
Inability to Sell Securities -- securities of smaller companies trade in lower
volume and may be less liquid than securities of larger, more established
companies. The Portfolio could lose money if it cannot sell a security at the
time and price that would be most beneficial to the Portfolio.
6 Pilgrim VP Growth Opportunities Portfolio
<PAGE>
PILGRIM VP GROWTH OPPORTUNITIES PORTFOLIO
- --------------------------------------------------------------------------------
HOW THE
PORTFOLIO
HAS
PERFORMED
[GRAPHIC]
The Portfolio does not have performance history because it did not commence
operations until April 30, 2000.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim VP Growth Opportunities Portfolio 7
<PAGE>
- -----------
U.S. Equity
Portfolios
- -----------
Adviser
PILGRIM VP MIDCAP OPPORTUNITIES PORTFOLIO Pilgrim Investments, Inc.
- --------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Portfolio seeks long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Portfolio invests primarily in the common stocks of mid-sized U.S. companies
that the portfolio managers feel have above average prospects for growth. For
this Portfolio, mid-sized companies are companies with market capitalizations
that fall within the range of companies in the S&P MidCap 400 Index. As of
February 29, 2000, the market capitalizations that fall within the range of
companies in the S&P MidCap 400 Index ranged from $106.3 million to $27.2
billion. The market capitalization range will change as the range of the
companies included in the S&P MidCap 400 Index changes.
The portfolio managers use a "top-down" disciplined investment process, which
includes extensive database screening, frequent fundamental research,
identification and implementation of a trend-oriented approach in structuring
the portfolio and a sell discipline. The portfolio managers seek to invest in
companies expected to benefit most from the major social, economic and
technological trends that are likely to shape the future of business and
commerce over the next three to five years, and attempt to provide a framework
for identifying the industries and companies expected to benefit most. This
top-down approach is combined with rigorous fundamental research (a bottom-up
approach) to guide stock selection and portfolio structure.
- --------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Portfolio. The Portfolio may be
affected by the following risks, among others:
Price Volatility -- the value of the Portfolio changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Portfolio invests in companies that
the portfolio managers feel have the potential for growth, which may give the
Portfolio a higher risk of price volatility than a fund that emphasizes other
styles, such as a value-oriented style. The Portfolio invests in medium-sized
companies, which may be more susceptible to price swings than larger companies
because they have fewer financial resources, more limited product and market
diversification, and may be dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the mid-cap
growth securities in which the Portfolio invests. Rather, the market could favor
value-oriented stocks or large or small company stocks, or may not favor
equities at all.
Inability to Sell Securities -- securities of mid-size companies usually trade
in lower volume and may be less liquid than securities of larger, more
established companies. The Portfolio could lose money if it cannot sell a
security at the time and price that would be most beneficial to the Portfolio.
8 Pilgrim VP MidCap Opportunities Portfolio
<PAGE>
PILGRIM VP MIDCAP OPPORTUNITIES PORTFOLIO
- --------------------------------------------------------------------------------
HOW THE
PORTFOLIO
HAS
PERFORMED
[GRAPHIC]
This Portfolio does not have performance history because it did not commence
operations until April 30, 2000.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim VP MidCap Opportunities Portfolio 9
<PAGE>
- -----------
U.S. Equity
Portfolios
- -----------
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
PILGRIM VP GROWTH + VALUE PORTFOLIO Navellier Fund Management, Inc.
- --------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Portfolio seeks capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Portfolio invests primarily in a diversified portfolio of equity securities,
including common and preferred stock, warrants and convertible securities. The
Portfolio invests in common stock of companies the portfolio manager believes
are poised to rise in price. The Sub-Adviser uses a "bottom-up" quantitative
screening process designed to identify and select inefficiently priced stocks
that achieved superior returns compared to their risk characteristics. The
Sub-Adviser first uses a proprietary computer model to calculate and analyze a
"reward/risk" ratio. The reward/risk ratio is designed to identify stocks with
above average market returns and risk levels which are reasonable for higher
return rates. The Sub-Adviser then applies a quantitative analysis which focuses
on growth and value fundamental characteristics, such as earnings growth,
earnings momentum, price to earnings (P/E) ratios, and internal reinvestment
rates. The Sub-Adviser then allocates stocks according to how they complement
other portfolio holdings.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in securities purchased on the basis of the potential for capital
appreciation. These securities may be from large-cap, mid-cap, or small-cap
companies.
- --------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Portfolio. The Portfolio may be
affected by the following risks, among others:
Price Volatility -- the value of the Portfolio changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Portfolio's performance will be
affected if the Sub-Adviser makes an inaccurate assessment of economic
conditions and investment opportunities, and chooses growth companies that do
not grow as quickly as hoped, or value companies that continue to be undervalued
by the market. Although the Sub-Adviser invests in value companies to decrease
volatility, these investments may also lower the Portfolio's performance. The
Portfolio's investments in smaller and mid-sized companies may be more
susceptible to price swings than investments in larger companies because they
have fewer financial resources, limited product and market diversification and
many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Portfolio invests. Rather, the market could favor value
stocks, or favor value stocks to the exclusion of growth stocks, or may not
favor equities at all.
Inability to Sell Securities -- securities of smaller and mid-sized companies
usually trade in lower volume and may be less liquid than securities of larger,
more established companies. The Portfolio could lose money if it cannot sell a
security at the time and price that would be most beneficial to the Portfolio.
Changes in Interest Rates -- the value of the Portfolio's convertible securities
may fall when interest rates rise. Convertible securities with longer durations
tend to be more sensitive to changes in interest rates, usually making them more
volatile than debt securities with shorter durations.
Credit Risk -- the Portfolio could lose money if the issuer of a convertible
security is unable to meet its financial obligations or goes bankrupt.
10 Pilgrim VP Growth + Value Portfolio
<PAGE>
PILGRIM VP GROWTH + VALUE PORTFOLIO
- --------------------------------------------------------------------------------
HOW THE
PORTFOLIO
HAS
PERFORMED
[GRAPHIC]
The bar chart and table below show the Portfolio's annual returns and long-term
performance, and illustrate the variability of the Portfolio's returns. The
Portfolio's past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Portfolio by showing changes in the performance of the Portfolio's shares from
year to year.
Year by Year Total Return (%)(1)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
24.78 22.99 14.66 19.32 94.98
Best and worst quarterly performance during this period:
4th quarter 1999: up 45.73%
3rd quarter 1998: down 17.04%
The table below provides some indication of the risks of investing in the
Portfolio by comparing the Portfolio's performance to that of two broad measures
of market performance -- the Russell 2000 Index and the Russell 3000 Index.
Average Annual Total Return
Russell Russell
2000 3000
Portfolio Index(2) Index(3)
--------- -------- --------
One year, ended
December 31, 1999 % 94.98 21.26 20.90
Five years ended
December 31, 1999 % 32.56 16.69 26.94
Since inception(4) % 29.05 14.66 (5) 24.07 (5)
- ----------
(1) These figures are as of December 31 of each year. They do not reflect
expenses and charges which are, or may be, imposed under your annuity
contract or life insurance policy and would be lower if they did.
(2) The Russell 2000 Index is an unmanaged index that measures the performance
of securities of small companies.
(3) The Russell 3000 Index is an unmanaged index that measures the performance
of the 3000 largest U.S. companies based on total market capitalization.
(4) The Portfolio commenced operations on May 6, 1994.
(5) Index return is for period beginning May 1, 1994.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim VP Growth + Value Portfolio 11
<PAGE>
- -----------
U.S. Equity
Portfolios
- -----------
Adviser
PILGRIM VP SMALLCAP OPPORTUNITIES PORTFOLIO Pilgrim Investments, Inc.
- --------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Portfolio seeks long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Portfolio invests at least 65% of its total assets in the common stock of
smaller, lesser-known U.S. companies that the portfolio manager believes have
above average prospects for growth. For this Portfolio, smaller companies are
those with market capitalizations that fall within the range of companies in the
Russell 2000 Index, which is an index that measures the performance of small
companies. The market capitalization range will change as the range of the
companies included in the Russell 2000 changes. The median market capitalization
of companies held by the Portfolio as of February 29, 2000 was $1.876 billion.
The portfolio manager uses a "top-down" disciplined investment process, which
includes extensive database screening, frequent fundamental research,
identification and implementation of a brand-oriented approach in structuring
the portfolio and a sell discipline. The portfolio manager seeks to invest in
companies expected to benefit most from the major social, economic and
technological trends that are likely to shape the future of business and
commerce over the next three to five years, and attempts to provide a framework
for identifying the industries and companies expected to benefit most. This
top-down approach is combined with rigorous fundamental research (a bottom-up
approach) to guide stock selection and portfolio structure.
- --------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Portfolio. The Portfolio may be
affected by the following risks, among others:
Price Volatility -- the value of the Portfolio changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Portfolio invests in companies that
the portfolio manager feels have above average prospects for growth, which may
give the Portfolio a higher risk of price volatility than a Portfolio that
emphasizes other styles, such as a value-oriented style. The Portfolio invests
in smaller companies, which may be more susceptible to price swings than larger
companies because they have fewer financial resources, more limited product and
market diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the small
sized growth securities in which the Portfolio invests. Rather, the market could
favor value-oriented stocks or large company stocks, or may not favor equities
at all.
Inability to Sell Securities -- securities of smaller companies usually trade in
lower volume and may be less liquid than securities of larger, more established
companies. The Portfolio could lose money if it cannot sell a security at the
time and price that would be most beneficial to the Portfolio.
12 Pilgrim VP SmallCap Opportunities Portfolio
<PAGE>
PILGRIM VP SMALLCAP OPPORTUNITIES PORTFOLIO
- --------------------------------------------------------------------------------
HOW THE
PORTFOLIO
HAS
PERFORMED
[GRAPHIC]
The bar chart and table below show the Portfolio's annual returns and long-term
performance, and illustrate the variability of the Portfolio's returns. The
Portfolio's past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Portfolio by showing changes in the performance of the Portfolio's shares from
year to year.
Year by Year Total Return (%)(1)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
21.39 13.80 15.81 17.30 141.03
Best and worst quarterly performance during this period:
4th quarter 1999: up 57.71%
3rd quarter 1998: down 8.12%
The table below provides some indication of the risks of investing in the
Portfolio by comparing the Portfolio's performance to that of a broad measure of
market performance -- the Russell 2000 Index.
Average Annual Total Return
Russell
2000
Portfolio Index(2)
--------- --------
One year, ended
December 31, 1999 % 141.03 21.26
Five years ended
December 31, 1999 % 35.19 16.69
Since inception(3) % 30.96 14.66 (4)
- ----------
(1) These figures are as of December 31 of each year. They do not reflect
expenses and charges which are, or may be, imposed under your annuity
contract or life insurance policy and would be lower if they did.
(2) The Russell 2000 Index is an unmanaged index that measures the performance
of securities of small companies.
(3) The Portfolio commenced operations on May 6, 1994.
(4) Index return is for period beginning May 1, 1994.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim VP SmallCap Opportunities Portfolio 13
<PAGE>
- ----------------
International
Equity Portfolio
- ----------------
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
Brandes Investment
PILGRIM VP INTERNATIONAL VALUE PORTFOLIO Partners, L.P.
- --------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Portfolio seeks long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Portfolio invests primarily in foreign companies with market capitalizations
greater than $1 billion, but it may hold up to 25% of its assets in companies
with smaller market capitalizations.
The portfolio managers apply the technique of "value investing" by seeking
stocks that their research indicates are priced below their long-term value.
The Portfolio holds common stocks, preferred stocks, American, European and
Global depository receipts, as well as convertible securities.
Under normal circumstances, the Portfolio will invest at least 65% of its total
assets in securities of companies located in at least three countries other than
the U.S. The Portfolio may invest up to the greater of:
* 20% of its assets in any one country or industry, or,
* 150% of the weighting of the country or industry in the Morgan Stanley Capital
International European Australasian Far East (MSCI EAFE) Index, as long as the
Portfolio meets any industry concentration or diversification requirements
under the Investment Company Act.
- --------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Portfolio. The Portfolio's
investments may be affected by the following additional risks:
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Portfolio invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Portfolio changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Portfolio invests primarily in equity
securities of larger companies, which sometimes have more stable prices than
smaller companies. However, the Portfolio may also invest in small and
medium-sized companies, which may be more susceptible to price swings than
larger companies because they have fewer financial resources, limited product
and market diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the
value-oriented stocks in which the Portfolio invests. Rather, the market could
favor growth-oriented stocks, or may not favor equities at all.
Inability to Sell Securities -- securities of smaller companies and some foreign
companies may trade in lower volume and may be less liquid than securities of
larger, more established companies or U.S. companies. The Portfolio could lose
money if it cannot sell a security at the time and price that would be most
beneficial to the Portfolio.
14 Pilgrim VP International Value Portfolio
<PAGE>
PILGRIM VP INTERNATIONAL VALUE PORTFOLIO
- --------------------------------------------------------------------------------
HOW THE
PORTFOLIO
HAS
PERFORMED
[GRAPHIC]
The bar chart and table below show the Portfolio's annual returns and long-term
performance, and illustrate the variability of the Portfolio's returns. The
Portfolio's past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Portfolio by showing changes in the performance of the Portfolio's shares from
year to year.
Year by Year Total Return (%)(1)
1998 1999
---- ----
16.93 50.18
Best and worst quarterly performance during this period:
4th quarter 1999: up 23.74%
3rd quarter 1998: down 14.03%
The table below provides some indication of the risks of investing in the
Portfolio by comparing the Portfolio's performance to that of a broad measure of
market performance -- the MSCI EAFE Index.
Average Annual Total Return
MSCI
EAFE
Portfolio Index(2)
--------- --------
One year, ended
December 31, 1999 % 50.18 25.27
Since inception(3) % 27.12 12.93
- ----------
(1) These figures are as of December 31. They do not reflect expenses and
charges which are, or may be, imposed under your annuity contract or life
insurance policy and would be lower if they did.
(2) The Morgan Stanley Capital International European Australasian Far East
(MSCI EAFE) Index measures the performance of securities listed on
exchanges in markets in Europe, Australia and the Far East.
(3) The Portfolio commenced operations on August 8, 1997.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim VP International Value Portfolio 15
<PAGE>
- ---------
Income
Portfolio
- ---------
Adviser
PILGRIM VP HIGH YIELD BOND PORTFOLIO Pilgrim Investments, Inc.
- --------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Portfolio seeks high income and capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Portfolio invests primarily in higher-yielding, lower-rated bonds (junk
bonds) to achieve high current income with potential for capital growth.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in high-yielding, lower-rated U.S. dollar-denominated debt securities of
U.S. and foreign issuers. It may also invest up to 35% of its total assets in
securities denominated in foreign currencies. It may invest up to 50% of its
assets in securities of foreign issuers, including 35% in emerging market debt.
Most of the debt securities the Portfolio invests in are lower-rated and
considered speculative, including bonds in the lowest rating categories and
unrated bonds. It can invest up to 10%, and can hold up to 25% of its assets in
securities rated below Caa by Moody's or CCC by S&P. It also holds debt
securities that pay fixed, floating or adjustable interest rates and may hold
pay-in-kind securities and discount obligations, including zero coupon
securities, and mortgage-related or asset-backed debt securities.
The Portfolio may also invest in equity or equity-related securities, such as
common stock, preferred stock, convertible securities and rights and warrants
attached to debt instruments.
In selecting equity securities, the portfolio manager uses a "bottom-up"
analysis that focuses on individual companies and assesses the company's
valuation, financial condition, management, competitiveness, and other factors.
- --------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Portfolio. The Portfolio may be
affected by the following risks, among others:
Changes in Interest Rates -- The Portfolio's performance is significantly
affected by changes in interest rates. The value of the Portfolio's investments
may fall when interest rates rise. The Portfolio may be sensitive to changes in
interest rates because it may invest in debt securities with longer durations.
Debt securities with longer durations tend to be more sensitive to changes in
interest rates, usually making them more volatile than debt securities with
shorter durations. The value of the Portfolio's high-yield and zero coupon
securities are particularly sensitive to changes in interest rates.
Credit Risk -- the Portfolio could lose money if the issuer of a debt security
is unable to meet its financial obligations or goes bankrupt. This Portfolio may
be subject to more credit risk than other income mutual funds, because it
invests in high-yield debt securities, which are considered predominantly
speculative with respect to the issuer's continuing ability to meet interest and
principal payments. This is especially true for bonds in the lowest rating
category and unrated bonds, and during periods of economic uncertainty or
economic downturns.
Prepayment Risk -- The Portfolio may invest in mortgage-related securities,
which can be paid off early if the borrowers on the underlying mortgages pay off
their mortgages sooner than scheduled. If interest rates are falling, the
Portfolio will be forced to reinvest this money at lower yields.
Inability to Sell Securities -- high-yield securities may be less liquid than
higher quality investments. Foreign securities and mortgage-related and
asset-backed debt securities may be less liquid than other debt securities. The
Portfolio could lose money if it cannot sell a security at the time and price
that would be most beneficial to the Portfolio. A security in one of the lowest
rating categories, that is unrated, or whose credit rating has been lowered may
be particularly difficult to sell. Valuing less liquid securities involves
greater exercise of judgment and may be more subjective than valuing securities
using market quotes.
Risk of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Portfolio invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Portfolio changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
The Portfolio may invest in midcap and smallcap companies, which may be more
susceptible to price swings than larger companies because they have fewer
financial resources, more limited product and market diversification, and many
are dependent on a few key managers.
16 Pilgrim VP High Yield Bond Portfolio
<PAGE>
PILGRIM VP HIGH YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------
HOW THE
PORTFOLIO
HAS
PERFORMED
[GRAPHIC]
The bar chart and table below show the Portfolio's annual returns and long-term
performance, and illustrate the variability of the Portfolio's returns. The
Portfolio's past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Portfolio by showing changes in the performance of the Portfolio's shares from
year to year.
Year by Year Total Return (%)(1)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
18.55 15.75 9.00 -0.12 -2.98
Best and worst quarterly performance during this period:
1st quarter 1995: up 5.26%
3rd quarter 1998: down 7.97%
The table below provides some indication of the risks of investing in the
Portfolio by comparing the Portfolio's performance to that of a broad measure of
market performance -- the Lehman High Yield Bond Index.
Average Annual Total Return
Lehman
High Yield
Portfolio Bond Index(2)
--------- -------------
One year, ended
December 31, 1999 % -2.98 2.39
Five years ended
December 31, 1999 % 7.70 9.31
Since inception(3) % 6.60 8.48 (4)
- ----------
(1) These figures are as of December 31 of each year. They do not reflect
expenses and charges which are, or may be, imposed under your annuity
contract or life insurance policy and would be lower if they did.
(2) The Lehman Brothers High Yield Bond Index measures the performance of
fixed-income securities that are similar, but not identical, to those in
the portfolio.
(3) The Portfolio commenced operations on May 6, 1994.
(4) Index return is for period beginning May 1, 1994.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim VP High Yield Bond Portfolio 17
<PAGE>
WHAT YOU PAY TO INVEST
- --------------------------------------------------------------------------------
The table that follows shows operating expenses paid each year by a Portfolio.
The table does not reflect expenses and charges which are, or may be, imposed
under your annuity contract or life insurance policy. You'll find details about
these expenses and charges in the accom-panying prospectus.
Operating Expenses Paid Each Year by the Portfolios(1)
(as a % of average net assets)
Total
Portfolio
Management Other operating
Portfolio Fee Expenses Expenses(2)
- -------------------------- ------------ ---------- -------------
MagnaCap % 0.75 0.34 1.09
Research Enhanced Index % 0.75 0.51 1.26
Growth Opportunities % 0.75 0.34 1.09
MidCap Opportunities % 0.75 0.34 1.09
Growth + Value % 0.75 0.22 0.97
SmallCap Opportunities % 0.75 0.34 1.09
International Value % 1.00 0.52 1.52
High Yield Bond % 0.75 0.36 1.11
- ----------
(1) This table shows the estimated operating expenses for each Portfolio as a
ratio of expenses to average daily net assets. For the SmallCap
Opportunities Portfolio, Growth + Value Portfolio, International Value
Portfolio, Research Enhanced Index Portfolio, and High Yield Bond
Portfolio, these estimates are based on the Porfolio's actual operating
expenses for its most recent complete fiscal year. Because the Growth
Opportunities Portfolio, MagnaCap Portfolio, and MidCap Opportunities
Portfolio are new and therefore have no historical expense data, their
expenses are estimated.
(2) The Adviser has agreed to reimburse the Growth + Value Portfolio and High
Yield Bond Portfolio for certain expenses in excess of 0.80%. It has also
agreed to reimburse the SmallCap Opportunities, MagnaCap, Growth
Opportunities, MidCap Opportunities and Research Enhanced Index Portfolios
for certain expenses in excess of 0.90%. It has agreed to reimburse the
International Value Portfolio for certain expenses in excess of 1.00%. The
expense reimbursements are voluntary. There is no assurance of ongoing
reimbursement. As a result of the voluntary fee waivers or reimbursement,
the net expenses, as a percentage of net assets, of the Portfolios during
the fiscal year ended December 31, 1999 were as follows: SmallCap
Opportunities Portfolio -- 0.90%; Growth + Value Portfolio -- 0.80%;
International Value Portfolio -- 1.00%; Research Enhanced Index Portfolio
-- 0.89%; and High Yield Bond Portfolio -- 0.80%.
Examples
The examples that follow are intended to help you compare the cost of investing
in the Portfolios with the cost of investing in other mutual funds. The examples
do not reflect expenses and changes which are, or may be, imposed under your
annuity contract or life insurance policy. Each example assumes that you
invested $10,000, reinvested all your dividends, the Portfolio earned an average
annual return of 5%, and annual operating expenses remained at the current
level. Keep in mind that this is only an estimate -- actual expenses and
performance may vary.
Portfolio 1 year 3 years 5 years 10 years
- -------------------------- -------- --------- --------- ----------
MagnaCap $ 111 347 601 1,329
Research Enhanced Index $ 128 400 692 1,523
Growth Opportunities $ 111 347 601 1,329
MidCap Opportunities $ 111 347 601 1,329
Growth + Value $ 99 309 536 1,190
SmallCap Opportunities $ 111 347 601 1,329
International Value $ 155 480 829 1,813
High Yield Bond $ 113 353 612 1,352
18 What You Pay to Invest
<PAGE>
ADVISER MANAGEMENT OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
Pilgrim Investments, Inc. ("Pilgrim") serves as the investment adviser to each
of the Portfolios. Pilgrim has overall responsibility for the management of the
Portfolios. Pilgrim provides or oversees all investment advisory and portfolio
management services for each Portfolio, and assists in managing and supervising
all aspects of the general day-to-day business activities and operations of the
Portfolios, including custodial, transfer agency, dividend disbursing,
accounting, auditing, compliance and related services.
Organized in December 1994, Pilgrim is registered as an investment adviser.
Pilgrim 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 adviser to certain of the Portfolios. 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.
As of February 29, 2000, Pilgrim and Pilgrim Advisors together managed over
$16.6 billion in assets.
Pilgrim's principal address is 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004.
Pilgrim receives a monthly fee for its services based on the average daily net
assets of each of the Portfolios it manages.
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. Because the Pilgrim VP Growth Opportunities Portfolio, Pilgrim
VP MagnaCap Portfolio and Pilgrim VP MidCap Opportunities Portfolio were not
offered until April 30, 2000, the advisory fee for those Portfolios reflects the
current contract rate.
Portfolio Advisory Fee
--------- ------------
Pilgrim VP MagnaCap Portfolio 0.75%
Pilgrim VP Research Enhanced Index Portfolio 0.75
Pilgrim VP Growth Opportunities Portfolio 0.75
Pilgrim VP MidCap Opportunities Portfolio 0.75
Pilgrim VP Growth + Value Portfolio 0.75
Pilgrim VP SmallCap Opportunities Portfolio 0.75
Pilgrim VP International Value Portfolio 1.00
Pilgrim VP High Yield Bond Portfolio 0.75
Pilgrim directly manages the following Portfolios:
Growth Opportunities Portfolio and
MidCap Opportunities Portfolio
The following individuals share responsibility for the day-to-day management of
the Growth Opportunities Portfolio and MidCap Opportunities Portfolio:
Mary Lisanti and Jeffrey Bernstein have co-managed the Growth Opportunities
Portfolio and MidCap Opportunities Portfolio since the Portfolios were formed in
April 2000.
Ms. Lisanti joined Pilgrim in May 1998. She has over 20 years of experience in
small and mid-cap investments. Before joining Pilgrim, 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.
Mr. Bernstein joined Pilgrim in May 1998. He has over 10 years of experience in
small and mid-cap investments. Before joining Pilgrim, Mr. Bernstein was a
Portfolio Manager at Strong Capital Management where he co-managed the Strong
Mid Cap Fund. From November 1995 to February 1997, Mr. Bernstein was a
Portfolio Manager with Berkeley Capital. From September 1993 to November 1995,
Mr. Bernstein was an Assistant Portfolio Manager at Bankers Trust Corp. Prior
to Bankers Trust, Mr. Bernstein was an Analyst for Cowen & Co.
SmallCap Opportunities Portfolio
Mary Lisanti, whose background is described above, has served as a manager of
the SmallCap Opportunities Portfolio since November 1998.
High Yield Bond Portfolio
Kevin Mathews has served as Senior Portfolio Manager of Pilgrim VP High Yield
Bond Portfolio since November 1999.
Mr. Mathews has over 16 years of experience in the management of high-yield
fixed income investments. Mr. Mathews is a Senior Vice President and Senior
Portfolio Manager of Pilgrim. Prior to joining Pilgrim, Mr. Mathews was a Vice
President and Senior Portfolio Manager of Van Kampen American Capital.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Management of the Portfolios 19
<PAGE>
MANAGEMENT OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
MagnaCap Portfolio
The Pilgrim VP MagnaCap Portfolio is managed by a team led by Howard N.
Kornblue, Senior Vice President and Senior Portfolio Manager for Pilgrim. Mr.
Kornblue has served as a Portfolio Manager of MagnaCap Fund, which is a fund in
the Pilgrim group of funds, since 1989. The other individuals on the team are
G. David Underwood and Robert M. Kloss.
Mr. Underwood is a Senior Vice President and Senior Portfolio Manager for
Pilgrim. Prior to joining Pilgrim in December, 1996, Mr. Underwood served as
Director of Funds Management for First Interstate Capital Management. Mr.
Underwood's prior experience includes a 10 year association with Integra Trust
Company of Pittsburgh where he served as Director of Research and Senior
Portfolio Manager.
20 Management of the Portfolios
<PAGE>
SUB-ADVISERS MANAGEMENT OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
For the following portfolios, Pilgrim has employed a Sub-Adviser to provide the
day-to-day management of the Portfolio. The Sub-Advisers are among the most
respected institutional investment advisers in the world, and have been selected
primarily on the basis of their successful application of consistent,
well-defined, long-term investment appraisals over a period of several market
cycles.
International Value Portfolio
Brandes Investment Partners, L.P.
A registered investment adviser, Brandes Investment Partners, L.P. (Brandes)
serves as Sub-Adviser to the Pilgrim VP International Value Portfolio. The
company was formed in May 1996 as the successor to its general partner, Brandes
Investment Partners, Inc., which has been providing investment advisory services
(through various predecessor entities) since 1974. Brandes currently manages
over $33 billion in international portfolios. Brandes' principal address is
12750 High Bluff Drive, San Diego, California 92130.
Charles Brandes has co-managed the Pilgrim VP International Value Portfolio
since the portfolio was formed in August 1997. Mr. Brandes has over 31 years of
investment management experience. He founded the general partner of Brandes
Investment Partners, L.P. in 1974 and owns a controlling interest in it. At
Brandes Investment Partners, L.P., he serves as a Managing Partner. He is a
Chartered Financial Analyst and a Member of the Association for Investment
Management and Research.
Jeff Busby has co-managed Pilgrim VP International Value Portfolio since the
Portfolio was formed in August 1997. Mr. Busby has over 13 years of investment
management experience. At Brandes, he serves as a Managing Partner. He is also
responsible for overseeing all trading activities for the firm. He is a
Chartered Financial Analyst, and a Member of the Association for Investment
Management and Research and the Financial Analysts Society.
Charles Brandes and Jeff Busby structure the portfolio of the Pilgrim VP
International Value Portfolio from a buy list determined by an investment
committee at Brandes.
Research Enhanced Index Portfolio
J.P. Morgan Investment Management Inc.
A registered investment adviser, J.P. Morgan Investment Management Inc. (J.P.
Morgan) serves as Sub-Adviser to the Pilgrim VP Research Enhanced Index
Portfolio. The firm was formed in 1984. The firm evolved from the Trust and
Investment Division of Morgan Guaranty Trust Company which acquired its first
tax-exempt client in 1913 and its first pension account in 1940. J.P. Morgan
currently manages approximately $349 billion for institutions and pension
funds. The company is a wholly owned subsidiary of J.P. Morgan & Co. J.P.
Morgan's principal address is 522 Fifth Avenue, New York, New York 10036.
Nanette Buziak, Timothy Devlin and Bernard Kroll share the responsibility for
the day-to-day management of the Pilgrim VP Research Enhanced Index Portfolio.
Ms. Buziak has co-managed the Pilgrim VP Research Enhanced Index Portfolio
since April 1999. At J.P. Morgan, she serves as a Portfolio Manager and Member
of the Structured Equity Group.
Ms. Buziak has over 8 years of investment management experience. Before joining
J.P. Morgan in 1997, Ms. Buziak was an index arbitrage trader and convertible
bond portfolio manager at First Marathon America, Inc.
Mr. Devlin has co-managed the Pilgrim VP Research Enhanced Index Portfolio
since April 1999. At J.P. Morgan, he serves as a Portfolio Manager and Member
of the Structured Equity Group.
Mr. Devlin has over 12 years of investment management experience. Before
joining J.P. Morgan in 1996, Mr. Devlin was a Portfolio Manager for nine years
at Mitchell Hutchins Asset Management, Inc. where he managed
quantitatively-driven portfolios for institutional and retail investors.
Mr. Kroll has co-managed the Pilgrim VP Research Enhanced Index Portfolio since
March 2000. At J.P. Morgan, he serves as a Portfolio Manager and Member of the
Structured Equity Group.
Mr. Kroll has over 20 years of investment management experience. Before joining
J.P. Morgan in 1996, Mr. Kroll was an equity derivatives specialist at Goldman
Sachs & Co. Earlier, he managed his own software development firm and options
broker-dealer, and managed several derivatives businesses at Kidder, Peabody &
Co.
Growth + Value Portfolio
Navellier Fund Management, Inc.
A registered investment adviser, Navellier Fund Management, Inc. (Navellier)
serves as Sub-Adviser to the Pilgrim VP Growth + Value Portfolio. Navellier and
its affiliate, Navellier & Associates, Inc., manage over $5 billion for
institutions, pension funds and high net worth individuals. Navellier's
principal address is 1 East Liberty, Third Floor, Reno, Nevada 89501.
Louis Navellier has managed the Pilgrim VP Growth + Value Portfolio since
February 1996. Mr. Navellier has over 19 years of investment management
experience and is the principal owner of Navellier & Associates, Inc., a
registered investment adviser that manages investments for institutions,
pension funds and high net worth individuals. Mr. Navellier's newsletter, MPT
Review, has been published for over 19 years and is widely renowned throughout
the investment community.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Management of the Portfolios 21
<PAGE>
INFORMATION FOR INVESTORS
- --------------------------------------------------------------------------------
About Your Investment
The Portfolios are available only to owners of variable annuity contracts or
variable life insurance policies issued by ReliaStar Life Insurance Company,
Northern Life Insurance Company and ReliaStar Life Insurance Company of New York
(collectively "ReliaStar Life"). Shares of the Portfolios may be sold in the
future to separate accounts of other affilated or unaffiliated insurance
companies.
You do not buy, sell or exchange shares of the Portfolios. You choose investment
options through your annuity contract or life insurance policy.
ReliaStar Life then invests in the Portfolios according to the investment
options you've chosen. You should consult the accompanying variable account
prospectus for additional information about how this works.
Pilgrim Variable Products Trust may discontinue offering shares of any Portfolio
at any time. If a Portfolio is discontinued, any allocation to that Portfolio
will be allocated to another Portfolio that the Trustees believe is suitable, as
long as any required regulatory standards are met.
How Shares Are Priced
The price that ReliaStar Life pays when it buys and the price that ReliaStar
Life receives when it sells or exchanges shares is determined by the net asset
value (NAV) per share of the Portfolio. NAV per share for each Portfolio is
calculated each business day as the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern time). The NAV per share for each
Portfolio is calculated by taking the value of a Portfolio's assets,
substracting that Portfolio's liabilities, and dividing by the number of shares
that are outstanding. Please note that foreign securities may trade in their
primary markets on weekends or other days when the Portfolios do not price their
shares. Therefore, the value of a Portfolio's investments (if the Portfolio
holds foreign securities) may change on days when you will not be able to
reallocate between investment options.
In general, assets are valued based on actual or estimated market value, with
special provisions for assets not having readily available market quotations,
and short-term debt securities, and for situations where market quotations are
deemed unreliable. Short-term debt securities having a maturity of 60 days or
less are valued at amortized cost, unless the amortized cost does not
approximate market value. Securities prices may be obtained from automated
pricing services. When market quotations are not readily available or are deemed
unreliable, securities are valued at their fair value as determined in good
faith under the supervision of the Board of Trustees. Valuing securities at fair
value involves greater reliance on judgment than securities that have readily
available market quotations.
When ReliaStar Life is buying shares, it will pay the NAV that is next
calculated after we receive its order in proper form. When ReliaStar Life is
selling shares, it will receive the NAV that is next calculated after we receive
its order in proper form.
22 Information for Investors
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Portfolio Earnings and Your Taxes
Each Portfolio distributes virtually all of its net investment income and net
capital gains to shareholders in the form of dividends. The Portfolios pay
dividends quarterly.
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.
How the Portfolios Pay Distributions
Each Portfolio intends to meet the requirements for being a tax-qualified
regulated investment company, which means they generally do not pay federal
income tax on the earnings they distribute to shareholders.
You should consult the variable account or variable contract prospectus, along
with your tax advisor for information as to how investing in variable accounts
affects your personal tax situation.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Dividends, Distributions and Taxes 23
<PAGE>
MORE INFORMATION ABOUT RISKS
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All mutual funds involve risk -- some more than others -- and there is always
the chance that you could lose money or not earn as much as you hope. A
Portfolio's risk profile is largely a factor of the principal securities in
which it invests and investment techniques that it uses. The following pages
discuss the risks associated with certain of the types of securities in which
the Portfolios may invest and certain of the investment practices that the
Portfolios may use. For more information about these and other types of
securities and investment techniques that may be used by the Portfolios, see the
Statement of Additional Information (SAI).
Many of the investment techniques and strategies discussed in this prospectus
and in the SAI are discretionary, which means that the adviser or sub-adviser
can decide whether to use them or not. The adviser or sub-adviser of a Portfolio
may also use investment techniques or make investments in securities that are
not a part of the Portfolio's principal investment strategy.
PRINCIPAL RISKS
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.
Each Portfolio that invests in foreign securities may enter into foreign
currency transactions either on a spot or cash basis at prevailing rates or
through forward foreign currency exchange contracts to have the necessary
currencies to settle transactions, or to help protect Portfolio assets against
adverse changes in foreign currency exchange rates, or to provide exposure to a
foreign currency commensurate with the exposure to securities from that country.
Such efforts could limit potential gains that might result from a relative
increase in the value of such currencies, and might, in certain cases, result in
losses to the Portfolio.
Emerging Markets Investments. Because of less developed markets and economies
and, in some countries, less mature governments and governmental institutions,
the risks of investing in foreign securities can be intensified in the case of
investments in issuers domiciled or doing substantial business in emerging
market countries. These risks include: high concentration of market
capitalization and trading volume in a small number of issuers representing a
limited number of industries, as well as a high concentration of investors and
financial intermediaries; political and social uncertainties; over-dependence on
exports, especially with respect to primary commodities, making these economies
vulnerable to changes in commodity prices; overburdened infrastructure and
obsolete or unseasonal financial systems; environmental problems; less well
developed legal systems; and less reliable custodial services and settlement
practices.
Inability to Sell Securities. Some securities usually trade in lower volume and
may be less liquid than securities of large established companies. These less
liquid securities could include securities of small and mid-size U.S. companies,
high-yield securities, convertible securities, unrated debt and convertible
securities, securities that originate from small offerings, and foreign
securities, particularly those from companies in emerging markets. A Portfolio
could lose money if it cannot sell a security at the time and price that would
be most beneficial to a Portfolio.
High Yield Securities. Investments in high yield securities generally provide
greater income and increased opportunity for capital appreciation than
investments in higher quality debt securities, but they also typically entail
greater potential price volatility and principal and income risk. High yield
securities are not considered investment grade, and are regarded as
predominantly speculative with respect to the issuing company's continuing
ability to meet principal and interest payments. The prices of high yield
securities have been found to be less sensitive to interest rate changes than
higher-rated investments, but more sensitive to adverse economic downturns or
individual corporate developments. High yield securities structured as zero
coupon or pay-in-kind securities tend to be more volatile. The secondary market
in which high yield securities are traded is generally less liquid than the
market for higher grade bonds. At times of less liquidity, it may be more
difficult to value high yield securities.
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
24 More Information About Risks
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MORE INFORMATION ABOUT RISKS
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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.
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.
Other Investment Companies. Each Portfolio (except the MagnaCap Portfolio) may
invest in other investment companies to the extent permitted by a Portfolio's
investment policies. When a Portfolio invests in other investment companies, you
indirectly pay a proportionate share of the expenses of that other investment
company (including management fees, administration fees, and custodial fees) in
addition to the expenses of the Portfolio.
Restricted and Illiquid Securities. Each Portfolio may invest in restricted and
illiquid securities (except MagnaCap Portfolio may not invest in restricted
securities). If a security is illiquid, the Portfolio might be unable to sell
the security at a time when the adviser might wish to sell, and the security
could have the effect of decreasing the overall level of a Portfolio's
liquidity. Further, the lack of an established secondary market may make it more
difficult to value illiquid securities, which could vary from the amount the
Portfolio could realize upon disposition. Restricted securities, i.e.,
securities subject to legal or contractual restrictions on resale, may be
illiquid. However, some restricted securities may be treated as liquid, although
they may be less liquid than registered securities traded on established
secondary markets.
Mortgage-Related Securities. Although mortgage loans underlying a
mortgage-backed security may have maturities of up to 30 years, the actual
average life of a mortgage-backed security typically will be substantially less
because the mortgages will be subject to normal principal amortization, and may
be prepaid prior to maturity. Like other fixed income securities, when interest
rates rise, the value of a mortgage-backed security generally will decline;
however, when interest rates are declining, the value of mortgage-backed
securities with prepayment features may not increase as much as other fixed
income securities. The rate of prepayments on underlying mortgages will affect
the price and volatility of a mortgage-related security, and may have the effect
of shortening or extending the effective maturity of the security beyond what
was anticipated at the time of the purchase. Unanticipated rates of prepayment
on underlying mortgages can be expected to increase the volatility of such
securities. In addition, the value of these securities may fluctuate in response
to the market's perception of the creditworthiness of the issuers of
mortgage-related securities owned by a Portfolio. Additionally, although
mortgages and mortgage-related securities are generally supported by some form
of government or private guarantee and/or insurance, there is no assurance that
private guarantors or insurers will be able to meet their obligations.
Interests in Loans. Certain Portfolios may invest in participation interests or
assignments in secured variable or floating rate loans, which include
participation interests in lease financings. Loans are subject to the credit
risk of nonpayment of principal or interest. Substantial increases in interest
rates may cause an increase in loan defaults. Although the loans will generally
be fully collateralized at the time of acquisition, the collateral may decline
in value, be relatively illiquid, or lose all or substantially all of its value
subsequent to a Portfolio's investment. Many loans are relatively illiquid, and
may be difficult to value.
Derivatives. Generally, derivatives can be characterized as financial
instruments whose performance is derived, at least in part, from the performance
of an underlying asset or assets. Some derivatives are sophisticated instruments
that typically involve a small investment of cash relative to the magnitude of
risks assumed. These may include swap agreements, options, forwards and futures.
Derivative securities are subject to market risk, which could be significant for
those that have a leveraging effect. Many of the Portfolios do not invest in
these types of derivatives, and some do, so please check the description of the
Portfolio's policies. Derivatives are also subject to credit risks related to
the counterparty's ability to perform, and any deterioration in the
counterparty's creditworthiness could adversely affect the instrument. A risk of
using derivatives is that the adviser or sub-adviser might imperfectly judge the
market's direction. For instance, if a derivative is used as a hedge to offset
investment risk in another security, the hedge might not correlate to the
market's movements and may have unexpected or undesired results, such as a loss
or a reduction in gains.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
More Information About Risks 25
<PAGE>
MORE INFORMATION ABOUT RISKS
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Temporary Defensive Strategies. When the adviser or sub-adviser to a Portfolio
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.
Portfolio Turnover. Each Portfolio (except the MagnaCap Portfolio) is generally
expected to engage in frequent and active trading of portfolio securities to
achieve its investment objective. A high portfolio turnover rate involves
greater expenses to a Portfolio, including brokerage commissions and other
transaction costs, and is likely to generate more taxable short-term gains for
shareholders, which may have an adverse effect on the performance of the
Portfolio.
OTHER RISKS
Repurchase Agreements. Each Portfolio may enter into repurchase agreements,
which involve the purchase by a Portfolio of a security that the seller has
agreed to buy back. If the seller defaults and the collateral value declines,
the Portfolio might incur a loss. If the seller declares bankruptcy, the
Portfolio may not be able to sell the collateral at the desired time.
Lending Portfolio Securities. In order to generate additional income, each
Portfolio may lend portfolio securities in an amount up to 331|M/3% of total
Portfolio assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in the collateral should
the borrower default or fail financially.
Borrowing. Each Portfolio may borrow for certain types of temporary or emergency
purposes subject to certain limits. Borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the net asset value
of a Portfolio, and money borrowed will be subject to interest costs. Interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, a Portfolio might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
Reverse Repurchase Agreements and Dollar Rolls. A reverse repurchase agreement
or dollar roll involves the sale of a security, with an agreement to repurchase
the same or substantially similar securities at an agreed upon price and date.
Whether such a transaction produces a gain for a Portfolio depends upon the
costs of the agreements and the income and gains of the securities purchased
with the proceeds received from the sale of the security. If the income and
gains on the securities purchased fail to exceed the costs, net asset value will
decline faster than otherwise would be the case. Reverse repurchase agreements
and dollar rolls, as leveraging techniques, may increase a Portfolio's yield;
however, such transactions also increase a Portfolio's risk to capital and may
result in a shareholder's loss of principal.
Short Sales. Each Portfolio (except the MagnaCap Portfolio), may make short
sales. A "short sale" is the sale by a Portfolio of a security which has been
borrowed from a third party on the expectation that the market price will drop.
If the price of the security rises, the Portfolio may have to cover its short
position at a higher price than the short sale price, resulting in a loss.
Pairing Off Transactions. A pairing-off transaction occurs when a Portfolio
commits to purchase a security at a future date, and then the Portfolio
"pairs-off" the purchase with a sale of the same security prior to or on the
original settlement date. Whether a pairing-off transaction on a debt security
produces a gain depends on the movement of interest rates. If interest rates
increase, then the money received upon the sale of the same security will be
less than the anticipated amount needed at the time the commitment to purchase
the security at the future date was entered and the Portfolio will experience a
loss.
Percentage and Rating Limitations Unless otherwise stated, the percentage
limitations in this prospectus apply at the time of investment.
26 More Information About Risks
<PAGE>
Financial
Highlights
- --------------------------------------------------------------------------------
The financial highlights tables on the following pages are intended to help you
understand each Portfolio's financial performance (other than the Pilgrim VP
MagnaCap Portfolio, Pilgrim VP Growth Opportunities Portfolio and Pilgrim VP
MidCap Opportunities Portfolio which are being offered for the first time in
this Prospectus) for the past five years or, if shorter, the period of the
Portfolio's operations. Certain information reflects financial results for a
single share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in the Portfolio (assuming
reinvestment of all dividends and distributions) but do not include charges and
expenses attributable to any insurance product. A report of each Portfolio's
independent auditor, along with the Portfolio's financial statements, is
included in the Portfolio's annual report, which is available upon request.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
27
<PAGE>
Financial
PILGRIM VP RESEARCH ENHANCED INDEX PORTFOLIO Highlights
- --------------------------------------------------------------------------------
The following chart shows the Portfolio's financial performance. These figures
have been audited by PricewaterhouseCoopers LLP, whose report, along with the
Portfolio's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Year ended December 31, 1999(2) 1998 1997 1996 1995
- ----------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 4.83 5.14 5.25 5.14 4.85
Net investment income $ 0.11 0.36 0.40 0.41 0.42
Net realized and unrealized gain (loss)
on investments $ 0.16 (0.31) (0.08) 0.21 0.29
Total from investment operations $ 0.27 0.05 0.32 0.62 0.71
Dividends from net investment income $ (0.11) (0.36) (0.40) (0.41) (0.42)
Dividends from net realized gain on
investments sold $ -- -- (0.03) (0.10) --
Total distributions $ (0.11) (0.36) (0.43) (0.51) (0.42)
Net asset value, end of the period $ 4.99 4.83 5.14 5.25 5.14
Total return(1) % 5.79 1.02 6.15 12.53 14.97
Ratios and supplemental data:
Net assets, end of the period (000s) $ 29,739 14,437 10,548 6,277 3,766
Ratio of expenses to average net assets
after reimbursement(3) % 0.89 0.80 0.80 0.80 0.80
Ratio of expenses to average net assets
prior to expense reimbursement % 1.26 1.29 1.36 1.68 2.06
Ratio of net investment income (loss) to
average net assets % 1.89 7.53 8.31 8.38 8.52
Portfolio turnover % 123 93 162 121 83
</TABLE>
- ----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(2) Portfolio commenced operations as Northstar Multi-Sector Bond Fund.
Effective April 30, 1999, the Portfolio changed its name to Northstar
Research Enhanced Index Portfolio and changed its investment objective.
(3) As of April 30, 1999, the expense limit increased from 0.80% to 0.90%.
28 Pilgrim VP Research Enhanced Index Portfolio
<PAGE>
Financial
Highlights PILGRIM VP GROWTH + VALUE PORTFOLIO
- --------------------------------------------------------------------------------
The following chart shows the Portfolio's financial performance. These figures
have been audited by PricewaterhouseCoopers LLP, whose report, along with the
Portfolio's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997 1996 1995
- ----------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 18.76 15.85 14.08 11.56 10.04
Net investment income (loss) $ (0.08) (0.03) 0.09 0.08 0.20
Net realized and unrealized gain on
investments $ 17.74 3.09 1.95 2.57 2.27
Total from investment operations $ 17.66 3.06 2.04 2.65 2.47
Dividends from net investment income $ -- (0.01) (0.10) (0.09) (0.19)
Dividends from net realized gain on
investments sold $ (6.38) (0.14) (0.17) (0.04) (0.76)
Total distributions $ (6.38) (0.15) (0.27) (0.13) (0.95)
Net asset value, end of the period $ 30.04 18.76 15.85 14.08 11.56
Total return(1) % 94.98 19.32 14.66 22.99 24.78
Ratios and supplemental data:
Net assets, end of the period (000s) $ 89,911 41,593 32,156 15,564 3,813
Ratio of expenses to average net assets
after reimbursement % 0.80 0.80 0.80 0.80 0.80
Ratio of expenses to average net assets
prior to expense reimbursement % 0.97 1.02 1.09 1.70 2.04
Ratio of net investment income (loss) to
average net assets % (0.44) (0.17) 0.70 0.65 1.77
Portfolio turnover % 179 216 178 161 123
</TABLE>
- ----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim VP Growth + Value Portfolio 29
<PAGE>
Financial
PILGRIM VP SMALLCAP OPPORTUNITIES PORTFOLIO Highlights
- --------------------------------------------------------------------------------
The following chart shows the Portfolio's financial performance. These figures
have been audited by PricewaterhouseCoopers LLP, whose report, along with the
Portfolio's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997 1996 1995
- ----------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 14.12 13.00 11.72 11.39 9.92
Net investment income (loss) $ (0.09) 0.39 0.44 0.40 0.37
Net realized and unrealized gain on
investments $ 19.83 1.76 1.36 1.15 1.73
Total from investment operations $ 19.74 2.15 1.80 1.55 2.10
Dividends from net investment income $ -- (0.39) (0.44) (0.41) (0.37)
Dividends from net realized gain on
investments sold $ (4.62) (0.64) (0.08) (0.81) (0.26)
Total distributions $ (4.62) (1.03) (0.52) (1.22) (0.63)
Net asset value, end of the period $ 29.24 14.12 13.00 11.72 11.39
Total return(1) % 141.03 17.30 15.81 13.80 21.39
Ratios and supplemental data:
Net assets, end of the period (000s) $ 71,532 24,053 21,531 12,579 7,410
Ratio of expenses to average net assets
after reimbursement(2) % 0.90 0.82 0.80 0.80 0.80
Ratio of expenses to average net assets
prior to expense reimbursement % 1.09 1.14 1.11 1.40 1.74
Ratio of net investment income (loss) to
average net assets % (0.64) 3.00 3.72 3.67 3.63
Portfolio turnover % 236 161 55 129 74
</TABLE>
- ----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(2) As of November 9, 1998, the expense limit increased from 0.80% to 0.90%.
30 Pilgrim VP SmallCap Opportunities Portfolio
<PAGE>
Financial
Highlights PILGRIM VP INTERNATIONAL VALUE PORTFOLIO
- --------------------------------------------------------------------------------
The following chart shows the Portfolio's financial performance. These figures
have been audited by PricewaterhouseCoopers LLP, whose report, along with the
Portfolio's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997(3)
- ----------------------- ---- ---- -------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 11.08 10.10 10.00
Net investment income $ 0.22 0.21 0.03
Net realized and unrealized gain on
investments $ 5.23 1.49 0.10
Total from investment operations $ 5.45 1.70 0.13
Dividends from net investment income $ (0.24) (0.22) (0.03)
Dividends from net realized gain on
investments sold $ (1.52) (0.50) --
Total distributions $ (1.76) (0.72) (0.03)
Net asset value, end of the period $ 14.77 11.08 10.10
Total return(1) % 50.18 16.93 1.30
Ratios and supplemental data:
Net assets, end of the period (000s) $ 24,051 13,764 5,937
Ratio of expenses to average net assets
after reimbursement(2) % 1.00 0.84 0.80
Ratio of expenses to average net assets
prior to expense reimbursement % 1.52 1.68 2.61
Ratio of net investment income (loss) to
average net assets % 1.69 1.90 0.97
Portfolio turnover % 84 30 5
</TABLE>
- ----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(2) As of November 9, 1998, the expense limit increased from 0.80% to 1.00%.
(3) The portfolio commenced operations on August 8, 1997.
(4) Annualized.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim VP International Value Portfolio 31
<PAGE>
Financial
PILGRIM VP HIGH YIELD BOND PORTFOLIO Highlights
- --------------------------------------------------------------------------------
The following chart shows the Portfolio's financial performance. These figures
have been audited by PricewaterhouseCoopers LLP, whose report, along with the
Portfolio's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997 1996 1995
- ----------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 4.87 5.30 5.27 5.04 4.69
Net investment income $ 0.44 0.42 0.40 0.45 0.50
Net realized and unrealized gain (loss)
on investments $ (0.57) (0.42) 0.07 0.32 0.34
Total from investment operations $ (0.13) 0.00 0.47 0.77 0.84
Dividends from net investment income $ (0.44) (0.42) (0.40) (0.45) (0.49)
Dividends from net realized gain on
investments sold $ -- (0.01) (0.04) (0.09) --
Total distributions $ (0.44) (0.43) (0.44) (0.54) (0.49)
Net asset value, end of the period $ 4.30 4.87 5.30 5.27 5.04
Total return(1) % (2.98) (0.12) 9.00 15.75 18.55
Ratios and supplemental data:
Net assets, end of the period (000s) $ 16,442 21,320 12,606 6,619 4,773
Ratio of expenses to average net assets
after reimbursement % 0.80 0.80 0.79 0.80 0.80
Ratio of expenses to average net assets
prior to expense reimbursement % 1.11 1.23 1.35 1.73 2.11
Ratio of net investment income to
average net assets % 9.19 8.92 8.44 8.72 10.61
Portfolio turnover % 85 135 152 159 157
</TABLE>
- ----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
32 Pilgrim VP High Yield Bond Portfolio
<PAGE>
WHERE TO GO FOR MORE INFORMATION
You'll find more information about the Pilgrim Variable Products Trust
Portfolios in our:
ANNUAL/SEMI-ANNUAL REPORTS
Include a discussion of recent market conditions and investment strategies that
significantly affected performance, the Financial Statements and the Auditor's
Reports (in Annual Report only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information about the Pilgrim Variable Products
Trust Portfolios. The SAI is legally part of this prospectus (it is incorporated
by reference). A copy has been filed with the Securities and Exchange Commission
(SEC).
Please write or call for a free copy of the current Annual/Semi-Annual Reports,
the SAI or other portfolio information, or to make investment related inquiries:
Pilgrim Variable Products Trust
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
1-800-992-0180
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:
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 Pilgrim Variable Products
Trust's SEC file number, which is 811-08220.
<PAGE>
GRAPHICS DESCRIPTION APPENDIX
There are four icon sized graphics used throughout the prospectuses as follows:
1. In the sections describing the Objective of the Funds, the graphic icon is
that of a dart in the bullseye of a target.
2. In the sections describing the Investment Strategy of the Funds, the
graphic icon is that of a compass pointing due north.
3. In the sections describing the Risks of the Funds, the graphic icon is that
of an old fashioned scale tilting heavy on the left side.
4. In the sections describing the Performance history of the Funds, the
graphic icon is that of a stack of US currency bills.
5. On the bottom footer of every odd numbered page (right hand page), the
graphic icon is that of a telephone by the 800 number of the fund to call
for information.
<PAGE>
PILGRIM VARIABLE PRODUCTS TRUST
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 2000
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
(800) 334-3436
Pilgrim Variable Products Trust (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust. The Trust
changed its name on April 30, 2000 from the "Northstar Galaxy Trust" to the
"Pilgrim Variable Products Trust." The Trust consists of eight separate series
(each a "Portfolio", collectively, the "Portfolios"), each of which represents
shares of beneficial interest in a separate portfolio of securities and other
assets with its own objective and policies. Each Portfolio is managed separately
by Pilgrim Investments, Inc. ("Pilgrim Investments" or the "Adviser"). The
Portfolios include Pilgrim VP MagnaCap Portfolio ("MagnaCap Portfolio"), Pilgrim
VP Research Enhanced Index Portfolio ("Research Enhanced Index Portfolio"),
Pilgrim VP Growth Opportunities Portfolio ("Growth Opportunities Portfolio"),
Pilgrim VP MidCap Opportunities Portfolio ("MidCap Opportunities Portfolio"),
Pilgrim VP Growth + Value Portfolio ("Growth + Value Portfolio"), Pilgrim VP
SmallCap Opportunities Portfolio, ("SmallCap Opportunities Portfolio"), Pilgrim
VP International Value Portfolio ("International Value Portfolio"), and Pilgrim
VP High Yield Bond Portfolio ("High Yield Bond Portfolio") Pilgrim Investments
has engaged Navellier Fund Management, Inc. ("Navellier" ) to serve as
Sub-Adviser to the Growth + Value Portfolio, subject to the supervision of
Pilgrim Investments. Pilgrim Investments has engaged Brandes Investment
Partners, L.P. ("Brandes") to serve as Sub-Adviser to the International Value
Portfolio. Pilgrim Investments has engaged J.P. Morgan Investment Management
Inc. ("J.P. Morgan") to serve as Sub-Adviser to the Research Enhanced Index
Portfolio. Collectively Navellier, Brandes and J.P. Morgan will be referred to
as the "Sub-Advisers."
Shares of the Trust are issued and redeemed in conjunction with investments
in and payments under variable annuity and variable life contracts. Shares of
the Trust are currently offered to separate accounts ("Variable Accounts") of
ReliaStar Life Insurance Company (formerly "Northwestern National Life Insurance
Company"), Northern Life Insurance Company and ReliaStar Life Insurance Company
of New York (the "Affiliated Insurance Companies"). The Variable Accounts of the
Affiliated Insurance Companies invest in shares of one or more of the Portfolios
in accordance with allocation instructions received from Variable Contract
Owners. Such allocation rights are described further in the Prospectus for the
Variable Account.
A summary of the eight diversified investment portfolios comprising the
series of the Trust is set forth herein and in the Prospectus for the
Portfolios. This document is not the Prospectus of the Portfolios but is
incorporated therein by reference and should be read in conjunction with the
Prospectus dated April 30, 2000. Copies of the Prospectus may be obtained upon
request and without charge by contacting the Trust at the address or phone
number above.
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TABLE OF CONTENTS
INVESTMENT RESTRICTIONS..................................................... 3
OTHER INVESTMENT TECHNIQUES................................................. 9
RISK FACTORS AND SPECIAL CONSIDERATIONS..................................... 14
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION............................. 16
PORTFOLIO TURNOVER.......................................................... 18
SERVICES OF THE ADVISERS AND ADMINISTRATOR.................................. 18
SERVICES OF THE SUB-ADVISERS................................................ 21
NET ASSET VALUE............................................................. 22
PURCHASES, REDEMPTIONS AND EXCHANGE TRANSACTIONS............................ 22
DIVIDENDS AND DISTRIBUTIONS................................................. 23
FEDERAL INCOME TAX STATUS................................................... 23
TRUSTEES AND OFFICERS....................................................... 24
OTHER INFORMATION........................................................... 31
PERFORMANCE INFORMATION..................................................... 31
APPENDIX A.................................................................. A-1
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INVESTMENT RESTRICTIONS
PILGRIM VP SMALLCAP OPPORTUNITIES, GROWTH + VALUE, RESEARCH ENHANCED INDEX
AND HIGH YIELD BOND Portfolios. The following investment restrictions are
fundamental policies and cannot be changed without the approval of the holders
of a majority of the Portfolio's outstanding voting securities (defined in the
Investment Company Act of 1940 (the "1940 Act")) as the lesser of (a) more than
50% of the outstanding shares or (b) 67% or more of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented). All
other investment policies or practices are considered by the Portfolios to be
non-fundamental and accordingly may be changed without shareholder approval. If
a percentage restriction on investment or use of assets set forth below is
adhered to at the time a transaction is effected, later changes in percentage
resulting from changing market values will not be considered a deviation from
this policy. A Portfolio may not:
1. Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may (i) borrow from banks, but only if
immediately after such borrowing there is asset coverage of 300% and (ii) enter
into transactions in options, futures, and options on futures as described in
the Portfolio's Prospectus and Statement of Additional Information (the deposit
of assets in escrow in connection with the writing of covered put and call
options and the purchase of securities on a when- issued or delayed delivery
basis and collateral arrangements with respect to initial or variation margin
deposits for futures contracts will not be deemed to be pledges of the
Portfolio's assets);
2. Underwrite the securities of others;
3. Purchase or sell real property, including real estate limited
partnerships (but each Portfolio may purchase marketable securities of companies
which deal in real estate or interests therein, including real estate investment
trusts;
4. Deal in commodities or commodity contracts except in the manner
described in the current Prospectus and Statement of Additional Information of
the Trust;
5. Make loans to other persons (but each Portfolio may, however, lend
portfolio securities, up to 33% of net assets at the time the loan is made, to
brokers or dealers or other financial institutions not affiliated with the
Portfolio or the Adviser, subject to conditions established by the Adviser) (See
"Risk Factors and Special Considerations: Securities Lending"), and may purchase
or hold participations in loans in accordance with the investment objectives and
policies of the Portfolio as described in the current Prospectus and Statement
of Additional Information of the Trust;
6. Participate in any joint trading accounts;
7. Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with futures
contracts will not be deemed to be purchases of securities on margin);
8. Sell short, except that the Portfolio may enter into short sales against
the box in the manner described in the current Prospectus and Statement of
Additional Information for the Portfolio;
9. Invest more than 25% of its assets in any one industry or related group
of industries;
10. With respect to 75% of a Portfolio's assets, purchase a security (other
than U.S. government obligations) if as a result more than 5% of the value of
total assets of the Portfolio would be invested in securities of a single
issuer; or
11. With respect to 75% of a Portfolio's assets, purchase a security if as
a result more than 10% of any class of securities, or more than 10% of the
outstanding voting securities of an issuer, would be held by the Portfolio.
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The following policies are non-fundamental and may be changed without
shareholder approval. A Portfolio may not:
1. Purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that the Portfolio
may purchase shares of other investment companies subject to such restrictions
as may be imposed by the 1940 Act and rules thereunder or by any state in which
shares of the Portfolio are registered; and provided further that the Portfolios
may invest all of their assets in the securities or beneficial interests of a
singly pooled investment fund having substantially the same objectives, policies
and limitations as the Portfolio.
2. Make an investment for the purpose of exercising control or management;
or
3. Invest more than 15% of its net assets (determined at the time of
investment) in illiquid securities, including securities subject to legal or
contractual restrictions on resale (which may include private placements and
those 144A securities for which the Trustees, pursuant to procedures adopted by
the Portfolio, have determined there is no liquid secondary market), repurchase
agreements maturing in more than seven days, options traded over the counter
that a Portfolio has purchased, securities being used to cover options a
Portfolio has written, securities for which market quotations are not
readily-available, or other securities which legally or in the Adviser's or
Trustees' opinion may be deemed illiquid;
As a fundamental policy, the Portfolios may borrow money from banks to the
extent permitted under the 1940 Act. As an operating (non-fundamental) policy,
the Portfolios do not intend to borrow any amount in excess of 10% of their
respective assets, and would do so only for temporary emergency or
administrative purposes. In addition, to avoid the potential leveraging of
assets, the Portfolios will not make additional investments when its borrowings
are in excess of 5% of total assets. If a Portfolio should determine to expand
its ability to borrow beyond the current operating policy, the Portfolio's
Prospectus would be amended and shareholders would be notified.
PILGRIM VP INTERNATIONAL VALUE PORTFOLIO. The following investment
restrictions are fundamental policies and cannot be changed without the approval
of the holders of a majority of the Portfolio's outstanding voting securities
(defined in the 1940 Act) as the lesser of (a) more than 50% of the outstanding
shares or (b) 67% or more of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented). All other investment
policies or practices are considered by the Portfolios to be non-fundamental and
accordingly may be changed without shareholder approval. If a percentage
restriction on investment or use of assets set forth below is adhered to at the
time a transaction is effected, later changes in percentage resulting from
changing market values will not be considered a deviation from this policy. The
Portfolio may not:
1. Issue senior securities, except to the extent permitted under the 1940
Act, borrow money or pledge its assets, except that the Portfolio may borrow on
an unsecured basis from banks for temporary or emergency purposes or for the
clearance of transactions in amounts not exceeding 10% of its total assets (not
including the amount borrowed), provided that it will not make investments while
borrowings in excess of 5% of the value of its total assets are outstanding;
2. Act as underwriter (except to the extent the Portfolio may be deemed to
be an underwriter in connection with the sale of securities in its investment
portfolio);
3. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
government securities), except that the Portfolio reserves the right to invest
all of its assets in shares of another investment company;
4. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although the Portfolio may purchase and sell securities
which are secured by real estate, securities of companies which invest or deal
in real estate and securities issued by real estate investment trusts);
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5. Purchase or sell commodities or commodity futures contracts, except that
the Portfolio may purchase and sell stock index futures contracts for hedging
purposes to the extent permitted under applicable federal and state laws and
regulations and except that the Portfolio may engage in foreign exchange forward
contracts;
6. Make loans of cash (except for purchases of debt securities consistent
with the investment policies of the Portfolio and except for repurchase
agreements);
The following policies are non-fundamental and may be changed without
shareholder approval. The Portfolio may not:
1. Make short sales of securities or maintain a short position, except for
short sales against the box;
2. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
3. Write put or call options, except that the Portfolio may (i) write
covered call options on individual securities and on stock indices; (ii)
purchase put and call options on securities which are eligible for purchase by
the Portfolio and on stock indices; and (iii) engage in closing transactions
with respect to its options writing and purchases, in all cases subject to
applicable federal and state laws and regulations;
4. Purchase any security if as a result the Portfolio would then hold more
than 10% of any class of voting securities of an issuer (taking all common stock
issues as a single class, all preferred stock issues as a single class, and all
debt issues as a single class), except that the Portfolio reserves the right to
invest all of its assets in a class of voting securities of another investment
company;
5. Invest more than 10% of its assets in the securities of other investment
companies or purchase more than 3% of any other investment company's voting
securities or make any other investment in other investment companies except as
permitted by federal and state law;
6. Invest more than 15% of its net assets in illiquid securities.
PILGRIM VP MAGNACAP PORTFOLIO. The following investment restrictions are
fundamental policies and cannot be changed without the approval of the holders
of a majority of the Portfolio's outstanding voting securities (defined in the
1940 Act) as the lesser of (a) more than 50% of the outstanding shares or (b)
67% or more of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented). All other investment policies or practices
are considered by the Portfolio to be non-fundamental and accordingly may be
changed without shareholder approval. If a percentage restriction on investment
or use of assets set forth below is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing market values will
not be considered a deviation from this policy. The Portfolio may not:
1. Engage in the underwriting of securities of other issuers.
2. Engage in the purchase and sale of interests in real estate, commodities
or commodity contracts (although this does not preclude marketable securities of
companies engaged in these activities).
3. Engage in the making of loans to other persons, except (a) through the
purchase of a portion of an issue of publicly distributed bonds, debentures or
other evidences of indebtedness customarily purchased by institutional investors
or (b) by the loan of its portfolio securities in accordance with the policies
described under "Lending of Portfolio Securities."
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4. Borrow money except in conformity with the limits set forth in the 1940
Act; notwithstanding the foregoing, short-term credits necessary for settlements
of securities transactions are not considered borrowings.
5. Mortgage, pledge or hypothecate its assets in any manner, except in
connection with any authorized borrowings and then not in excess of 33% of the
value of its total assets.
6. Effect short sales, or purchase or sell puts, calls, spreads or
straddles.
7. Buy or sell oil, gas, or other mineral leases, rights or royalty
contracts, or participate on a joint or joint and several basis in any
securities trading account.
8. Invest more than 25% of the value of its total assets in any one
industry.
9. Issue senior securities, except insofar as the Portfolio may be deemed
to have issued a senior security by reason of borrowing money in accordance with
the Portfolio's borrowing policies or investment techniques, and except for
purposes of this investment restriction, collateral, escrow, or margin or other
deposits with respect to the making of short sales, the purchase or sale of
futures contracts or related options, purchase or sale of forward foreign
currency contracts, and the writing of options on securities are not deemed to
be an issuance of a senior security.
The following policies are non-fundamental and may be changed without
shareholder approval.
1. The Portfolio will limit its investments in warrants, valued at the
lower of cost or market, to 5% of its net assets. Included within that amount,
but not to exceed 2% of the Portfolio's net assets, may be warrants that are not
listed on the New York Stock Exchange.
2. The Portfolio will not invest in "restricted securities" which cannot in
the absence of an exemption be sold without an effective registration statement
under the Securities Act of 1933, as amended.
3. The Portfolio will not engage in the purchase or sale of real estate or
real estate limited partnerships.
4. The Portfolio will not make loans to other persons unless collateral
values are continuously maintained at no less than 100% by "marking to market"
daily.
5. The Portfolio may not invest more than 5% of its total assets in
securities of companies which, including predecessors, have not had a record of
at least three years of continuous operations, and may not invest in any
restricted securities. 6. The Portfolio will not invest in securities of other
investment companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets.
PILGRIM VP GROWTH OPPORTUNITIES PORTFOLIO. The following investment
restrictions are fundamental policies and cannot be changed without the approval
of the holders of a majority of the Portfolio's outstanding voting securities
(defined in the 1940 Act) as the lesser of (a) more than 50% of the outstanding
shares or (b) 67% or more of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented). All other investment
policies or practices are considered by the Portfolio to be non-fundamental and
accordingly may be changed without shareholder approval. If a percentage
restriction on investment or use of assets set forth below is adhered to at the
time a transaction is effected, later changes in percentage resulting from
changing market values will not be considered a deviation from this policy. The
Portfolio may not:
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1. Borrow money except in conformity with the limits set forth in the
Investment Company Act of 1940; notwithstanding the foregoing, short-term
credits necessary for settlements of securities transactions are not considered
borrowings.
2. Purchase securities of any one issuer (except U.S. government
securities) if, as a result, more than 5% of the Portfolio's total assets would
be invested in that issuer, or the Portfolio would own or hold more than 10% of
the outstanding voting securities of the issuer; PROVIDED, HOWEVER, that up to
25% of the Portfolio's total assets may be invested without regard to these
limitations.
3. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Portfolio may be
deemed to be an underwriter.
4. Concentrate its assets in the securities of issuers, all of which
conduct their principal business activities in the same industry (this
restriction does not apply to obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities).
5. Make any investment in real estate, commodities or commodities
contracts, except that the Portfolio may: (a) purchase or sell readily
marketable securities that are secured by interests in real estate or issued by
companies that deal in real estate, including real estate investment and
mortgage investment trusts; and (b) engage in financial futures contracts and
related options, as described herein and in the Prospectus.
6. Make loans, except that the Portfolio may: (a) invest in repurchase
agreements, and (b) loan its portfolio securities in amounts up to one-third of
the market or other fair value of its total assets.
7. Issue senior securities, except as appropriate to evidence indebtedness
that it is permitted to incur, provided that the deposit or payment by the
Portfolio of initial or maintenance margin in connection with futures contracts
and related options is not considered the issuance of senior securities.
8. Pledge, mortgage or hypothecate in excess of 5% of its total assets (the
deposit or payment by the Portfolio of initial or maintenance margin in
connection with futures contracts and related options is not considered a pledge
or hypothecation of assets).
The following policies are non-fundamental and may be changed without
shareholder approval. The Portfolio may not:
1. Invest more than 15% of its net assets in illiquid securities, including
repurchase agreements maturing in more than 7 days, that cannot be disposed of
within the normal course of business at approximately the amount at which the
Portfolio has valued the securities, excluding restricted securities that have
been determined by the Trustees of the Trust (or the persons designated by them
to make such determinations) to be readily marketable.
2. Purchase securities of any issuer with a record of less than 3 years of
continuous operations, including predecessors, except U.S. government securities
and obligations issued or guaranteed by any foreign government or its agencies
or instrumentalities, if such purchase would cause the investments of the
Portfolio in all such issuers to exceed 5% of the total assets of the Portfolio
taken at market value.
3. Purchase securities on margin, except the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities (the deposit or payment by the Portfolio of initial or maintenance
margin in connection with futures contracts or related options is not considered
the purchase of a security on margin).
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4. Write put and call options, unless the options are covered and the
Portfolio invests through premium payments no more than 5% of its total assets
in options transactions, other than options on futures contracts.
5. Purchase and sell futures contracts and options on futures contracts,
unless the sum of margin deposits on all futures contracts held by the
Portfolio, and premiums paid on related options held by the Portfolio, does not
exceed more than 5% of the Portfolio's total assets, unless the transaction
meets certain "bona fide hedging" criteria (in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
computing the 5%).
6. Invest in interests in oil, gas or other mineral exploration or
development programs (although it may invest in issuers that own or invest in
such interests).
7. Purchase securities of any investment company, except by purchase in the
open market where no commission or profit to a sponsor or dealer results from
such purchase, or except when such purchase, though not made in the open market,
is part of a plan of merger, consolidation, reorganization or acquisition of
assets.
8. Make short sales, unless, by virtue of its ownership of other
securities, the Portfolio has the right to obtain securities equivalent in kind
and amount to the securities sold and, if the right is conditional, the sale is
made upon the same conditions, except in connection with arbitrage transactions.
PILGRIM VP MIDCAP OPPORTUNITIES PORTFOLIO. The following investment
restrictions are fundamental policies and cannot be changed without the approval
of the holders of a majority of the Portfolio's outstanding voting securities
(defined in the 1940 Act) as the lesser of (a) more than 50% of the outstanding
shares or (b) 67% or more of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented). All other investment
policies or practices are considered by the Portfolio to be non-fundamental and
accordingly may be changed without shareholder approval. If a percentage
restriction on investment or use of assets set forth below is adhered to at the
time a transaction is effected, later changes in percentage resulting from
changing market values will not be considered a deviation from this policy. The
Portfolio may not:
1. Borrow money except in conformity with the limits set forth in the 1940
Act; notwithstanding the foregoing, short-term credits necessary for settlements
of securities transactions are not considered borrowings.
2. Underwrite the securities of others.
3. Purchase or sell real property, including real estate limited
partnerships (the Portfolio may purchase marketable securities of companies that
deal in real estate or interests therein, including real estate investment
trusts).
4. Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Portfolio.
5. Make loans to other persons (but the Portfolio may, however, lend
portfolio securities, up to 33% of net assets at the time the loan is made, to
brokers or dealers or other financial institutions not affiliated with the
Portfolio or Pilgrim, subject to conditions established by Pilgrim), and may
purchase or hold participations in loans, in accordance with the investment
objectives and policies of the Portfolio, as described in the current Prospectus
and SAI of the Portfolio.
6. Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with futures
contracts will not be deemed to be purchases of securities on margin).
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7. Sell short, except that the Portfolio may enter into short sales against
the box.
8. Invest more than 25% of its assets in any one industry or related group
of industries.
9. With respect to 75% of the Portfolio's assets, purchase a security
(other than U.S. government obligations) if, as a result, more than 5% of the
value of total assets of the Portfolio would be invested in securities of a
single issuer.
10. Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of an issuer,
would be held by the Portfolio.
The following policies are non-fundamental and may be changed without
shareholder approval. The Portfolio may not:
1. Purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that the Portfolio
may purchase shares of other investment companies, subject to such restrictions
as may be imposed by the 1940 Act and rules thereunder.
2. Invest more than 15% of its net assets in illiquid securities.
OTHER INVESTMENT TECHNIQUES
COVERED CALL OPTIONS. Each Portfolio may sell covered call options and
purchase options to close out options, previously written. The Portfolios, in
return for the premium received upon the sale of a call option, give up the
opportunity to benefit from a price increase in the underlying security above
the exercise price, but conversely retains the risk of loss should the price of
the security decline. A Portfolio has no control over when it may be required to
sell the underlying securities, since it may be assigned an exercise notice at
any time prior to the expiration of its obligation as a seller.
Because call options give the purchaser the right to purchase a specified
security at a designated strike price for a limited period of time, the option
is likely to be exercised only when and if the market price of the security
exceeds the strike price. If the market price never exceeds the strike price
during, the option term, the purchaser's loss will be limited to the cash
premium paid to the seller of the option. However, if the market price does
exceed the strike price during the option term by an amount greater than the
premium paid for the option, the purchaser may exercise the option and purchase
the security at the strike price and realize a profit to the extent the proceeds
exceed the amount of premiums and transaction costs. In either circumstance, the
seller of the option retains the premium received for the option but forgoes any
potential profit from an increase in the market price of the underlying security
over the strike price. The option will be terminated upon expiration of the
option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security upon the exercise of the option.
Each Portfolio will sell only covered call options, meaning that a
Portfolio will only sell a call option on a security that it already owns. The
Portfolios will not write call options on when-issued securities. In addition,
the Portfolios will not sell a covered call option if, as a result, the
aggregate market value of all portfolio securities of a Portfolio covering call
options or subject to put options exceeds 10% of the market value of the
Portfolio's net assets.
If a Portfolio desires to sell a particular security from its portfolio on
which it has written a call option, or purchased a put option, it will seek to
effect a closing transaction prior to, or concurrently with, the sale of the
security. There is no assurance that the Portfolio will be able to effect such
closing transactions at a favorable price. If the Portfolio cannot enter into
such a transaction, it may be required to hold a security that it might
otherwise have sold, in which case it would continue to be at market risk on the
security.
DERIVATIVE INSTRUMENTS. The International Value Portfolio may invest in
derivative instruments for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
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securities or to increase potential income gain. The Research Enhanced Index
Portfolio also may invest in derivatives although generally investments in
derivatives for this Portfolio will be limited to S&P 500 Options. Derivatives
may provide a cheaper, quicker or more specifically focused way for the
International Value Portfolio to invest than "traditional" securities would. The
International Value Portfolio does not currently intend to make use of any
derivatives, including, transactions in currency forwards for hedging purposes.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Portfolio to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Portfolio can increase or decrease the level
of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter derivatives.
Exchange-traded derivatives generally are guaranteed by the clearing agency that
is the issuer or counterparty to such derivatives. This guarantee usually is
supported by a daily payment system (i.e., margin requirements) operated by the
clearing agency in order to reduce overall credit risk. As a result, unless the
clearing agency defaults, there is relatively little counterparty credit risk
associated with Derivatives purchased on an exchange. By contrast, no clearing
agency guarantees over-the-counter derivatives. Therefore, each party to an
over- the-counter derivative bears the risk that the counterparty will default.
Accordingly, the Adviser or the Sub-Adviser will consider the creditworthiness
of counterparties; to over-the-counter derivatives in the same manner as it
would review the credit quality of a security to be purchased by the Portfolio.
Over-the-counter derivatives are less liquid than exchange-traded derivatives
since the other party to the transaction may be the only investor with
sufficient understanding of the derivative to be interested in bidding for it.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Portfolios may engage in
foreign currency exchange transactions to hedge against uncertainty in the level
of future exchange rates. The Portfolios may conduct its currency exchange
transactions on a "spot" (i.e., cash) basis at the rate then prevailing in the
currency exchange market, or on a forward basis, by entering into futures or
forward contracts to purchase or sell currency. The Portfolio's dealings in
foreign currency exchange contracts are limited to hedging.
FOREIGN CURRENCY FUTURES CONTRACTS. A foreign currency futures contract
provides for the future sale and purchase of a specified amount of a certain
foreign currency at a stated date, place and price. The Portfolios may enter
into foreign currency futures contracts to attempt to establish the rate at
which it would be entitled to make a future exchange of U.S. dollars for another
currency.
FORWARD FOREIGN CURRENCY CONTRACTS. A forward foreign currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed
upon by the parties, at a price set at the date of the contract. Forward
currency contracts are entered into in the interbank market on a principal basis
directly between currency dealers, which usually are large commercial banks and
brokerage houses, and their customers, and therefore generally involve no
margin, commissions or other fees. Forward currency contracts will establish a
rate of exchange that can be achieved in the future and thus limit the risk of
loss due to a decline in the value of the hedged currency but also limit any
potential gain that might result in the event the value of the currency
increases.
FUTURES CONTRACTS. Each Portfolio may enter into both interest rate futures
contracts and foreign currency futures contracts on domestic and foreign
exchanges. A futures contract to sell a debt security or foreign currency (a
"short" futures position), creates an obligation by the seller to deliver a
specified amount of the underlying security or foreign currency at a certain
future time and price. A futures contract to purchase a debt security or foreign
currency (a "long" futures position) creates an obligation by the purchaser to
take delivery of a specified amount of the underlying security or foreign
currency at a certain future time and price. Although the terms of futures
contracts specify actual delivery or receipt of the underlying commodity,
futures contracts generally are closed out before the delivery date without
making or taking delivery by entering into an opposite position in the same
commodity on the same (or a linked) exchange.
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Upon entering into a futures contract, a Portfolio will be required to
deposit with a broker an amount of cash or cash equivalents equal to
approximately 1% to 5% of the contract price, which amount is subject to change
by the exchange on which the contract is traded or by the broker. This amount,
which is known as "initial margin" does not involve the borrowing of funds to
finance the transactions; rather, it is in the nature of a performance bond or
good faith deposit on the contract that will be returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the price of the instrument underlying the futures
contract fluctuates, making the long and short positions in the futures contract
more or less valuable ("marking-to-market").
The International Value Portfolio will engage in futures transactions only
as a hedge against the risk of unexpected changes in the values of securities
held or intended to be held by the Portfolio. As a general rule, the
International Value Portfolio will not purchase or sell futures if, immediately
thereafter, more than 25% of its net assets would be hedged. In addition, the
Portfolio will not purchase or sell futures or related options if, immediately
thereafter, the sum of the amount of margin deposits on the Portfolio's existing
futures positions and premiums paid for such options would exceed 5% of the
market value of the Portfolio's net assets.
FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS AND FOREIGN CURRENCY
TRANSACTIONS. Each Portfolio may enter into futures contracts, options on
futures contracts and foreign currency transactions. The Portfolios will enter
into these transactions solely for the purpose of hedging against the effects of
changes in the value of its portfolio securities or those it intends to purchase
due to anticipated changes in interest rates and currency values, and not for
the purpose of speculation.
OTHER INVESTMENT COMPANIES. Each Portfolio (except the MagnaCap Portfolio)
may invest in other investment companies ("Underlying Funds") in accordance with
the Portfolio's investment policies or restrictions. The 1940 Act provides that
an investment company may not: (i) invest more than 10% of its total assets in
Underlying Funds, (ii) invest more than 5% of its total assets in any one
Underlying Fund, or (iii) purchase greater than 3% of the total outstanding
securities of any one Underlying Fund. The Portfolios (except the MagnaCap
Portfolio) may also make indirect foreign investments through other investment
companies that have comparable investment objectives and policies as the
Portfolios. In addition to the advisory and operational fees a Portfolio bears
directly in connection with its own operation, the Portfolio would also bear its
pro rata portions of each other investment company's advisory and operational
expenses.
INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract provides
for the future sale and purchase of a specified amount of a certain debt
security at a stated date, place and price. The Portfolios may enter into
interest rate futures contracts to protect against fluctuations in interest
rates affecting the value of debt securities that a Portfolio either holds or
intends to acquire. Interest rate futures contracts currently are based on
long-term Treasury Bonds, Treasury Notes, three-month Treasury Bills and
Government National Mortgage Association modified pass-through mortgage-backed
securities ("GNMA pass-through securities"), and 90-day commercial paper.
LOAN PARTICIPATIONS. Each Portfolio may invest up to 10% of its assets in
loan participations denominated in U.S. dollars when the Adviser or Sub-Adviser
believes such an investment is consistent with a Portfolio's investment
objective. Loan participations entail the payment by a Portfolio of a sum to a
U.S. bank or other domestic financial institution that has lent or will lend
money to a U.S. corporation. In exchange for such payment, the bank agrees to
pay to that Portfolio, to the extent it is received, a specified portion of the
principal and interest in respect of such loan. A Portfolio has no contractual
relationship with the borrower. Loan participations may be considered illiquid
investments and may entail the credit risk of both the underlying borrower and
the bank or financial institution that is the intermediary. Loan participations
are typically unrated but the Adviser or Sub-Adviser will limit its investment
in loan participations based upon its opinion of the quality of the investment
and the Portfolio's general limitations with respect to lower rated investments.
MORTGAGE-BACKED SECURITIES. The Portfolios may invest in mortgage-backed
securities which are securities that directly or indirectly represent an
ownership participation in, or are secured by and payable from, mortgage loans
on real property ("Mortgage-Backed Securities"). Such securities include
mortgage pass-through securities representing participation interests in pools
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of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
government or one of its agencies or instrumentalities. Mortgage pass-through
securities differ from conventional debt securities, which provide for periodic
payment of interest in fixed amounts (usually semi-annually) and principal
payments at maturity or on specified call dates. Mortgage pass-through
securities provide for monthly payments that are a "pass-through" of the monthly
interest and principal payments, including any repayments made by the individual
borrowers on the pooled mortgage loans, net of any fees paid to the guarantor of
such securities and the servicer of the underlying mortgage loans. The
underlying mortgages may be prepaid at any time and such payments are passed
through to the certificate holder as a prepayment of principal. As a result, if
the Portfolio purchases such a Mortgage-Backed Security at a premium, a
prepayment rate that is faster than expected will reduce yield-to-maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield-to-maturity. Conversely, if the Portfolio purchases a
Mortgage-Backed Security at a discount, faster than expected prepayments will
increase, while slower than expected prepayment will reduce, yield-to- maturity.
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. Generally, however, prepayments on
fixed rate mortgage loans will increase during periods of falling interest rates
and decrease during periods of rising interest rates. Mortgage-Backed Securities
may decrease in value as a result of increases in interest rates and may benefit
less than other fixed income securities from declining interest rates because of
the risk of prepayment. Accelerated prepayments on Mortgage-Backed Securities
purchased by the Portfolio at a premium also impose a risk of loss of principal
because the premium may not have been fully amortized at the time the principal
is repaid in full. See "More Information About Risks" in the Prospectus.
OPTIONS ON FOREIGN CURRENCY. The Portfolios may also purchase and sell put
and call options for the purpose of hedging against changes in future currency
exchange rates. An option on a foreign currency gives the purchaser, in return
for a premium paid plus related transaction costs, the right to sell (in the
case of a put option) or to buy (in the case of a call option) the underlying
currency at a specified price until the option expires. The value of an option
on foreign currency depends upon the value of the foreign currency when compared
to the value of the U.S. dollar. Currency options traded on United States or
other exchanges may be subject to position limits, which may affect the ability
of the Portfolio to hedge its positions. The Portfolios will purchase and sell
options on foreign exchanges to the extent permitted by the Commodity Futures
Trading Commission ("CFTC").
The Portfolios may purchase or sell options on currency only when the
Adviser or Sub-Adviser believes that a liquid secondary markets exists for these
options; however, no assurance can be given that a liquid secondary market will
exist for a particular option at any specific time.
OPTIONS ON FOREIGN CURRENCY FUTURES. The purchase of options on foreign
currency futures contracts gives each Portfolio the right to enter into a
futures contract to purchase (in the case of a call option) or to sell (in the
case of a put option) a particular currency at a specified price at any time
during the period before the option expires. Options on foreign currency futures
currently are available with respect to British pounds, German marks and Swiss
francs. The Portfolios may purchase options on foreign currency futures as a
hedge against fluctuating currency values.
OPTIONS ON FUTURES CONTRACTS. The Portfolios may purchase and sell put and
call options on interest rate futures contracts as a hedge against changes in
interest rates and on foreign currency futures contracts as a hedge against
fluctuating currency values, in lieu of purchasing and writing options directly
on the underlying security or currency or purchasing and selling the underlying
futures contracts.
The purchase of an option on an interest rate futures contract will give
the Portfolios the right to enter into a futures contract to purchase (in the
case of a call option) or to enter into a futures contract to sell (in the case
of a put option) a particular debt security at a specified exercise price at any
time prior to the expiration date of the option. The potential loss related to
the purchase of an option on a futures contract is limited to the premium paid
for the option plus related transaction costs. A call option sold by a Portfolio
exposes the Portfolio during the term of the option to the possible loss of an
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opportunity to realize appreciation in the market price of the underlying
security or to the possible continued holding of a security which might
otherwise have been sold to protect against depreciation in the market price of
the security. In selling puts, there is a risk that a Portfolio may be required
to buy the underlying security at a disadvantageous price. Options on interest
rate futures contracts currently are available with respect to Treasury Bonds,
Treasury Notes, and Eurodollars.
OPTIONS ON INTEREST RATE FUTURES. Each Portfolio may purchase a put option
on an interest rate futures contract to hedge against a decline in the value of
its portfolio securities as a result of rising interest rates. Each Portfolio
may purchase a call option on an interest rate futures contract to hedge against
the risk of an increase in the price of securities it intends to purchase
resulting from declining interest rates. The Portfolios may sell put and call
options on interest rates futures contracts as part of closing sale transactions
to terminate its option positions.
OVER-THE-COUNTER OPTIONS. The Portfolios may invest in Over-the-Counter
options ("OTC options") on U.S. government securities. OTC options are purchased
from or sold (written) to dealers or financial institutions that have entered
into direct agreements with a Portfolio. With OTC options, such variables as
expiration date, exercise price and premium will be agreed upon between a
Portfolio and the transacting dealer, without the intermediation of a third
party such as the Options Clearing Corporation. The Adviser or Sub-Adviser
monitors the creditworthiness of dealers with whom a Portfolio enters into OTC
option transactions under the general supervision of the Trustees of the Trust.
If the transaction dealer fails to make or take delivery of the U.S. government
securities underlying an option it has written in accordance with the terms of
the option as written, the Portfolios would lose the premium paid for the option
as well as any anticipated benefit of the transaction. The Portfolios will
engage in OTC option transactions only with primary U.S. government securities
dealers recognized by the Federal Reserve Bank of New York.
PRIVATELY ISSUED COLLATERALIZED MORTGAGE-BACKED OBLIGATIONS ("CMOS"),
INTEREST OBLIGATIONS ("IOS") AND PRINCIPAL OBLIGATIONS ("POS"). Each Portfolio
may invest up to 5% of its net assets in Privately Issued Collateralized
Mortgage-Backed Obligations ("CMOs"), Interest Obligations ("IOs") and Principal
Obligations ("POs") when the Adviser or Sub-Adviser believes that such
investments are consistent with the Portfolio's investment objective.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
privately issued CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie
Mac Certificates, but also may be collateralized by whole loans or private
pass-throughs (such collateral collectively hereinafter referred to as "Mortgage
Assets"). Multi-class pass-through securities are equity interests in a trust
composed of Mortgage Assets. Unless the context indicates otherwise, all
references herein to CMOs include multi-class pass-through securities. Payments
of principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, are the sources of funds used to pay debt service on the CMOs or make
scheduled distributions on the multi-class pass-through securities.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. The principal of and interest on the Mortgage Assets may be allocated
among the several classes of a series of a CMO in innumerable ways.
The Portfolios may also invest in, among others, parallel-pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel-pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally call for payments of a
specified amount of principal on each payment date.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. SMBS are
structured with two or more classes of securities that receive different
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proportions of the interest and principal distributions on a pool of Mortgage
Assets. A common type of SMBS will have at least one class receiving only a
small portion of the interest and a larger portion of the principal from the
Mortgage Assets, while the other classes will receive primarily interest and
only a small portion of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). The
yield to maturity on an 10 class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets, and
a rapid rate of principal payments may have a material adverse effect on such
security's yield to maturity. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, a Portfolio may fail to
recoup fully its initial investment in these securities. The determination of
whether a particular Government-issued IO or PO backed by fixed-rate mortgages
is liquid is made by the Adviser or Sub-Adviser under guidelines and standards
established by the Board of Trustees. Such a security may be deemed liquid if it
can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of net asset value per share.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS. Each Portfolio
may enter into reverse repurchase agreements and dollar roll agreements. A
dollar roll agreement is identical to a reverse repurchase agreement except for
the fact that substantially identical securities may be repurchased. Under a
reverse repurchase agreement or a dollar roll agreement, a Portfolio sells
securities and agrees to repurchase them, or substantially similar securities in
the case of a dollar roll agreement, at a mutually agreed upon date and price.
The Portfolio does not account for dollar rolls as borrowing. At the time the
Portfolio enters into a reverse repurchase agreement or a dollar roll agreement,
it will establish and maintain a segregated account with its custodian
containing cash, U.S. government securities, or other liquid assets from its
portfolio having a value not less than the repurchase price (including accrued
interest).
While the use of reverse repurchase agreements and dollar roll agreements
creates opportunities for increased income, the use of these agreements may
involve the risk that the market value of the securities to be repurchased by a
Portfolio may decline below the price at which the Portfolio is obligated to
repurchase. Also, in the event the buyer of securities under a reverse
repurchase agreement or a dollar roll agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may receive an extension of
time to determine whether to enforce the Portfolio's obligation to repurchase
the securities, and the Portfolio's use of the proceeds of the reverse
repurchase agreement or the dollar roll agreement may effectively be restricted
pending such decision. Dollar roll agreements may be treated as sales for tax
purposes.
RISK FACTORS AND SPECIAL CONSIDERATIONS
FUTURES CONTRACTS AND RELATED OPTIONS. A Portfolio will not use leverage
when it enters into long futures contracts or related options. For each long
position that a Portfolio enters into, it will segregate cash or cash
equivalents having a value equal to the market value of the contract as
collateral with the custodian of the Portfolio. A Portfolio will not enter into
futures contracts and related options if as a result the aggregate of the
initial margin deposits on a Portfolio's existing futures and premiums paid for
unexpired options exceeds 5% of the fair market value of that Portfolio's
assets.
Using, futures contracts and related options involves certain risks,
including (1) the risk of imperfect correlation between fluctuations in the
value of a futures contract and the portfolio security that is being hedged; (2)
the risk that a Portfolio may underperform a fund that does not make use of
these instruments; (3) the risk that no active market will be available to
offset a position; and (4) the risk that the Adviser or Sub-Adviser will not be
able to predict correctly movements in the direction of the interest rate and
foreign currency markets. Loss from futures transactions is potentially
unlimited.
Certain exchanges on which futures are traded may establish daily limits in
the amount that the price of a futures or related option contract may fluctuate
from the previous day's settlement price. When a daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. If a daily limit were reached, a Portfolio might be prevented from
liquidating unfavorable positions and thus incur losses. In certain situations,
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a Portfolio might be unable to close a position and might also have to make
daily cash payments of variation margin.
SECURITIES LENDING. Each Portfolio may lend portfolio securities to
broker/dealers or other institutional borrowers (up to 33% of net assets at the
time the loan is made), but only when the borrower pledges cash collateral to
the Portfolio and agrees to maintain such with the Portfolios' custodian so that
it amounts at all times to at least 100% of the value of the securities loaned.
Furthermore, each Portfolio may terminate its loans at any time, and must
receive compensation that, in total and in whatever form, is equivalent to the
sum of reasonable interest on the collateral as well as dividends, interest, or
other distributions paid on the security during the loan period. The loan
agreement shall not reduce the risk of loss or opportunity for gain by the
Portfolio on the securities transferred pursuant to the agreement. Upon
expiration of the loan, the borrower of the securities will be obligated to
return to that Portfolio the same number and kind of securities as those loaned
together with any applicable duly executed stock powers and the Portfolios must
be permitted to exercise all voting rights, if there are any, with respect to
the securities lent. The Portfolios may pay reasonable fees in connection with
the loan, including reasonable fees to the Portfolios' custodian for its
services.
SHORT SALES. Each Portfolio (except the MagnaCap Portfolio) may each make
short sales "against the box." A short-sale is a transaction in which a party
sells a security it does not own in anticipation of a decline in the market
value of that security. A short sale is "against the box" to the extent that a
Portfolio contemporaneously owns or has the right to obtain securities identical
to those sold short.
STOCK INDEX OPTIONS. The Portfolios may purchase options to hedge against
risks of broad price movements in the equity markets that in some market
environments may correlate more closely with movements in the value of lower
rated bonds than to changes in interest rates. When a Portfolio sells an option
on a stock index, it will have to establish a segregated account with its
custodian in which the Portfolio will deposit cash or other liquid assets or a
combination of both in an amount equal to the market value of the option,
measured on a daily basis, and will have to maintain the account while the
option is open. For some options, no liquid secondary market may exist or the
market may cease to exist.
ZERO COUPON, STEP COUPON AND PIK BONDS. The Portfolios may invest their
assets in any combination of zero coupon bonds, step coupon bonds and bonds on
which interest is payable in kind ("PIK bonds"). A zero coupon bond is a bond
that does not pay interest currently for its entire life. Step coupon bonds
frequently do not entitle the holder to any periodic payments of interest for
some initial period after the issuance of the obligation; thereafter, step
coupon bonds pay interest for fixed periods of time at particular interest rates
(a "step coupon bond"). In the case of a zero coupon bond, the nonpayment of
interest on a current basis may result from the bond having no stated interest
rate, in which case the bond pays only principal at maturity and is initially
issued at a discount from the face value. Alternatively, a zero coupon
obligation may provide for a stated rate of interest, but provide that such
interest is not payable until maturity, in which case the bond may initially be
issued at par. The value to the investor of a zero coupon or step coupon bond is
represented by the economic accretion either of the difference between the
purchase price and the nominal principal amount (if no interest is stated to
accrue) or of accrued, unpaid interest during the bond's life or payment
deferral period. PIK bonds are obligations that provide that the issuer thereof
may, at its option, pay interest on such bonds in cash or in the form of
additional debt securities. Such securities benefit the issuer by mitigating its
need for cash to meet debt service, but also require a higher rate of return to
attract investors who are willing to defer receipt of such cash. The Portfolio
generally will accrue income on such investments for tax and accounting
purposes, which would be distributed to the shareholder (Variable Account) from
available cash or liquidated assets. See also "Dividends and Distributions" and
"Federal Income Tax Status." The market prices of zero coupon, step coupon and
PIK bonds are more volatile than the market prices of securities that pay
interest periodically in cash, and are likely to respond to changes in interest
rates to a greater degree than do bonds that have similar maturities and credit
quality on which regular cash payments of interest are being made.
RISKS OF INTERNATIONAL INVESTING. Investments in foreign securities involve
special risks, including currency fluctuations, political or economic
instability in the country of issue and the possible imposition of exchange
controls or other laws or restrictions. In addition, securities prices in
foreign markets are generally subject to different economic, financial,
political and social factors than are the prices of securities in U.S. markets.
With respect to some foreign countries, there may be the possibility of
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expropriation or confiscatory taxation limitations on liquidity of securities of
political or economic developments that could affect the foreign investments of
the Portfolio. Moreover, securities of foreign issuers generally will not be
registered with the SEC, and such issuers will generally not be subject to the
SEC's reporting requirements. Accordingly, there is likely to be less publicly
available information concerning certain of the foreign issuers of securities
held by the Portfolio than is available concerning U.S. companies. Foreign
companies are also generally not subject to uniform accounting, auditing and
financial reporting standards or to practices and requirements comparable to
those applicable to U.S. companies. There may also be less government
supervision and regulation of foreign broker-dealers, financial institutions and
listed companies than exists in the U.S. These factors could make foreign
investments, especially those in developing countries, more volatile. All of the
above issues should be considered before investing in the Portfolio.
EMERGING MARKETS AND RELATED RISKS. The International Value Portfolio may
invest up to 25% of its assets in securities of companies located in countries
with emerging securities markets. Emerging markets are the capital markets of
any country that in the opinion of the Sub-Adviser is generally considered a
developing country by the international financial community. Currently, these
markets include, but are not limited to, the markets of Argentina, Brazil,
Chile, China, Colombia, Czech Republic, Greece, Hungary, India, Indonesia,
Israel, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland,
Portugal, Slovak Republic, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela and
countries of the former Soviet Union. As opportunities to invest in other
emerging markets countries develop, the International Value Portfolio expects to
expand and diversify further the countries in which it invests.
Investing in emerging market securities involves risks which are in
addition to the usual risks inherent in foreign investments. Some emerging
markets countries may have fixed or managed currencies that are not
free-floating against the U.S. dollar. Further, certain currencies may not be
traded internationally. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which the Portfolio's portfolio securities are denominated may have a
detrimental impact on the Portfolio.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be greater
difficulties or restrictions with respect to investments made in emerging
markets countries.
Emerging securities markets typically have substantially less trading
volume than U.S. markets, securities in many of such markets are less liquid,
and their prices often are more volatile than securities of comparable U.S.
companies. Such markets often have different clearance and settlement procedures
for securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets which the Portfolio desires to invest in
emerging markets may be uninvested. Settlement problems in emerging markets
countries also could cause the Portfolio to miss attractive investment
opportunities. Satisfactory custodial services may not be available in some
emerging markets countries, which may result in the Portfolio incurring
additional costs and delays in the transportation and custody of such
securities.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser, and the Sub-Advisers in the case of the Growth + Value
Portfolio, International Value Portfolio and Research Enhanced Index Portfolio,
place orders for the purchase and sale of securities, supervise their execution
and negotiate brokerage commissions on behalf of each Portfolio. For purposes of
this section, discussion of the Adviser includes the Sub-Advisers, but only with
respect to the Growth + Value Portfolio, International Value Portfolio and
Research Enhanced Index Portfolio. It is the practice of the Adviser to seek the
best prices and best execution of orders and to negotiate brokerage commissions
which in the Adviser's opinion are reasonable in relation to the value of the
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brokerage services provided by the executing broker. Brokers who have executed
orders for the Portfolios are asked to quote a fair commission for their
services. If the execution is satisfactory and if the requested rate
approximates rates currently being quoted by the other brokers selected by the
Adviser, the rate is deemed by the Adviser to be reasonable. Brokers may ask for
higher rates of commission if all or a portion of the securities involved in the
transaction are positioned by the broker, if the broker believes it has brought
a Portfolio an unusually favorable trading opportunity, or if the broker regards
its research services as being of exceptional value, and payment of such
commissions is authorized by the Adviser after the transaction has been
consummated. If the Adviser more than occasionally differs with the broker's
appraisal of opportunity or value, the broker will not be selected to execute
trades in the future. The Adviser believes that each Portfolio benefits from a
securities industry comprised of many and diverse firms and that the long-term
interest of shareholders of the Portfolios is best served by brokerage policies
which include paying a fair commission rather than seeking to exploit its
leverage to force the lowest possible commission rate. The primary factors
considered in determining the firms to which brokerage orders are given are the
Adviser's appraisal of the firm's ability to execute the order in the desired
manner, the value of research services provided by the firm, and the firm's
attitude toward and interest in mutual funds in general, including the sale of
mutual funds managed and sponsored by the Adviser. The Adviser does not offer or
promise to any broker an amount or percentage of brokerage commissions as an
inducement or reward for the sale of shares of the Portfolios. Over-the-counter
purchases and sales are transacted directly with principal market-makers except
in those circumstances where in the opinion of the Adviser better prices and
execution are available elsewhere.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry
groups, and individual issues. Research services will vary from firm to firm,
with broadest coverage generally from the large full-line firms. Smaller firms
in general tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor federal,
state, local and foreign political developments; many of the brokers also
provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff since the brokers as a group tend to
monitor a broader universe of securities and other matters than the Adviser's
staff can follow. In addition, it provides the Adviser with a diverse
perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to the Adviser and is available
for the benefit of other accounts advised by the Adviser and its affiliates and
not all of this information will be used in connection with the Portfolios.
While this information may be useful in varying degrees and may tend to reduce
the Adviser's expenses, it is not possible to estimate its value and in the
opinion of the Advisers it does not reduce the Adviser's expenses in a
determinable amount. The extent to which the Adviser makes use of statistical,
research and other services furnished by brokers is considered by the Adviser in
the allocation of brokerage business but there is no formula by which such
business is allocated. The Adviser does so in accordance with its judgment of
the best interest of the Portfolios and their shareholders.
Purchases and sales of fixed-income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to dealers
serving as market-makers for the securities at a net price. Each Portfolio will
also purchase such securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed-income securities
are traded on a net basis and do not involve brokerage commissions. The cost of
executing fixed-income securities transactions consists primarily of dealer
spreads and underwriting commissions.
In purchasing and selling fixed-income securities, it is the policy of each
Portfolio to obtain the best results taking into account the dealer's general
execution and operational facilities, the type of transaction involved and other
factors, such as the dealer's risk in positioning the securities involved. While
the Adviser generally seeks reasonably competitive spreads or commissions, the
Portfolios will not necessarily pay the lowest spread or commission available.
Each Portfolio may, in circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer which has
provided statistical or other research services to the Portfolios. By allocating
transactions in this manner, the Adviser is able to supplement its research and
analysis with the views and information of other securities firms.
17
<PAGE>
During the fiscal years ended December 31, 1999, 1998 and 1997,
respectively, each of the Portfolios listed below paid total brokerage
commission indicated below. Information is not provided for the MagnaCap
Portfolio, Growth Opportunities Portfolio or MidCap Opportunities Portfolio
because those Portfolios were not operational during the periods shown.
BROKERAGE COMMISSIONS PAID DURING MOST RECENT FISCAL YEARS
1999 1998 1997
-------- ------- -------
SmallCap Opportunities Portfolio .......... $103,063 $53,311 $19,044
Growth + Value Portfolio .................. $ 60,068 $87,380 $80,568
International Value Portfolio ............. $ 42,879 $20,741 $15,426
Research Enhanced Index Portfolio.......... $ 17,217 -- --
High Yield Bond Portfolio ................. $ 146 -- --
PORTFOLIO TURNOVER
A change in securities held in the portfolio of a Portfolio is known as
"Portfolio Turnover" and may involve the payment by a Portfolio of dealer
mark-ups or brokerage or underwriting commissions and other transaction costs on
the sale of securities, as well as on the reinvestment of the proceeds in other
securities. Portfolio turnover rate for a fiscal year is the percentage
determined by dividing the lesser of the cost of purchases or proceeds from
sales of portfolio securities by average of the value of portfolio securities
during such year, all excluding securities whose maturities at acquisition were
one year or less. A Portfolio cannot accurately predict its turnover rate,
however the rate will be higher when a Portfolio finds it necessary to
significantly change its portfolio to adopt a temporary defensive position or
respond to economic or market events. A high turnover rate would increase
commission expenses and may involve realization of gains. Each Portfolio's
historical turnover rates are included in the Financial Highlights tables in the
prospectus.
SERVICES OF THE ADVISER AND ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with the Trust, Pilgrim
Investments acts as the investment adviser to each Portfolio. The Adviser,
subject to the authority of the Trustees, and subject to certain
responsibilities being delegated to the Sub-Adviser for the Growth + Value
Portfolio, the Sub-Adviser for the International Value Portfolio and the
Sub-Adviser for the Research Enhanced Index Portfolio, is responsible for
furnishing continuous investment supervision to the Portfolios and is
responsible for the management of the Portfolios.
Pilgrim Investments is an indirect, wholly owned subsidiary of ReliaStar
Financial Corporation ("ReliaStar"). Prior to April 30, 2000, Pilgrim Advisors,
Inc. ("Pilgrim Advisors") served as investment adviser to the Portfolios (other
than the MagnaCap Portfolio, the Growth Opportunities Portfolio and the MidCap
Opportunities Portfolio) . On April 30, 2000, Pilgrim Advisors, an indirect
wholly owned subsidiary of ReliaStar, merged with Pilgrim Investments. Pilgrim
Investments and Pilgrim Advisors were sister companies and shared certain
resources and investment personnel. Prior to November 1, 1999 Northstar
Investment Management Corporation ("NIMC") served as investment adviser to the
Portfolios (other than the MagnaCap Portfolio, the Growth Opportunities
Portfolio and the MidCap Opportunities Portfolio). As a result of the
acquisition of Pilgrim Capital Corporation by ReliaStar, NIMC changed its name
to Pilgrim Advisors, Inc on November 1, 1999.
ReliaStar is a publicly traded holding company whose subsidiaries
specialize in the insurance business. Through the Affiliated Insurance Companies
and other subsidiaries, ReliaStar issues and distributes individual life
insurance and annuities, employee benefit contracts, retirement contracts and
life and health reinsurance, and mutual funds and provides related investment
management services. The address of Pilgrim Investments is 40 North Central
Avenue, Suite 1200, Phoenix, AZ 85004. The address of ReliaStar is 20 Washington
Avenue South, Minneapolis, MN 55401.
18
<PAGE>
Pilgrim Investments charges each of the SmallCap Opportunities, Growth +
Value, Research Enhanced Index and High Yield Bond Portfolios, a fee at the
annual rate of 0.75% on the first $250,000,000 of aggregate average daily net
assets of each of these Portfolios, 0.70% on the next $250,000,000 of such
assets, 0.65% on the next $250,000,000 of such assets; 0.60% on the next
$250,000,000 of such assets, and 0.55% on the remaining aggregate daily net
assets of each of these Portfolios, in excess of $1 billion.
Pilgrim Investments charges the International Value Portfolio a fee at the
annual rate of 1.00% of aggregate average daily net assets of this Portfolio.
Pilgrim Investments charges the Growth Opportunities Portfolio, the
MagnaCap Portfolio and the MidCap Opportunities Portfolio a fee at the annual
rate of 0.75% of aggregate average daily net assets of those Portfolios.
The Investment Advisory Agreement for the SmallCap Opportunities, Growth +
Value, Research Enhanced Index and High Yield Bond Portfolios was approved by
the Trustees of the Trust on January 26, 1994, and by the sole Shareholder of
the SmallCap Opportunities, Growth + Value, Research Enhanced Index, and High
Yield Bond Portfolios on April 15, 1994. The Investment Advisory Agreement
continues in effect from year to year if specifically approved annually by (a)
the Trustees, acting separately on behalf of the SmallCap Opportunities, Growth
+ Value, Research Enhanced Index and High Yield Bond Portfolios, including a
majority of the Disinterested Trustees, or (b) a majority of the outstanding
voting securities of the SmallCap Opportunities, Growth + Value, Research
Enhanced Index, and High Yield Bond Portfolios as defined in the 1940 Act.
The Investment Advisory Agreement for the International Value Portfolio was
approved by the Trustees of the Trust on April 24, 1997, and by the sole
Shareholder of the International Value Portfolio on April 30, 1997. The
Investment Agreement continues in effect from year to year if specifically
approved annually by (a) the Trustees, acting separately on behalf of the
International Value Portfolio, including a majority of the Disinterested
Trustees, or (b) a majority of the outstanding voting securities of each class
of the International Value Portfolio as defined in the 1940 Act.
The Investment Advisory Agreement for the MagnaCap Portfolio, the Growth
Opportunities Portfolio and the MidCap Opportunities Portfolio was approved by
the Trustees of the Trust on January 27, 2000 and by the sole Shareholder of
these Portfolios on April 28, 2000. The Investment Advisory Agreement became
effective on April 30, 2000 and will continue in effect for a period of two
years. Thereafter, the Investment Advisory Agreement will continue in effect
from year to year if specifically approved annually by (a) the Trustees, acting
separately on behalf of each of those Portfolios, including a majority of the
Disinterested Trustees, or (b) a majority of the outstanding voting securities
of each class of each of those Portfolios as defined in the 1940 Act.
Any Portfolio's Investment Advisory Agreement may be terminated without
payment of any penalty by the Adviser, the Trustees or the sole Shareholder of
the respective Portfolio on not more than 60 days and not less than 30 days
prior written notice. Otherwise, a Portfolio's Investment Advisory Agreement
will remain in effect for two years and will, thereafter, continue in effect
from year to year, subject to the annual approval of the Trustees or the vote of
a majority of the outstanding voting securities of the respective Portfolio, and
the vote, cast in person at a meeting duly called and held, of a majority of the
Trustees of the respective Portfolio who are not parties to the Investment
Advisory Agreement or "interested persons" (as defined in the 1940 Act) of any
such Party. Such agreement will automatically terminate in the event of its
assignment, as defined in Section 2(a)(4) of the 1940 Act.
Pilgrim Group, Inc. ("Administrator") serves as administrator for the
Portfolios pursuant to an Administrative Services Agreement with the Portfolios.
Prior to November 1, 1999, Northstar Administrators Corporation provided
administrative services to the Trust. However, as a result of the acquisition of
Pilgrim Capital Corporation by ReliaStar, Northstar Administrators Corporation
was merged with Pilgrim Group, Inc. The Administrator is an affiliate of the
Adviser. The address of the Administrator is 40 North Central Avenue, Suite
1200, Phoenix, AZ 85004. Subject to the supervision of the Board of Trustees,
the Administrator provides the overall business management and administrative
services necessary to the proper conduct of the Portfolios' business, except for
those services performed by the Portfolios' Adviser under the Investment
Advisory Agreements, and the custodian and accounting agent for the Portfolios
under the Custodian Agreement.
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<PAGE>
The Administrator acts as liaison among these service providers to the
Portfolios. The Administrator is also responsible for ensuring that the
Portfolios operate in compliance with applicable legal requirements and for
monitoring the Adviser for compliance with requirements under applicable law and
with the investment policies and restrictions of the Portfolios.
The Administrator's fee is accrued daily against the value of each
Portfolio's net assets and is payable by each Portfolio monthly. The fee is
computed daily and payable monthly, at an annual rate of 0.10% of each
Portfolio's average daily net assets.
The Administrative Services Agreement for the SmallCap Opportunities,
Growth + Value, Research Enhanced Index and High Yield Bond Portfolios was
approved by the Trustees of the Trust on January 26, 1994 and became effective
on May 2, 1994. This Agreement continues in effect from year to year, provided
such continuance is approved annually by a majority of the Trustees of the
Trust.
The Administrative Services Agreement for the International Value Portfolio
was approved by the Trustees of the Trust on April 24, 1997. The Administrative
Services Agreement for the International Value Portfolio became effective on May
1, 1997 and continues in effect from year to year provided such continuance is
approved annually by a majority of the Trustees of the Trust.
The Administrative Services Agreement for the Growth Opportunities
Portfolio, the MagnaCap Portfolio and the MidCap Opportunities Portfolio was
approved by the Trustees of the Trust on January 27, 2000. The Administrative
Services Agreement for the Growth Opportunities Portfolio, the MagnaCap
Portfolio and the MidCap Opportunities Portfolio became effective on April 30,
2000 and will continue in effect for a period of two years. Thereafter, it will
continue from year to year provided such continuance is approved annually by a
majority of the Trustees of the Trust.
During the fiscal years ended December 31, 1999, 1998 and 1997, the
Portfolios(1) paid the Adviser and Administrator the following investment
advisory and administrative fees, respectively. Information is not provided for
the MagnaCap Portfolio, Growth Opportunities Portfolio, or MidCap Opportunities
Portfolio because those Portfolios were not operational during the periods
shown.
<TABLE>
<CAPTION>
Advisory Fees Administrative Fees
---------------------------------- -------------------------------
1999 1998 1997(1) 1999 1998 1997(1)
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SmallCap Opportunities Portfolio(2) $269,393 $166,694 $134,697 $35,919 $22,226 $17,960
Growth + Value Portfolio(3) $406,374 $263,659 $187,902 $54,183 $35,154 $25,053
International Value Portfolio(4) $180,408 $ 92,299 $ 18,050 $18,041 $ 9,230 $ 1,805
Research Enhanced Index
Portfolio(5) $150,965 $ 94,002 $ 65,503 $21,231 $12,534 $ 8,734
High Yield Bond Portfolio(6) $148,822 $120,634 $ 73,225 $19,843 $16,085 $ 9,763
</TABLE>
- ----------
(1) The International Value Portfolio commenced operations on August 8, 1997.
(2) Does not reflect expense reimbursements, respectively, of $68,278, $71,511,
and $56,065..
(3) Does not reflect expense reimbursements, respectively, of $89,668, $77,366,
and $72,598.
(4) Does not reflect expense reimbursements, respectively during, respectively,
of $93,862, $77,795 and $32,742.
(5) Does not reflect expense reimbursements, respectively, of $77,764, $61,380,
and $49,206.
(6) Does not reflect expense reimbursements, respectively, of $61,195, $69,669,
and $55,011.
20
<PAGE>
SERVICES OF THE SUB-ADVISERS
Pursuant to a Sub-Advisory Agreement between Pilgrim Investments and
Navellier, dated November 1, 1998, Navellier serves as Sub-Adviser to the Growth
+ Value Portfolio. In this capacity, Navellier, subject to the supervision and
control of Pilgrim Investments and the Trustees of the Growth + Value Portfolio,
manages the Growth + Value Portfolio's investments, consistently with the Growth
+ Value Portfolio's investment objective, and executes any of the Growth + Value
Portfolio's investment policies that it deems appropriate to utilize from time
to time. Fees payable under the Sub-Advisory Agreement accrue daily and are paid
monthly by Pilgrim Investments. As compensation for its services, Pilgrim
Investments pays the Sub-Adviser at the annual rate of 0.35% of the average
daily net assets of the Growth + Value Portfolio. Navellier is wholly owned and
controlled by its sole stockholder, Louis G. Navellier. Navellier's address is 1
East Liberty, Third Floor, Reno, NV 89301. The Sub-Advisory Agreement was
initially approved by the Trustees of the Growth + Value Portfolio on December
1, 1995, and by vote of shareholders of the Growth + Value Portfolio on January
31, 1996. The Sub-Advisory Agreement may be terminated without payment of any
penalty by Pilgrim Investments, the Sub-Adviser, the Trustees of the Growth +
Value Portfolio or the shareholders on not more than 60 nor less than 30 days
prior written notice. Otherwise, the Sub-Advisory Agreement continues in effect
from year to year, subject to the annual approval of the Trustees of the Growth
+ Value Portfolio, or the vote of a majority of the outstanding voting
securities of the Growth + Value Portfolio, and the vote, cast in person at a
meeting duly called and held, of a majority of the Trustees of Growth + Value
Portfolio who are not parties to the Sub-Advisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such party.
Pursuant to a Sub-Advisory Agreement between Pilgrim Investments and
Brandes, dated July 24, 1997, Brandes acts as Sub-Adviser to the International
Value Portfolio. In this capacity, Brandes, subject to the supervision and
control of Pilgrim Investments and the Trustees of the International Value
Portfolio, manages the International Value Portfolio's investments, consistently
with International Value Portfolio's investment objective, and executes any of
the International Value Portfolio's investment policies that it deems
appropriate to utilize from time to time. Fees payable under the Sub-Advisory
Agreement accrue daily and are paid monthly by Pilgrim Investments. As
compensation for its services, Pilgrim Investments pays Brandes at the annual
rate of 0.50% of the average daily net assets of the International Value
Portfolio. Brandes' address is 12750 High Bluff Drive, San Diego, California
92130. Charles Brandes, who controls the general partner of Brandes, serves as
one of the Managing Directors of Brandes. The Sub-Advisory Agreement for the
International Value Portfolio was approved by the Trustees of the International
Value Portfolio on April 24, 1997. The Sub-Advisory Agreement may be terminated
without payment of any penalty by Pilgrim Investments, Brandes, the Trustees of
the International Value Portfolio, or the shareholders of the International
Value Portfolio on not more than 60 days and not less than 30 days prior written
notice. Otherwise, the Sub-Advisory Agreement, continues in effect from year to
year, subject to the annual approval of the Trustees of the International Value
Portfolio, or the vote of a majority of the outstanding voting securities of the
International Value Portfolio, and the vote, cast in person at a meeting duly
called and held, of a majority of the Trustees of the International Value
Portfolio who are not parties to the Sub-Advisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such Party.
Pursuant to a Sub-Advisory Agreement between Pilgrim Investments and J.P.
Morgan, dated April 30, 1999, J.P. Morgan acts as Sub-Adviser to the Research
Enhanced Index Portfolio. In this capacity, J.P. Morgan, subject to the
supervision and control of Pilgrim Investments and the Trustees of the Research
Enhanced Index Portfolio, manages the Research Enhanced Index Portfolio's
investments, consistently with the Research Enhanced Index Portfolio's
investment objective, and executes any of the Research Enhanced Index
Portfolio's investment policies that it deems appropriate to utilize from time
to time. Fees payable under the Sub-Advisory Agreement accrue daily and are paid
monthly by Pilgrim Investments. As compensation for its services, Pilgrim
Investments will pay J.P. Morgan at the annual rate of 0.20% of the average
daily net assets of the Research Enhanced Index Portfolio. J.P. Morgan's address
is 522 Fifth Avenue, New York, New York 10036. The Sub-Advisory Agreement for
the Research Enhanced Index Portfolio was approved by the Trustees of the
Research Enhanced Index Portfolio, on behalf of the Research Enhanced Index
Portfolio on January 22, 1999. The Sub-Advisory Agreement may be terminated
without payment of any penalty by Pilgrim Investments, the Trustees of the
Research Enhanced Index Portfolio, or the shareholders of the Research Enhanced
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<PAGE>
Index Portfolio on not more than 60 days and not less than 30 days prior written
notice. Otherwise, the Sub-Advisory Agreement continues in effect from year to
year, subject to the annual approval of the Trustees of the Research Enhanced
Index Portfolio, or the vote of a majority of the outstanding voting securities
of the Research Enhanced Index Portfolio, and the vote, cast in person at a
meeting duly called and held, of a majority of the Trustees of the Research
Enhanced Index Portfolio who are not parties to the Sub-Advisory Agreement or
"interested persons" (as defined in the 1940 Act) of any such Party.
During the fiscal years ended December 31, 1999, 1998 and 1997, the
Portfolios paid the Sub-Advisers the following Sub-Advisory fees respectively:
Sub-Advisory Fees
------------------------------------
1999 1998 1997
-------- -------- -------
Growth + Value Portfolio ............. $177,138 $160,837 $84,784
International Value Portfolio(1) ..... $ 0(2) $ 0(2) $ 0(2)
Research Enhanced Index Portfolio(3).. $ 32,985 N/A N/A
- ----------
(1) The International Value Portfolio commenced operations on August 8, 1997.
(2) Brandes has agreed to waive all compensation until the Portfolio's net
assets exceed $50 million.
(3) J.P. Morgan began sub-advising the Research Enhanced Index Portfolio on
April 30, 1999.
NET ASSET VALUE
The net asset value ("NAV") per share of each Portfolio will be determined
at the close of the general trading session of the New York Stock Exchange (the
"Exchange"), on each business day the Exchange is open. The Exchange is
scheduled to be closed on New Year's Day, Martin Luther King, Jr.'s Birthday,
President's Day (observed), Good Friday, Memorial Day (observed), Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The NAV per share of each Portfolio is computed by dividing the value of
such Portfolio's securities, plus any cash and other assets (including dividends
and interest accrued but not collected) less all liabilities (including accrued
expenses) by the number of shares of the Portfolio outstanding. See the Trust's
current Prospectus for more information.
PURCHASES, REDEMPTIONS AND EXCHANGE TRANSACTIONS
For information on purchases and redemptions of shares, see "Purchase of
Shares" and "Redemption of Shares" in the Trust's Prospectus. The Trust may
suspend the right of redemption of shares of any Portfolio and may postpone
payment for more than seven days for any period: (i) during which the Exchange
is closed other than customary weekend and holiday closings or during which
trading on the Exchange is restricted; (ii) when the Securities and Exchange
Commission determines that a state of emergency exists which may make payment or
transfer not reasonably practicable; (iii) as the Securities and Exchange
Commission may by order permit for the protection of the security holders of the
Portfolios; or (iv) at any other time when the Portfolios may, under applicable
laws and regulations, suspend payment on the redemption of their shares.
Shares of any Portfolio may be exchanged for shares of any other Portfolio.
Exchanges are treated as a redemption of shares of one Portfolio and a purchase
of shares of one or more of the other Portfolios and are effected at the
respective NAV per share of each Portfolio on the date of the exchange. The
Trust reserves the right to modify or discontinue its exchange privilege at any
time without notice.
Variable Contract Owners do not deal directly with the Trust with respect
to the purchase, redemption, or exchange of shares of a Portfolio, and should
refer to the prospectus for the Variable Contract for information on allocation
of premiums and on transfers of account value among divisions of the insurance
company separate account that invest in the Portfolios.
The Trust reserves the right to discontinue offering shares of one or more
Portfolios at any time. In the event that a Portfolio ceases offering its
shares, any investments allocated by the insurance company to such Portfolio
will be invested in the fixed account portfolio or any successor to such
portfolio.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Net investment income of the High Yield Bond and Research Enhanced Index
Portfolios is declared as dividends daily and paid quarterly. For the SmallCap
Opportunities, Growth + Value, International Value, MagnaCap, Growth
Opportunities, and MidCap Opportunities Portfolios, net investment income will
be declared and paid quarterly. Any net realized long-term capital gains (the
excess of net long-term capital gains over net short-term capital losses) for
any Portfolio will be declared and paid at least once annually. Net realized
short-term capital gains may be declared and paid more frequently.
FEDERAL INCOME TAX STATUS
Each Portfolio intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code (the "Code").
Accordingly, a Portfolio generally expects not to be subject to federal income
tax if it meets certain source of income, diversification of assets, income
distribution, and other requirements, to the extent it distributes its
investment company taxable income and its net capital gains.
Distributions of investment company taxable income (which includes among
other items, interest, dividends, and net realized short-term capital gains in
excess of net realized long-term capital losses) and of net realized capital
gains, whether received in cash or additional shares, are included in the gross
income of the shareholder (the "Variable Account"). Distributions of investment
company taxable income are treated as ordinary income for tax purposes in the
hands of a separate account. Net capital gains designated as capital gain
distributions by a Portfolio will, to the extent distributed, be treated as
long-term capital gains in the hands of the Variable Account regardless of the
length of time the Variable Account may have held the shares. A distribution
will be treated as paid on December 31 of the calendar year if it is declared by
a Portfolio in October, November, or December of that year to the shareholder of
record on a date in such a month and paid by the Portfolio during January of the
following calendar year. Such distributions will be taxable to the Variable
Account in the calendar year in which they are declared, rather than the
calendar year in which they are received. Tax consequences to the Variable
Contract Owners are described in the prospectus for the Variable Account.
If a Portfolio invests in stock of certain foreign corporations that
generate largely passive investment-type income, or which hold a significant
percentage of assets that generate such income (referred to as "passive foreign
investment companies" or "PFICs"), these investments would be subject to special
tax rules designed to prevent deferral of U.S. taxation of the Portfolio's share
of the PFIC's earnings. In the absence of certain elections to report these
earnings on a current basis, regardless of whether the Portfolio actually
receives any distributions from the PFIC, investors in the Portfolio would be
required to report certain "excess distributions" from, and any gain from the
disposition of stock of, the PFIC as ordinary income. This ordinary income would
be allocated ratably to the Portfolio's holding period for the stock. Any
amounts allocated to prior years would be taxable at the highest rate of tax
applicable in that year, increased by an interest charge determined as though
the amounts were underpayments of tax.
Certain requirements relating to the qualification of a Portfolio as a
regulated investment company under the Code may limit the extent to which a
Portfolio will be able to engage in transactions in options, futures contracts,
or forward contracts. In addition, certain Portfolio investments may generate
income for tax purposes that must be distributed even though cash representing
such income is not received until a later period. To meet its distribution
requirement the Portfolio may in those circumstances be forced to raise cash by
other means, including borrowing or disposing of assets at a time when it may
not otherwise be advantageous to do so.
To comply with regulations under Section 817(h) of the Code, each Portfolio
generally will be required to diversify its investments, so that on the last day
of each quarter of a calendar year, no more than 55% of the value of its assets
is represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments, and no
more than 90% is represented by any four investments. For this purpose,
securities of a single issuer are treated as one investment and each U.S.
government agency or instrumentality is treated as a separate issuer. Any
security issued, guaranteed, or insured (to the extent so guaranteed or insured)
23
<PAGE>
by the U.S. or an agency or instrumentality of the U.S. is treated as a security
issued by the U.S. government or its agency or instrumentality, whichever is
applicable. These regulations will limit the ability of a Portfolio to invest
more than 55% of its assets in direct obligations of the U.S. Treasury or in
obligations that are deemed to be issued by a particular agency or
instrumentality of the U.S. government. If a Portfolio fails to meet the
diversification requirements under Code Section 817(h), income with respect to
Variable Contracts invested in the Portfolio at any time during the calendar
quarter in which the failure occurred could become currently taxable to the
owners of such Variable Contracts and income for prior periods with respect to
such Variable Contracts also would be taxable, most likely in the year of the
failure to achieve the required diversification. Other adverse tax consequences
also could ensue.
In connection with the issuance of the regulations governing
diversification under Section 817(h) of the Code, the Treasury Department
announced that it would issue future regulations or rulings addressing the
circumstances in which a Variable Contract owner's control of the investments of
a separate account may cause the contract owner, rather than the insurance
company, to be treated as the owner of the assets held by a separate account. If
the Variable Contract Owner is considered the owner of the securities underlying
a separate account, income and gains produced by those securities would be
included currently in the Variable Contract owner's gross income. Although it is
not known what standards will be incorporated in future regulations or other
pronouncements, the Treasury staff has indicated informally that it is concerned
that there may be too much contract owner control where the Portfolio underlying
a separate account invests solely in securities issued by companies in a
specific industry. Similarly, the ability of a contract owner to select a
Portfolio representing a specific economic risk may also be prescribed. These
future rules and regulations proscribing investment control may adversely affect
the ability of the Portfolios to operate as described in this Prospectus. There
is, however, no certainty as to what standard, if any, the Treasury will
ultimately adopt, and there can be no certainty that the future rules and
regulations will not be given retroactive application. In the event that
unfavorable rules or regulations are adopted, there can be no assurance that
these or other Portfolios will be able to operate as currently described in the
Prospectus, or that a Portfolio will not have to change its investment
objectives, investment policies, or investment restrictions. While a Portfolio's
investment objective is fundamental and may be changed only by a vote of a
majority of its outstanding shares, the Trustees have reserved the right to
modify the investment policies of a Portfolio as necessary to prevent any such
prospective rules and regulations from causing the Variable Contract Owners to
be considered the owners of the Portfolios underlying the Variable Account.
Reference is made to the prospectus of the Variable Account for information
regarding the federal income tax treatment of distributions to the Variable
Account.
24
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust and their business
affiliations for the past five years are set forth below. Unless otherwise
noted, the mailing address of the Trustees and officers of the Trust is c/o
Pilgrim Investments, Inc., 40 North Central Avenue, Suite 1200, Phoenix, AZ
85004.
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 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 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 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 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
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 Adviser.
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 Adviser.
*JOHN G. TURNER. (Age 60) Chairman. Chairman and Chief Executive
Officer of ReliaStar Financial Corp. and ReliaStar 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 Adviser.
25
<PAGE>
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 Adviser.
ADVISORY BOARD MEMBERS
Unless otherwise noted, the mailing address of the Advisory Board Members
is 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. The following
individuals serve as Advisory Board Members for the Trust:
MARY A. BALDWIN, Ph.D. (Age 60) Advisory Board Member. 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 Adviser.
AL BURTON. (Age 72) Advisory Board Member. 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 Adviser.
JOCK PATTON. (Age 54) Advisory Board Member. 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 Adviser.
*ROBERT W. STALLINGS. (Age 51) Advisory Board Member. 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 Adviser.
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 Trust:
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.
26
<PAGE>
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).
KEVIN G. MATHEWS, SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER.
(Age 40) Senior Vice President, Pilgrim Investments (since July 1998).
Formerly Vice President, Pilgrim Investments (August 1995 - July 1998);
Vice President, Van Kampen America Capital (May 1987 - April 1995).
MARY LISANTI, EXECUTIVE VICE PRESIDENT AND PORTFOLIO MANAGER . (Age
43) Executive Vice President and Chief Investment Adviser-Equities, Pilgrim
Investments (since November 1999). Formerly Sub-Adviser, Strong Capital
Management (September 1996 - May 1998); Managing Director and Sub-Adviser,
Banker Trust Corporation (March 1993 - August 1996).
27
<PAGE>
Pilgrim Investments and Pilgrim Group, Inc. make their personnel available
to serve as Officers and "Interested Trustees" of the Portfolios. All Officers
and Interested Trustees of the Trust are compensated by Pilgrim Investments.
Trustees who are not "interested persons" of the Adviser are paid by the Trust
and other investment companies in the Pilgrim group of funds ("Pilgrim Funds"),
a pro rata share, as described below: (i) annual retainer of $20,000; (ii) 5,000
per quarterly Board meeting; (iii) $500 per committee meeting; (iv) $500 per
special or telephonic meeting; and (v) out-of-pocket expenses. The pro rata
share paid by the Trust and the Pilgrim Funds is based on the average net assets
as a percentage of the average net assets of all the funds managed by the
Investment Adviser for which the trustees serve in common as Trustees (or as
Directors or on an Advisory Board as the case may be). The Trust also reimburses
the Trustees for expenses incurred by them in connection with such meetings.
Such fees are allocated evenly among the Portfolios. The Portfolios currently
have an Executive Committee, Audit Committee, Valuation Committee and a
Nominating Committee. The Audit, Valuation and Nominating Committees consist
entirely of Independent Trustees. On April 24, 2000, no Officer or Trustee of
the Portfolios, owned beneficially or of record or had an interest in shares of
any Portfolio.
The following individuals serve on the Trust's Executive Committee: John G.
Turner, Robert W. Stallings, Walter H. May and Jock Patton. Mr. Turner serves as
Chairman of the Executive Committee.
The following individuals serve on the Trust's Audit Committee: Paul S.
Doherty, Robert B. Goode, Jr., John R. Smith, David W. Wallace and Mary A.
Baldwin. Mr. Wallace serves as Chairman of the Audit Committee.
The following individuals serve on the Trust's Valuation Committee: Alan R.
Gosule, Walter H. May, Jr., David W.C. Putnam, Al Burton, and Jock Patton. Mr.
Putnam serves as Chairman of the Valuation Committee.
The following individuals serve on the Trust's Nominating Committee: Paul
S. Doherty, Robert B. Goode, Jr., Walter H. May, Jr., Al Burton and Mary A.
Baldwin. Mr. May serves as Chairman of the Nominating Committee.
COMPENSATION OF TRUSTEES
The following table sets forth information regarding compensation of
Trustees by the Trust and other funds managed by Pilgrim Investments for the
fiscal year ended December 31, 1999. Officers of the Trust and Trustees who are
interested persons of the Trust do not receive any compensation from the Trust
or any other funds managed by Pilgrim Investments. In the column headed "Total
Compensation From Registrant and Fund Complex Paid to Trustees," the number in
parentheses indicates the total number of boards in the fund complex on which
the Trustees served during that fiscal year.
28
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Estimated From
Compensation Accrued Annual Registrant
From Pilgrim as Part of Benefits and Fund
Name of Variable Fund Upon Complex Paid
Person, Position Products Trust(1) Expenses Retirement to Trustees(1)(5)
- ---------------- ----------------- -------- ---------- -----------------
<S> <C> <C> <C> <C>
Mary A. Baldwin (2) $ 0 N/A N/A $40,875
Advisory Board Member (15 boards)
Al Burton (2) $ 0 N/A N/A $40,875
Advisory Board Member (15 boards)
Paul S. Doherty (3) $1,592.33 N/A N/A $27,125
Trustee (15 boards)
Robert B. Goode, Jr $1,592.33 N/A N/A $26,625
Trustee (3) (15 boards)
Alan S. Gosule (3) $1,500 N/A N/A $25,125
Trustee (15 boards)
Mark L. Lipson $ 0 N/A N/A $0
Trustee (3)(4) (15 boards)
Walter H. May (3) $1,592.33 N/A N/A $27,125
Trustee (15 boards)
Jock Patton (2) $ 0 N/A N/A $45,875
Advisory Board Member (15 boards)
David W.C. Putnam (3) $ 702 N/A N/A $24,375
Trustee (15 boards)
John R. Smith (3) $1,592.33 N/A N/A $27,125
Trustee (15 boards)
Robert W. Stallings (2)(4) $ 0 N/A N/A $0
President and Advisory (15 boards)
Board Member
John G. Turner (3)(4) $ 0 N/A N/A $0
Trustee (15 boards)
David W. Wallace (3) $ 702 N/A N/A $24,875
Trustee (15 boards)
</TABLE>
- ----------
(1) Information provided for the fiscal year ended December 31, 1999.
(2) Elected a Trustee or non-voting Advisory Board Member of Pilgrim Variable
Products Trust, Pilgrim SmallCap Opportunities Fund, Pilgrim Growth
Opportunities Fund, Pilgrim Equity Trust, and Pilgrim Mayflower Trust on
November 16, 1999.
(3) Elected a Director/Trustee of Pilgrim Mutual Funds, Pilgrim Advisory Funds,
Pilgrim Investment Funds, Pilgrim Bank and Thrift Fund, Pilgrim Government
Securities Income Fund, and Pilgrim Prime Rate Trust on October 29, 1999.
(4) "Interested person," of the Trust as defined in the 1940 Act. Officers and
Trustees who are interested persons do not receive any compensation from
the Funds.
(5) As of December 31, 1999, there were 15 boards of directors/trustees in the
Pilgrim fund complex. As a result of three mergers which occurred April 1,
2000, the number of boards of directors/trustees was reduced to 12.
29
<PAGE>
OTHER INFORMATION
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP has been selected as
the independent accountants for the Trust. PricewaterhouseCoopers LLP will audit
the Trust's annual financial statements and issue an opinion thereon.
CUSTODIAN/ACCOUNTING SERVICES AGENT. State Street Bank and Trust Company
acts as custodian of the Portfolios' assets and performs fund accounting
services.
REPORTS TO SHAREHOLDERS. The fiscal year of the Trust ends on December 31.
Each Portfolio will send financial statements to its shareholders at least
semi-annually. An annual report containing financial statements audited by the
independent accountants will be sent to shareholders each year.
CODE OF ETHICS. The Trust has adopted a Code of Ethics governing personal
trading activities of all Trustees, officers of the Trust and persons who, in
connection with their regular functions, play a role in the recommendation of
any purchase or sale of a security by a Portfolio or obtain information
pertaining to such purchase of sale. The Code is intended to prohibit fraud
against the Trust and the Portfolios that may arise from personal trading.
Personal trading is permitted by such persons subject to certain restrictions;
however they are generally required to pre-clear all security transactions with
the Trust's Compliance Officer or her designee and to report all transactions on
a regular basis. The Sub-Advisors have adopted their own Codes of Ethics to
govern the personal trading activities of their personnel.
SHAREHOLDER AND TRUSTEE RESPONSIBILITY. Shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the Trust. The risk of a shareholder incurring
any financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
The Declaration of Trust contains an express disclaimer of shareholder liability
for acts or obligations of the Trust and provides that notice of the disclaimer
must be given in each agreement, obligation or instrument entered into or
executed by the Trust or Trustees. The Declaration of Trust provides for
indemnification of any shareholder held personally liable for the obligations of
the Trust and also provides for the Trust to reimburse the shareholder for all
legal and other expenses reasonably incurred in connection with any such claim
or liability.
Under the Declaration of Trust, the trustees or officers are not liable for
actions or failure to act; however, they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The Trust
provides indemnification to its trustees and officers as authorized by the 1940
Act and the rules and regulations thereunder.
FINANCIAL STATEMENTS. The Trust's audited financial statements dated
February 15, 2000 and the report of the independent accountants,
PricewaterhouseCoopers LLP with respect to such financial statements, are hereby
incorporated by reference to the Annual Report to Shareholders of the Northstar
Galaxy Trust for the year ended December 31, 1999.
REGISTRATION STATEMENT. A registration statement has been filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act. The
Prospectus and this Statement of Additional Information do not contain all
information set forth in the registration statement, its amendments and exhibits
thereto that the Trust has filed with the Securities and Exchange Commission,
Washington, D.C., to all of which reference is hereby made.
PERFORMANCE INFORMATION
Each Portfolio may, from time to time, include its total return and the
High Yield Bond Portfolio may include its yield in advertisements or reports to
shareholders or prospective investors. Performance information for the
Portfolios will not be advertised or included in sales literature unless
accompanied by comparable performance information for a Separate Account to
which the Portfolios offer their shares.
30
<PAGE>
A. TOTAL RETURN. Standardized quotations of average annual total return for
a Portfolio will be expressed in terms of the average annual compounded rate of
return for a hypothetical investment in the Portfolio over periods of 1, 5 and
10 years (or up to the life of the Portfolio), calculated pursuant to the
following formula: P(1 + T) to the power of n = ERV (where P = a hypothetical
initial payment of $1,000, T = the average annual total return, n = the number
of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period). All total return figures reflect the
deduction of Portfolio expenses (on an annual basis), and assume that all
dividends and distributions on shares are reinvested when paid.
The total return for SmallCap Opportunities, Growth + Value, International
Value, Research Enhanced Index, and High Yield Bond Portfolios, so calculated,
for the period since inception of each Portfolio (May 6, 1994 for all Portfolios
other than the International Value Portfolio, inception being August 8, 1997)
and for the one-year and five-year periods ended December 31, 1999 is set forth
below. Information is not provided for the MagnaCap, Growth Opportunities and
MidCap Opportunities Portfolios because these Portfolios were not operational
during the periods shown.
Since
One Year Five Year Inception
-------- --------- ---------
SmallCap Opportunities Portfolio .......... 141.03% 35.19% 30.96%
Growth + Value Portfolio .................. 94.98% 32.56% 29.05%
International Value Portfolio ............. 50.18% N/A 27.12%
Research Enhanced Index Portfolio(1) ...... 5.79% 7.98% 7.28%
High Yield Bond Portfolio ................. -2.98% 7.70% 6.60%
- ----------
(1) The portfolio commenced operations on May 6, 1994 as the Northstar
Multi-Sector Bond Fund with the investment objective of maximizing current
income consistent with the preservation of capital. From inception through
April 29, 1999, the portfolio operated under this investment objective and
related investment strategies. However, effective April 30, 1999 and
pursuant to shareholder approval, the portfolio changed its investment
objective and strategies to be managed as a large cap equity portfolio.
Accordingly, the past performance in this table may not be indicative of
the portfolio's future performance.
Performance information for the Portfolios may be compared in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare each Portfolio's results with those of a group of
unmanaged securities widely regarded by investors as representative of the
securities markets general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, Inc., a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in the Portfolio; (iv) well known monitoring sources of certificates
of deposit performance rates such as Salomon Brothers, Federal Reserve Bulletin,
American Bankers, Tower Data/The Wall Street Journal. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
The Portfolios also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a percentage and as
a dollar amount based on a hypothetical $10,000 investment for various periods
other than those noted below. Such data will be computed as described above,
except that the rates of return calculated will not be average annual rates, but
rather, actual annual, annualized or aggregate rates of return.
B. YIELD. Yield is the net annualized yield based on a specified 30-day (or
one month) period assuming a semiannual compounding of income. Yield is computed
by dividing the net investment income per share earned during the period by the
31
<PAGE>
maximum offering price per share on the last day of the period, according to the
following formula:
6
Yield= 2[(a-b + 1) -1]
---
cd
Where:
a = dividends and interest earned during the period, including the
amortization of market premium or accretion of market discount
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
d = the maximum offering price per share on the last day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, a Portfolio computes the yield to maturity of each obligation held
by the Portfolio based on the market value of the obligation (including actual
accrued interest) at the close of the last business day of the month, or, with
respect to obligations purchased during the month, the purchase price (plus
actual accrued interest). The yield-to-maturity is then divided by 360 and the
quotient is multiplied by the market value of the obligation (including actual
accrued interest) to determine the interest income on the obligation for each
day of the subsequent month that the obligation is in the Portfolio's portfolio.
Solely for the purpose of computing yield, a Portfolio recognizes dividend
income by accruing 1/360 of the stated dividend rate of a security in the
portfolio.
Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price.
Undeclared earned income is the net investment income, which, at the end of the
base period, has not been declared as a dividend, but is reasonably expected to
be declared as a dividend shortly thereafter.
The yield for the High Yield Bond Portfolio, calculated for the one month
period ended December 31, 1999, was 9.86%.
Quotations of yield or total return for the Portfolios will not take into
account charges and deductions against the Variable Account to which the
Portfolios' shares are sold or charges and deductions against the Variable
Contracts issued by ReliaStar Life Insurance Company or its affiliates. The
Portfolios' yield and total return should not be compared with mutual funds that
sell their shares directly to the public since the figures provided do not
reflect charges against the Variable Account or the Variable Contracts.
Performance information for any Portfolio reflects only the performance of a
hypothetical investment in the Portfolio during the particular time period in
which the calculations are 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.
32
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
CORPORATE BOND RATINGS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements maybe lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P") CORPORATE DEBT RATINGS
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A-1
<PAGE>
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures and adverse
conditions.
CI -- rating CI is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus(-) -- The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Declaration of Trust (1)
(2) Certificate of Amendment of Declaration of Trust and Redesignation of
Series (2)
(3) Certificate of Establishment and Designation (3)
(4) Certificate of Establishment and Designation (4)
(5) Certificate of Amendment of Declaration of Trust and Redesignation of
Series (7)
(6) Certificate of Amendment of Declaration of Trust (7)
(7) Certificate of Amendment of Declaration of Trust (7)
(8) Certificate of Establishment and Designation of Series (7)
(9) Certificate of Amendment of Declaration of Trust and Redesignation of
Series (7)
(b) By-laws. (1)
(c) Not applicable
(d)(1) Investment Advisory Contract between the Registrant and Northstar
Investment Management Corporation (4)
(2) Form of Sub-Advisory Agreement between Northstar Investment Management
Corporation and Navellier Fund Management, Inc. (1)
(3) Form of Sub-Advisory Agreement between Northstar Investment Management
Corporation and Brandes Investment Partners (4)
(4) Sub-Advisory Agreement between Northstar Investment Management
Corporation and J.P. Morgan Investment Management, Inc. (filed
herewith)
(5) Form of Amended and Restated Investment Advisory Agreement between the
Registrant and Pilgrim Advisors, Inc. (7)
(6) Form of Investment Advisory Agreement between the Registrant and
Pilgrim Investments, Inc. (7)
(7) Form of Investment Advisory Agreement between the Registrant and
Pilgrim Investments, Inc. (filed herewith)
(e) Form of Distribution Agreement between the Registrant and Pilgrim
Securities, Inc. (filed herewith)
(f) Not applicable
(g)(1) Custodian Agreement (1)
(2) Amendment to Custodian Agreement (6)
(h)(1) Administrative Services Agreement (4)
(2) Amended and Restated Administrative Services Agreement (7)
(i)(1) Legal Opinion (6)
(2) Legal Opinion with respect to the Pilgrim VP MagnaCap Portfolio,
Pilgrim VP Growth Opportunities Portfolio, and Pilgrim VP MidCap
Opportunities Portfolio (filed herewith)
(3) Consent of Dechert Price & Rhoads (filed herewith)
(j) Consent of Independent Public Accountants (filed herewith)
(k) N/A
(l) N/A
(m) N/A
(n) Not applicable
<PAGE>
(p)(1) Code of Ethics of the Registrant, Pilgrim Investments, Inc. and
Pilgrim Securities, Inc. (filed herewith)
(2) Form of Code of Ethics of Brandes Investment Partners, L.P.
(filed herewith)
(3) Form of Code of Ethics of J.P. Morgan Investment Management, Inc.
(filed herewith)
(4) Form of Code of Ethics of Navellier Fund Management, Inc. (filed
herewith)
(q)(1) Powers of Attorney for the Trustees (7)
(2) Power of Attorney for Michael J. Roland (7)
(3) Power of Attorney for Robert W. Stallings (filed herewith)
- ----------
(1) Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A as filed on February 28, 1996.
(2) Incorporated by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A as filed on April 30, 1997.
(3) Incorporated by reference to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A as filed on May 16, 1997.
(4) Incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A as filed on May 20, 1997.
(5) Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A as filed on August 8, 1997.
(6) Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A as filed on February 27, 1998.
(7) Incorporated by reference to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A as filed on January 28, 2000.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
ReliaStar Life Insurance Company (formerly "Northwestern National Life Insurance
Company"), Northern Life Insurance Company, and ReliaStar Bankers Security Life
Insurance Co., which are affiliated through a common parent company, ReliaStar
Financial Corp., on behalf of their respective separate accounts, together own a
majority of the outstanding shares of the Trust. These insurance companies will
vote shares of the Trust in accordance with instructions of contract owners
having interests in these separate accounts.
ITEM 25. INDEMNIFICATION
Section 4.3 of Registrant's Declaration of Trust provides the following:
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) every person who is, or has been, a Trustee or officer of the Trust
shall be indemnified by the Trust to the fullest extent permitted by
law against all liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action, suit
-2-
<PAGE>
or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or officer and
against amounts paid or incurred by him in the settlement thereof;
and
(ii) the word "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions suits or proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened;
and the words "liability" and "expenses" shall include, without
limitation, attorneys fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust, a Series thereof, or the
Shareholders by reason of a final adjudication by a court or other
body before which a proceeding was brought that he engaged in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interest of the Trust; or
(iii) in the event of a settlement or other disposition not involving a
final adjudication as provided in paragraph (b) (i) or (b) (ii)
resulting in a payment by a Trustee or officer, unless there has
been a determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office:
(A) by the court or other body approving the settlement or other
disposition; or
(B) based upon a review of readily available facts (as opposed to
a full trial-type inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter (provided that a
majority of the Disinterested Trustees then in office act on
the matter) or (y) written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be
entitled, shall continue as to a person who has ceased to be such Trustee
or officer and shall inure to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing contained herein
shall affect any rights to indemnification to which personnel of the Trust
other than Trustees and officers may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of
this Section 4.3 may be advanced by the Trust prior to final disposition
thereof upon receipt of an undertaking by or on behalf of the recipient to
repay such amount if it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided that either:
-3-
<PAGE>
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall
be insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the disinterested Trustees act on the
matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the recipient ultimately will be found entitled to
indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has been
exempted from being an Interested Person by any rule, regulation or order
of the Commission), or (ii) involved in the claim, action, suit or
proceeding.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to Trustees, Officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, 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 a Trustee, Officer or controlling person of the Registrant in
connection with the successful defense of any action suit or proceeding) is
asserted by such Trustee, Officer or controlling person 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 be governed by final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
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.
Information as to the directors and officers of Brandes Investment Partners LP,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by the directors and officers of
Brandes Investment Partners LP in the last two years, is included in its
application for registration as an investment adviser on Form ADV (File No.
801-24896) filed under the Investment Advisers Act of 1940 and is incorporated
herein by reference thereto.
Information as to the directors and officers of Navellier Fund Management, 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
Navellier Fund Management, Inc. in the last two years, is included in its
application for registration as an investment adviser on Form ADV (File No.
801-50932) filed under the Investment Advisers Act of 1940 and is incorporated
herein by reference thereto.
Information as to the directors and officers of J.P. Morgan Investment
Management, 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 J.P. Morgan Investment Management, Inc. in the last
two years, is included in its application for registration as an investment
-4-
<PAGE>
adviser on Form ADV (File No. 801-21011) filed under the Investment Advisers Act
of 1940 and is incorporated herein by reference thereto.
ITEM 27. PRINCIPAL UNDERWRITER
(a) Pilgrim Securities, Inc. is the principal underwriter for the
Registrant and for Pilgrim Investment Funds, Inc., Pilgrim Advisory Funds, Inc.,
Pilgrim Government Securities Income Fund, Inc., Pilgrim Bank and Thrift Fund,
Inc., Pilgrim Prime Rate Trust, Pilgrim Mutual Funds, Pilgrim Equity Trust,
Pilgrim SmallCap Opportunities Fund, Pilgrim Growth Opportunities Fund, Pilgrim
Balance Sheet Opportunities Fund, Pilgrim Government Securities Fund, Pilgrim
High Yield Fund III and Pilgrim Mayflower Trust.
(b) Information as to the directors and officers of Pilgrim 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 the Distributor in the last two years, is included in its application for
registration as a broker-dealer on Form BD (File No. 8-48020) filed under the
Securities Exchange Act of 1934 and is incorporated herein by reference thereto.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
State Street Bank and Trust Co., located at 225 Franklin Street, Boston, MA
02110-2804 maintains such records as Custodian, Transfer Agent and Fund
Accounting Agent, for the Trust and each Portfolio:
(1) Receipts and delivery of securities including certificate numbers;
(2) Receipts and disbursement of cash;
(3) Records of securities in transfer, securities in physical
possession, securities owned and securities loaned.
(4) Shareholder Records
All other records required by item 30(a) are maintained at the office of the
Administrator, 40 North Central Avenue, Suite 1200, Phoenix, AZ 85004 and the
offices of the Subadvisers.
The addresses of the Subadvisers are as follows: Brandes Investment Partners,
L.P., 12750 High Bluff Drive, San Diego, CA 92130; J.P. Morgan Investment
Management Inc., 522 Fifth Avenue, New York, NY 10036; and Navellier Fund
Management, Inc., 1 East Liberty, 3rd Floor, Reno, NV 89501.
ITEM 29. MANAGEMENT SERVICES
Not Applicable
ITEM 30. UNDERTAKINGS
None
-5-
<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. 17 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 27th day of
April 2000.
Registrant
By:
------------------------------------
Robert W. Stallings, President*
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
- --------- ----- ----
- -------------------- President April 27, 2000
Robert W. Stallings* (Principal Executive Officer)
- --------------------
John G. Turner* Trustee April 27, 2000
- --------------------
Mark L. Lipson* Trustee April 27, 2000
- --------------------
Paul S. Doherty* Trustee April 27, 2000
- --------------------
Robert B. Goode, Jr.* Trustee April 27, 2000
- --------------------
David W. Wallace* Trustee April 27, 2000
- --------------------
Walter H. May* Trustee April 27, 2000
- --------------------
Alan L. Gosule* Trustee April 27, 2000
6
<PAGE>
Signature Title Date
- --------- ----- ----
- --------------------
David W.C. Putnam* Trustee April 27, 2000
- --------------------
John R. Smith* Trustee April 27, 2000
____________________ Senior Vice President and
Michael J. Roland* Principal Financial Officer April 27, 2000
*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. 15 to the Registration
Statement on Form N-1A as filed on January 28, 2000. A Power of Attorney
for Robert W. Stallings is attached hereto.
7
<PAGE>
EXHIBIT LIST
Exhibit
Number Name of Exhibit
- ------ ---------------
(d)(4) Sub-Advisory Agreement between Northstar Investment Management
Corporation and J.P. Morgan Investment Management, Inc.
(d)(7) Form of Investment Advisory Agreement between the Registrant and
Pilgrim Investments, Inc.
(e) Form of Distribution Agreement between the Registrant and Pilgrim
Securities, Inc.
(i)(2) Legal Opinion with respect to the Pilgrim VP MagnaCap Portfolio,
Pilgrim VP Growth Opportunities Portfolio, and Pilgrim VP MidCap
Opportunities Portfolio
(i)(3) Consent of Counsel
(j) Consent of Independent Public Accountants
(p)(1) Code of Ethics of the Registrant, Pilgrim Investments, Inc. and
Pilgrim Securities, Inc.
(p)(2) Form of Code of Ethics of Brandes Investment Partners, L.P.
(p)(3) Form of Code of Ethics of J.P. Morgan Investment Management, Inc.
(p)(4) Form of Code of Ethics of Navellier Fund Management, Inc.
(q)(3) Power of Attorney for Robert W. Stallings
NORTHSTAR GALAXY TRUST RESEARCH ENHANCED INDEX PORTFOLIO
SUBADVISORY AGREEMENT
AGREEMENT made this 30th day of April, 1999 by and between Northstar
Investment Management Corporation, a Delaware corporation (hereinafter the
"Adviser"), investment adviser for the Northstar Galaxy Trust Research Enhanced
Index Portfolio, a series of the Northstar Galaxy Trust (the "Trust"),
(hereinafter the "Portfolio") and J.P. Morgan Investment Management Inc., a
Delaware corporation (hereinafter the "Subadviser").
WHEREAS, the Adviser has been retained by the Trust, an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended (the " 1940 Act"), to provide investment
advisory services to the Portfolio pursuant to an Investment Advisory Agreement
dated May 2, 1994 (the "Investment Advisory Agreement"); and
WHEREAS, the Trustees of the Trust, including a majority of the Trustees
who are not "interested persons," as defined in the 1940 Act, and the
Portfolio's shareholders have approved the appointment of the Subadviser to
perform certain investment advisory services for the Portfolio pursuant to this
Subadvisory Agreement with the Adviser and the Subadviser is willing to perform
such services for the Portfolio;
WHEREAS, the Subadviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual convenants
herein contained, it is agreed between the Adviser and the Subadviser as
follows:
1. APPOINTMENT. The Adviser hereby appoints the Subadviser to perform
advisory services to the Portfolio for the periods and on the terms set forth in
this Subadvisory Agreement. The Subadviser accepts such appointment and agrees
to furnish the services herein set forth, for the compensation herein provided.
2. DUTIES OF SUBADVISER. The Adviser hereby authorizes Subadviser to manage
the investment and reinvestment of cash and investments comprising the assets of
the Portfolio with power on behalf of and in the name of the Portfolio at
Subadviser's discretion; subject at all times to the supervision of the Adviser
and the Trustees of the Trust:
(a) to direct the purchase, subscription or other acquisition of
investments and to direct the sale, redemption, and exchange of investments,
subject to the duty to render to the Trustees of the Trust, the Adviser and the
Custodian written reports of the composition of the portfolio of the Portfolio
as often as the Trustees of the Trust shall reasonably require;
(b) to make all decisions relating to the manner, method and timing of
investment transactions, to select brokers, dealers and other intermediaries by
or through whom such transactions will be effected, and to engage such
consultants, analysts and experts in connection therewith as may be considered
necessary or appropriate;
<PAGE>
(c) to direct banks, brokers or custodians to disburse funds or assets
solely in order to execute investment transactions for the Portfolio, provided
that the Subadviser shall have no other authority to direct the transfer of the
Portfolio's funds or assets to itself or other persons and shall have no other
authority over the disbursement (as opposed to investment decisions) of funds or
assets nor any custody of any of the Portfolio's funds or assets; and
(d) to take all such other actions as may be considered necessary or
appropriate to discharge its duties hereunder; PROVIDED THAT any specific or
general directions which the Trustees of the Trust, or the Adviser may give to
the Subadviser with regard to any of the foregoing powers shall, unless the
contrary is expressly stated therein, override the general authority given by
this provision to the extent that the Trustees of the Trust may, at any time and
from time to time, direct, either generally or to a limited extent and either
alone or in concert with the Adviser or the Subadviser (provided that such
directions would not cause the Subadviser to violate any fiduciary duties or any
laws with regard to the Subadviser's duties and responsibilities), all or any of
the same as they shall think fit and, in particular, the Adviser shall have the
right to request the Subadviser to place trades through brokers and other agents
of the Adviser's choice, subject to the Subadviser's judgment that such brokers
or agents will execute such trades on the best overall terms available, taking
into consideration factors the Subadviser deems relevant including, without
limitation, the price of the security, research or other services which render
that broker's services the most appropriate for the Subadviser's needs, the
financial condition and dealing and execution capability of the broker or dealer
and the reasonableness of the commission, if any, for the specific transaction
and on a continuing basis; and PROVIDED FURTHER that nothing herein shall be
construed as giving the Subadviser power to manage the aforesaid cash and
investments in such a manner as would cause the Portfolio to be considered a
"dealer" in stocks, securities or commodities for U.S. federal income tax
purposes.
The Adviser shall monitor and review the performance of the Subadviser
under this Agreement, including but not limited to the Subadviser's performance
of the duties delineated in subparagraphs (a)-(d) of this provision.
The Subadviser further agrees that, in performing its duties hereunder, it
will
(a) (i) comply with the 1940 Act and all rules and regulations
thereunder, the Advisers Act, the Internal Revenue Code (the "Code") and all
other applicable federal and state laws and regulations, the current Prospectus
and Statement of Additional Information for the Portfolio supplied to the
Subadviser by the Adviser, and with any applicable procedures adopted by the
Trustees in writing supplied to the Subadviser by the Adviser; (ii) manage the
Portfolio in accordance with the investment requirements for regulated
investment companies under Subchapter M of the Code and regulations issued
thereunder; (iii) direct the placement of orders pursuant to its investment
determinations for the Portfolio directly with the issuer, or with any broker or
dealer, in accordance with applicable policies expressed in the Portfolio's
Prospectus and/or Statement of Additional Information and in accordance with
applicable legal requirements.
<PAGE>
(b) furnish to the Portfolio whatever non-proprietary reports the
Portfolio may reasonably request with respect to the Portfolio's assets or
contemplated strategies. In addition, the Subadviser will keep the Portfolio and
the Trustees informed of developments materially affecting the Portfolio's
portfolio and shall, on the Subadviser's own initiative, furnish to the
Portfolio from time to time whatever information the Subadviser believes
appropriate for this purpose;
(c) make available to the Portfolio's administrator, Northstar
Administrators Corp. (the "Administrator"), the Adviser, and the Portfolio,
promptly upon their request, such copies of its investment records and ledgers
with respect to the Portfolio as may be required to assist the Adviser, the
Administrator and the Portfolio in their compliance with applicable laws and
regulations. The Subadviser will furnish the Trustees with such periodic and
special reports regarding the Portfolio as they may reasonably request;
(d) immediately notify the Adviser and the Portfolio in the event that
the Subadviser or any of its affiliates: (i) becomes aware that it is subject to
a statutory disqualification that prevents the Subadviser from serving as an
investment adviser pursuant to this Subadvisory Agreement; or (ii) becomes aware
that it is the subject of an administrative proceeding or enforcement action by
the Securities and Exchange Commission ("SEC") or other regulatory authority.
The Subadviser further agrees to notify the Portfolio and the Adviser
immediately of any material fact known to the Subadviser respecting or relating
to the Subadviser that is not contained in the Trust's Registration Statement,
or any amendment or supplement thereto, but that is required to be disclosed
therein, and of any statement contained therein that becomes untrue in any
material respect. The Portfolio, Adviser, Administrator, and their Affiliates
shall likewise immediately notify the Subadviser if any of them becomes aware of
any regulatory action of the type described in this subparagraph 2(d).
3. ALLOCATION OF CHARGES AND EXPENSES. The Subadviser shall pay all
expenses associated with the management of its business operations in performing
its responsibilities hereunder, including the cost of its own overhead,
research, compensation and expenses of its directors, officers and employees,
and other internal operating costs; provided, however, that the Subadviser shall
be entitled to reimbursement on a monthly basis by the Adviser of all reasonable
out-of-pocket expenses properly incurred by it in connection with serving as
subadviser to the Portfolio. For the avoidance of doubt, the Portfolio shall
bear its own overhead and other internal operating costs (whether incurred
directly or by the Adviser or the Subadviser) including, without limitation:
(a) the costs incurred by the Portfolio in the preparation and
printing of the Prospectus or any offering literature (including any form of
advertisement or other solicitation materials calculated to lead to investors
subscribing for shares);
(b) all fees and expenses on behalf of the Portfolio to the Transfer
Agent and the Custodian;
<PAGE>
(c) the reasonable fees and expenses of accountants, auditors, lawyers
and other professional advisors to the Portfolio;
(d) any interest, fee or charge payable on or on account of any
borrowing by the Portfolio;
(e) fiscal and governmental charges and duties relating to the
purchase, sale, issue or redemption of shares and increases in authorized share
capital of the Portfolio;
(f) the fees of any stock exchange or over-the-counter market on which
shares of the Portfolio may from time to time be listed, quoted or dealt in and
the expenses of obtaining any such listing, quotation or permission to deal;
(g) the fees and expenses (if any) payable to Trustees;
(h) brokerage, fiscal or governmental charges or duties in respect of
or in connection with the acquisition, holding or disposal of any of the assets
of the Portfolio or otherwise in connection with its business;
(i) the expenses of publishing details and prices of shares of the
Portfolio in newspapers and other publications;
(j) all expenses incurred in the convening of meetings of shareholders
or in the preparation of agreements or other documents relating to the Portfolio
or in relation to the safe custody of the documents of title of any investments;
(k) all Trustees communication costs; and
(1) all premiums and costs for Portfolio insurance and blanket
fidelity bonds.
4. COMPENSATION. As compensation for the services provided by the
Subadviser under this Agreement, the Adviser will pay the Subadviser at the end
of each calendar month an advisory fee computed daily at an annual rate equal to
0.20 of 1% of the Portfolio's average daily net assets. The "average daily net
assets" of the Portfolio shall mean the average of the values placed on the
Portfolio's net assets as of 4:00 p.m. (New York time) on each day on which the
net asset value of the Portfolio is determined consistent with the provisions of
Rule 22c-1 under the 1940 Act or, if the Portfolio lawfully determines the value
of its net assets as of some other time on each business day, as of such other
time. The value of net assets of the Portfolio shall always be determined
pursuant to the applicable provisions of the Trust's Declaration of Trust and
the Registration Statement. If, pursuant to such provisions, the determination
of net asset value is suspended for any particular business day, then for the
purposes of this Section 4, the value of the net assets of the Portfolio as last
determined shall be deemed to be the value of its net assets as of the close of
regular trading on the New York Stock Exchange, or as of such other time as the
value of the net assets of the Portfolio's portfolio may lawfully be determined,
on that day. If the determination of the net asset value of the shares of the
Portfolio has been so suspended for a period including any month end when the
<PAGE>
Subadviser's compensation is payable pursuant to this Section, the Subadviser's
compensation payable at the end of such month shall be computed on the basis of
the value of the net assets of the Portfolio as last determined (whether during
or prior to such month). If the Portfolio determines the value of the net assets
of its portfolio more than once on any day, then the last such determination
thereof on that day shall be deemed to be the sole determination thereof on that
day for the purposes of this Section 4.
5. BOOKS AND RECORDS. The Subadviser agrees to maintain such books and
records with respect to its services to the Portfolio as are required by Section
31 under the 1940 Act, and rules adopted thereunder, and by other applicable
legal provisions, and to preserve such records for the periods and in the manner
required by applicable laws or regulations. The Subadviser also agrees that
records it maintains and preserves pursuant to Rules 31a-2 under the 1940 Act
(excluding trade secrets or intellectual property rights) in connection with its
services hereunder are the property of the Portfolio and will be surrendered
promptly to the Portfolio upon its request and the Subadviser farther agrees
that it will famish to regulatory authorities having the requisite authority any
information or reports in connection with its services hereunder which may be
requested in order to determine whether the operations of the Portfolio are
being conducted in accordance with applicable laws and regulations.
6. STANDARD OF CARE AND LIMITATION OF LIABILITY. The Subadviser shall
exercise its best judgment in rendering the services provided by it under this
Subadvisory Agreement. The Subadviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Portfolio or the
holders of the Portfolio's shares or by the Adviser in connection with the
matters to which this Subadvisory Agreement relates, provided that nothing in
this Subadvisory Agreement shall be deemed to protect or purport to protect the
Subadviser against liability to the Portfolio or to holders of the Portfolio's
shares or to the Adviser to which the Subadviser would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Subadviser's reckless disregard of
its obligations and duties under this Subadvisory Agreement. As used in this
Section 6, the term "Subadviser" shall include any officers, directors,
employees or other affiliates of the Subadviser performing services for the
Portfolio.
7. SERVICES NOT EXCLUSIVE. The Advisor understands that the Subadviser now
acts, will continue to act and may act in the future as investment advisor to
fiduciary and other managed accounts and as investment advisor to other
investment companies, and, except as may be separately agreed to from time to
time between the Advisor and the Subadviser, the Trust has no objection to the
Subadviser so acting, provided that whenever the Portfolio and one or more other
accounts or investment companies advised by the Subadviser have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a methodology believed to be equitable to each entity. The
Subadviser agrees to allocate similar opportunities to sell securities. The
Advisor recognizes that, in some cases, this procedure may limit the size of the
position that may be acquired or sold for the Portfolio. In addition, the
Adviser understands that the persons employed by the Subadviser to assist in the
performance of the Shareholder's duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of the Subadviser or any affiliate of the Subadviser to
engage in and devote time and attention to other business or to render services
of whatever kind or nature.
<PAGE>
8. DURATION AND TERMINATION. This Subadvisory Agreement shall become
effective as of the date of its execution and shall continue in effect for a
period of two years from the date of execution. Thereafter, this Subadvisory
Agreement shall continue automatically for successive annual periods, provided
such continuance is specifically approved at least annually by (i) the Trust's
Trustees or (ii) a vote of a "majority" (as defined in the 1940 Act) of the
Portfolio's outstanding voting securities, provided that in either event the
continuance also is approved by a majority of the Trust's Trustees who are not
"interested persons" (as defined in the 1940 Act) of any party to this
Subadvisory Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. Notwithstanding the foregoing, this
Subadvisory Agreement may be terminated: (a) at any time without penalty by the
Portfolio or the Adviser upon the vote of a majority of the Trustees or by vote
of a majority of the Portfolio's outstanding voting securities, upon sixty (60)
days written notice to the Subadviser, or (b) by the Subadviser without cause at
any time without penalty, upon sixty (60) days written notice to the Trust or
the Adviser. This Subadvisory Agreement will terminate automatically five
business days after the Subadviser receives written notice of the termination of
the Investment Advisory Agreement. This Subadvisory Agreement will also
terminate automatically in the event of its assignment (as defined in the 1940
Act).
9. AMENDMENTS. No provision of this Subadvisory Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by both parties, and no material amendment of this Subadvisory Agreement
shall be effective until approved by an affirmative vote of (i) a majority of
the outstanding voting securities of the Portfolio, and (ii) a majority of the
Trustees of the Trust, including a majority of Trustees who are not interested
persons of any party to this Subadvisory Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval is required
by applicable law.
10. INDEMNIFICATION. (a) The Adviser hereby agrees to indemnify the
Subadviser and its affiliates from and against all liabilities, losses,
expenses, reasonable attorneys' fees and costs (other than attorneys' fees and
costs in relation to the preparation of this Agreement; each party bearing
responsibility for its own such costs and fees) or damages (other than
liabilities, losses, expenses, attorneys fees and costs or damages arising from
the Subadviser failing to meet the standard of care required in Section 6 of
this Subadvisory Agreement in the performance by the Subadviser of, or its
failure to perform, the services required hereunder), arising from the Adviser's
(its affiliates and their respective agents and employees) failure to perform
its duties or assume its obligations hereunder, or from its wrongful actions or
omissions, including, but not limited to, any claims for non-payment of advisory
fees; claims asserted or threatened by any shareholder of the Portfolio,
governmental or regulatory agency, or any other person; claims arising from any
wrongful act by the Portfolio or any of the Portfolio's trustees, officers,
employees, or representatives, or by the Adviser, its officers, employees or
representatives, or from any actions by the Portfolio's distributors or any
representative of the Portfolio; any action or claim against the Subadviser
based on any alleged untrue statement or misstatement of material fact in any
registration statement, prospectus, shareholder report or other information or
<PAGE>
materials covering shares filed or made public by the Portfolio or any amendment
thereof or supplement thereto, or the failure or alleged failure to state
therein a material fact required to be stated in order that the statements
therein are not misleading, provided that such claim is not based upon
information provided to the Adviser by the Subadviser or approved by the
Subadviser in the manner provided in paragraph 12(b) of this Agreement, or which
facts or information the Subadviser failed to provide or disclose. With respect
to any claim for which the Subadviser shall be entitled to indemnity hereunder,
the Adviser shall assume the reasonable expenses and costs (including any
reasonable attorneys' fees and costs) of the Subadviser of investigating and/or
defending any claim asserted or threatened by any party, subject always to the
Adviser first receiving a written undertaking from the Subadviser to repay any
amounts paid on its behalf in the event and to the extent of any subsequent
determination that the Subadviser was not entitled to indemnification hereunder
in respect of such claim.
(b) The Subadviser hereby agrees to indemnify the Adviser, its
affiliates and the Portfolio from and against all liabilities, losses, expenses,
reasonable attorneys' fees and costs (other than attorneys' fees and costs in
relation to the preparation of this Agreement; each party bearing responsibility
for its own such costs and fees) or damages (other than liabilities, losses,
expenses, attorneys fees and costs or damages arising from the Adviser's failure
to perform its responsibilities hereunder or claims arising from its acts or
failure to act in performing this Agreement) arising from Subadviser's (its
affiliates and their respective agents and employees) willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of the
Subadviser's reckless disregard of its obligations and duties under this
Subadvisory Agreement, or arising from failure to act in any action or claim
against the Adviser based on any alleged untrue statement or misstatement of a
material fact made or provided by or with the consent of Subadviser contained in
any registration statement, prospectus, shareholder report or other information
or materials relating to the Portfolio and shares issued by the Portfolio, or
the failure or alleged failure to state a material fact therein required to be
stated in order that the statements therein are not misleading, which fact
should have been made or provided by the Subadviser to the Adviser. With respect
to any claim for which the Adviser is entitled to indemnity hereunder, the
Subadviser shall assume the reasonable expenses and costs (including any
reasonable attorneys' fees and costs) of the Adviser of investigating and/or
defending any claim asserted or threatened by any party, subject always to the
Subadviser first receiving a written undertaking from the Adviser to repay any
amounts paid on its behalf in the event and to the extent of any subsequent
determination that the Adviser was not entitled to indemnification hereunder in
respect of such claim.
(c) In the event that the Subadviser or Adviser is or becomes a party
to any action or proceedings in respect of which indemnification may be sought
hereunder, the party seeking indemnification shall promptly notify the other
party thereof. After becoming notified of the same, the party from whom
indemnification is sought shall be entitled to participate in any such action or
proceeding and shall assume any payment for the full defense thereof with
counsel reasonably satisfactory to the party seeking indemnification. After
properly assuming the defense thereof, the party from whom indemnification is
sought shall not be liable hereunder to the other party for any legal or other
expenses subsequently incurred by such party in connection with the defense
thereof, other than damages, if any, by way of judgment, settlement, or
otherwise pursuant to this provision. The party from whom indemnification is
<PAGE>
sought shall not be liable hereunder for any settlement of any action or claim
effected without its written consent, which consent shall not be unreasonably
withheld.
11. INDEPENDENT CONTRACTOR. Subadviser shall for all purposes of this
Agreement be deemed to be an independent contractor and, except as otherwise
expressly provided herein, shall have no authority to act for, bind or represent
the Portfolio in any way or otherwise be deemed to be an agent of the Portfolio.
Likewise, the Portfolio, the Adviser and their respective affiliates, agents and
employees shall not be deemed agents of the Subadviser and shall have not
authority to bind Subadviser.
12. USE OF NAME. (a) The Portfolio may, subject to sub-clause (b) below,
use the name, "J.P. Morgan Investment Management Inc." or "J.P. Morgan" for
promotional purposes only for so long as this Agreement (or any extension,
renewal or amendment thereof) continues in force, unless the Subadviser shall
specifically consent in writing to such continued use thereafter. Any permitted
use by the Portfolio during the term hereof of the name of the Subadviser or
J.P. Morgan shall in no way prevent the Subadviser or any of it shareholders or
any of their successors, from using or permitting the use of such name (whether
singly or in any combination with any other words) for, by or in connection with
an entity or enterprise other than the Portfolio. The name and right to the name
J.P. Morgan Investment Management Inc. or any derivation of the name J.P. Morgan
shall at all times be owned and be the sole and exclusive property of J.P.
Morgan and its affiliated entities. J.P. Morgan Investment Management Inc., by
entering into this Agreement, is allowing the Portfolio to use the name J.P.
Morgan Investment Management Inc. and/or J.P. Morgan solely by or on behalf of
the Portfolio. At the conclusion of this Agreement or in the event of any
termination of this Agreement or if the Subadviser's services are terminated for
any reason, each of the authorized parties and their respective employees,
representatives, affiliates, and associates agree that they shall immediately
cease using the name J.P. Morgan Investment Management Inc. and/or J.P. Morgan
of said name for any purpose whatsoever.
(b) The Adviser and its affiliates shall not publish or distribute,
and shall cause the Portfolio not to publish or distribute to Portfolio
shareholders, prospective investors, sales agents or members of the public any
disclosure document, offering literature (including any form of advertisement or
other solicitation materials calculated to lead investors to subscribe for and
purchase shares of the Fund) or other document referring by name to the
Subadviser or any of its affiliates, unless the Subadviser shall have consented
in writing to such references in the form and context in which they appear;
provided however, that where the Portfolio timely seeks to obtain approval of
disclosure contained in any documents required to be filed by the Portfolio, and
such approval is not forthcoming on or before the date on which such documents
are required by law to be filed, the Subadviser shall be deemed to have
consented to such disclosure.
13. MISCELLANEOUS.
(a) This Subadvisory Agreement shall be governed by the laws of the
State of New York, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
<PAGE>
thereunder. In the event of any litigation in which the Adviser and the
Subadviser are adverse parties and there are no other parties to such
litigation, such action shall be brought in the United States District Court for
the State of New York, located in New York, New York.
(b) The captions of this Subadvisory Agreement are included for
convenience only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
(c) This Agreement may be executed in one or more counterparts, all of
which taken together shall be deemed to constitute one and the same instrument.
14. NOTICES. Any notice, instruction or other instrument required or
permitted to be given hereunder may be delivered in person to the offices of the
parties as set forth therein during normal business hours, or delivered or sent
by prepaid registered mail, express mail or by facsimile to the parties at such
offices or such other address as may be notified by either party from time to
time. Such notice, instruction or other instrument shall be deemed to have been
served, in the case of a registered letter at the expiration of seventy-two (72)
hours after posting; in the case of express mail, within twenty-four (24) hours
after dispatch; and in the case of facsimile, immediately on dispatch, and if
delivered outside normal business hours it shall be deemed to have been received
at the next time after delivery or transmission when normal business hours
commence. Evidence that the notice, instruction or other instrument was properly
addressed, stamped and put into the post shall be conclusive evidence of
posting.
15. NON-SOLICITATION. Adviser, its affiliates and their respective agents
(including brokers engaged in marketing and selling shares of the Fund), and
each of their employees and affiliates agree not to knowingly solicit to invest,
or accept or retain as investors, in the Portfolio any persons or entities who
are clients of or investors in any portfolio or investment vehicle managed by
any entity owned or affiliated with J.P. Morgan Investment Management Inc.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of April 30, 1999.
Northstar Investment Management Corporation
By: /s/ MARK L. LIPSON
----------------------------------------
MARK L. LIPSON
Chairman and CEO
J.P. Morgan Investment Management Inc.
By: /s/ DIANE J. MINARDI
----------------------------------------
DIANE J. MINARDI
Vice President
PILGRIM VARIABLE PRODUCTS TRUST
INVESTMENT ADVISORY AGREEMENT
DATED APRIL 30, 2000
AGREEMENT, made on this 30th day of April 2000, by and between PILGRIM
VARIABLE PRODUCTS TRUST, a Massachusetts business trust, (the "Trust") and
PILGRIM INVESTMENTS, INC., a Delaware business corporation (the "Adviser").
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial interest in
separate series with each such series representing interests in a separate
portfolio of securities and assets; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is engaged in the business of
supplying investment advice, investment management and administrative services,
as an independent contractor; and
WHEREAS, the Trust desires to retain the Adviser to render investment
advisory services to the series of the Trust identified in Schedule A (the
"Fund"), and the Adviser is willing to render such investment advisory on the
terms set forth below.
NOW, THEREFORE, the parties agree as follows:
1. The Trust hereby appoints the Adviser to act as investment adviser to
the Trust and the Fund for the period and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to render the
services described, for the compensation provided, in this Agreement.
2. Subject to the supervision of the Trustees, the Adviser shall manage the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase and retention and disposition of portfolio securities, in
accordance with the Fund's investment objectives, policies and restrictions as
stated in the Trust's Prospectus and Statement of Additional Information (as
defined below) subject to the following understandings:
(a) The Adviser shall provide supervision of the Fund's investments and
determine from time to time what investments will be made, held or disposed of
or what securities will be purchased and retained, sold or loaned by the Fund,
and what portion of the assets will be invested or held uninvested as cash.
(b) The Adviser shall use its best judgment in the performance of its
duties under this Agreement.
<PAGE>
(c) The Adviser, in the performance of its duties and obligations under
this Agreement, shall (i) act in conformity with the Declaration of Trust,
By-Laws, Prospectus and Statement of Additional Information of the Trust, with
the instructions and directions of the Trustees and (ii) conform to and comply
with the requirements of the Investment Company Act and all other applicable
federal and state laws and regulations.
(d) (i) The Adviser shall determine the securities to be purchased or sold
by the Fund and will place orders pursuant to its determinations with or through
such persons, brokers or dealers to carry out the policy with respect to
brokerage as set forth in the Trust's Prospectus and Statement of Additional
Information or as the Trustees may direct from time to time. In providing the
Fund with investment supervision, the Adviser will give primary consideration to
securing the most favorable price and efficient execution. The Adviser may also
consider the financial responsibility, research and investment information and
other services and research related products provided by brokers or dealers who
may effect or be a party to any such transactions or other transactions to which
other clients of the Adviser may be a party. The Trust recognizes that the
services and research related products provided by such brokers may be useful to
the Adviser in connection with its services to other clients.
(ii) When the Adviser deems the purchase or sale of a security to be in the
best interest of the Fund as well as other clients, the Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transactions, will
be made by the Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such other clients.
(e) The Adviser shall maintain, or cause to be maintained, all books and
records required under the Investment Company Act to the extent not maintained
by the custodian of the Trust. The Adviser shall render to the Trustees such
periodic and special reports as the Trustees may reasonably request.
(f) The Adviser shall provide the Trust's custodian on each business day
information relating to all transactions concerning the Fund's assets.
(g) The investment management services of the Adviser to the Trust and to
the Fund under this Agreement are not to be deemed exclusive, and the Adviser
shall be free to render similar services to others.
3. The Trust has delivered to the Adviser copies of each of the following
documents and will deliver to it all future amendments and supplements, if any:
(a) Declaration of Trust, as amended, as filed with the Secretary of the
Commonwealth of Massachusetts (such Declaration of Trust, as in effect on the
date hereof and as further amended from time to time, are herein called the
"Declaration of Trust");
-2-
<PAGE>
(b) By-Laws of the Trust (such By-Laws, as in effect on the date hereof and
as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Trustees authorizing the appointment of
the Adviser and approving this Agreement on behalf of the Trust and the Fund;
(d) Registration Statement on Form N-lA under the Investment Company Act
and the Securities Act of 1933, as amended from time to time (the "Registration
Statement"), as filed with the Securities and Exchange Commission (the
"Commission"), relating to the Trust and shares of beneficial interest of the
Fund and all amendments thereto.
(e) Notification of Registration of the Trust under the Investment Company
Act on Form N-8A as filed with the Commission and all amendments thereto;
(f) Prospectus and Statement of Additional Information included in the
Registration Statement, as amended from time to time. All references to this
Agreement, the Prospectus and the Statement of Additional Information shall be
to such documents as most recently amended or supplemented and in effect.
4. The Adviser shall authorize and permit any of its directors, officers
and employees who may be elected as trustees or officers of the Trust and/or the
Fund to serve in the capacities in which they are elected. All services to be
furnished by the Adviser under this Agreement may be furnished through such
directors, officers or employees of the Adviser.
5. The Adviser agrees that all records which it maintains for the Trust
and/or the Fund are property of the Trust and/or the Fund. The Adviser will
surrender promptly to the Trust and/or the Fund any such records upon either the
Trust's or the Fund's request. The Adviser further agrees to preserve such
records for the periods prescribed in Rule 3la-2 of the Commission under the
Investment Company Act.
6. (i) In connection with the services rendered by the Adviser under this
Agreement, the Adviser will pay all of the following expenses:
(a) the salaries and expenses of all personnel of the Trust, the Fund and
the Adviser required to perform the services to be provided pursuant to this
Agreement, except the fees of the trustees who are not affiliated persons of the
Adviser, and
(b) all expenses incurred by the Adviser, the Trust or by the Fund in
connection with the performance of the Adviser's responsibilities hereunder,
other than brokers' commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions.
7. For the services provided and the expenses assumed pursuant to this
Agreement, the Fund will pay to the Adviser as compensation a fee accrued daily
and paid monthly at the annual rate of 0.75% of the aggregate average daily net
assets of the Fund.
-3-
<PAGE>
8. The Adviser may rely on information reasonably believed by it to be
accurate and reliable. Neither the Adviser nor its officers, directors,
employees or agents or controlling persons shall be liable for any error or
judgment or mistake of law, or for any loss suffered by the Trust and/or the
Fund in connection with or arising out of the matters to which this Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
9. This Agreement shall continue in effect for an initial period of two
years from the date of adoption and shall continue in effect thereafter for so
long as such continuance is specifically approved at least annually by the
affirmative vote of (i) a majority of the Trustees of the Trust, who are not
interested persons of the Trust, cast in person at a meeting called for the
purpose of voting on such approval, and (ii) a majority of the Trustees of the
Trust or the holders of a majority of the outstanding voting securities of the
Fund; provided however, that this Agreement may be terminated by the Trust, on
behalf of the Fund at any time, without the payment of any penalty, by the
Trustees acting on behalf of the Fund or by vote of a majority of the
outstanding voting securities (as defined in the Investment Company Act) of the
Fund, or by the Adviser at any time, without the payment of any penalty, on not
more than 60 days' nor less than 30 days' written notice to the other party.
This Agreement shall terminate automatically in the event of its assignment
provided that a transaction which does not, under the Investment Company Act,
result in a change of actual control or management of the Adviser's business
shall not be deemed to be an assignment for the purposes of this Agreement.
10. This agreement shall terminate automatically in the event of its
assignment; the term "assignment" for this purpose shall have the meaning
defined in Section 2(a)(4) of the Investment Company Act.
11. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Adviser who may also be a trustee, officer
or employee of the Trust to engage in any other business or to devote his time
and attention in part to the management or other aspect of any business, whether
of a similar or dissimilar nature, nor limit or restrict the right of the
Adviser to engage in any other business or to render services of any kind to any
other person or entity.
12. During the term of this Agreement, the Trust and the Fund agree to
furnish the Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature, or other material prepared for
distribution to shareholders of the Fund or the public, which refer in any way
to the Adviser, prior to use thereof and not to use such material if the Adviser
reasonably objects in writing within five business days (or such other time as
may be mutually agreed) after receipt. In the event of termination of the
Agreement, the Trust and/or the Fund will continue to furnish to the Adviser
such other information relating to the business affairs of the Trust and/or the
Fund as the Adviser at any time, or from time to time, reasonably requests in
order to discharge its obligations hereunder.
-4-
<PAGE>
13. This Agreement may be amended by mutual agreement, but only after
authorization of such amendments by the affirmative vote of (i) the holders of
the majority of the outstanding voting securities of the Fund and (ii) a
majority of the members of the Trustees who are not interested persons of the
Trust or the Adviser, cast in person at a meeting called for the purpose of
voting on such approval.
14. The Adviser, the Trust and the Fund each agree that the name "Pilgrim"
is proprietary to, and a property right of, the Adviser. The Trust and the Fund
agree and consent that (i) each will only use the name "Pilgrim" as part of its
name and for no other purpose, (ii) each will not purport to grant any third
party the right to use the name "Pilgrim" and (iii) upon the termination of this
Agreement, the Trust and the Fund shall, upon the request of the Adviser, cease
to use the name "Pilgrim," and shall use its best efforts to cause its officers,
trustees and shareholders to take any and all actions which the Adviser may
request to effect the foregoing.
15. Any notice or other communications required to be given pursuant to
this Agreement shall be deemed to be given if delivered or mailed by registered
mail, postage paid, (1) to the Adviser at 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004; or (2) to the Trust and/or the Fund at 40 North Central
Avenue, Suite 1200, Phoenix, Arizona 85004.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of Connecticut. The terms "interested person",
"assignment", and "vote of the majority of the outstanding securities" shall
have the meaning set forth in the Investment Company Act.
17. The Declaration of Trust, establishing the Trust, dated December 17,
1993, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Pilgrim Variable Products Trust" refers to the Trustees
under the Declaration collectively as trustees, but not individually or
personally; and no Trustee, shareholder, officer, employee or agent of the Trust
and/or the Fund may be held to any personal liability, nor may resort be had to
their private property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of the Trust, but the Trust property
only shall be liable.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year written
above.
PILGRIM VARIABLE PRODUCTS TRUST
By:
------------------------------------
PILGRIM INVESTMENTS, INC.
By:
------------------------------------
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<PAGE>
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN
PILGRIM VARIABLE PRODUCTS TRUST
AND
PILGRIM INVESTMENTS, INC.
FUNDS
Pilgrim VP MagnaCap Portfolio
Pilgrim VP Research Enhanced Index Portfolio
Pilgrim VP Growth Opportunities Portfolio
Pilgrim VP MidCap Opportunities Portfolio
Pilgrim VP Growth + Value Portfolio
Pilgrim VP SmallCap Opportunities Portfolio
Pilgrim VP International Value Portfolio
Pilgrim VP High Yield Bond Portfolio
DISTRIBUTION AGREEMENT
AGREEMENT made this ___ day of _________, by and between Pilgrim Variable
Products Trust (the "Trust") and Pilgrim Securities, Inc. ("Distributor"), a
Delaware Corporation.
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as a diversified open-end investment company and
offers its shares continuously to variable annuity contracts or variable life
insurance policies (the "Accounts") issued by ReliaStar Life Insurance Company,
Northern Life Insurance Company and ReliaStar Life Insurance Company of New
York, and its shares may be sold in the future to separate accounts of other
affiliated or unaffiliated insurance companies; and
WHEREAS, Distributor is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc.; and
WHEREAS, the Trust and the Distributor wish to enter into this Agreement
whereby the Distributor will act as the Trust's principal underwriter for the
sale of shares of the Portfolios comprising the Trust to the Accounts;
NOW, THEREFORE, the parties hereto agree as follows:
1. APPOINTMENT OF THE DISTRIBUTOR
The Trust hereby appoints the Distributor as the principal underwriter and
distributor of the Trust to sell shares of the Trust's Portfolios to the
Accounts, and the Distributor hereby accepts such appointment.
2. PURCHASE OF SHARES FROM THE TRUST
(a) The Trust herewith engages Distributor to act as exclusive distributor
of the shares of its separate series, and any other series which may be
designated from time to time hereafter ("Portfolios"), named and described on
the Schedule of Portfolios attached hereto and made a part of this Agreement by
reference. Said sales shall be made only to investors eligible to invest in a
registered investment company consistent with such company's serving as an
investment vehicle for variable annuities and variable life insurance company
contracts. Distributor will hold itself available to receive by mail, telex
and/or telephone, orders for the purchase of shares and will accept or reject
such orders on behalf of Trust in accordance with the provisions of Trust's
prospectus, and will be available to transmit such orders as are so accepted to
Trust's transfer agent as promptly as possible for processing at the shares' net
asset value next determined in accordance with the prospectus.
(b) All shares sold by Distributor under this Agreement shall be sold at
the net asset value per share ("Offering Price") determined in the manner
described in Trust's prospectus, as it may be amended from time to time.
<PAGE>
3. REDEMPTION OF SHARES BY THE TRUST
(a) Any of the outstanding shares of each Portfolio may be tendered for
redemption at any time, and the Trust agrees to redeem any such shares so
tendered in accordance with the applicable provisions of the Prospectus and
Trust's Declaration of Trust and By-Laws. The redemption price is the net asset
value per share next determined after the initial receipt of proper notice of
redemption.
(b) The right to redeem shares or to receive payment with respect to any
redemption may be suspended only in accordance with applicable law.
4. DUTIES OF THE TRUST
(a) The Trust shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor, may reasonably
request for use in connection with the distribution of the shares of the Trust.
(b) The Trust shall take, from time to time, subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized shares and to register shares under the Securities Act of 1933, as
amended (the "1933 Act"), in order that there will be available for sale at
least the number of shares as investors may reasonably be expected to purchase.
5. DUTIES OF THE DISTRIBUTOR
In selling the shares of the Trust, the Distributor shall use its best
efforts to conform with the requirements of all applicable federal and state
laws and regulations, and the regulations of the National Association of
Securities Dealers, Inc., relating to the sale of such securities. Except as
provided below, the Distributor is not authorized by the Trust to give any
information or make any representations, other than those contained in the
registration statement for the Trust and its shares, the Prospectus, and any
sales literature specifically approved a principal of the Distributor. The
Distributor shall furnish applicable federal and state regulatory authorities
with any information or reports in connection with its services under this
Agreement which such authorities may request in order to ascertain whether the
Trust's operations are being conducted in an manner consistent with any
applicable law or regulations. Nothing contained in this Agreement shall prevent
the Distributor from entering into distribution agreements with other investment
companies. The Distributor shall be without liability to the Trust for any
action taken or omitted by it in good faith without negligence.
6. ALLOCATION OF EXPENSES
(a) The Trust will pay the following expenses in connection with the sales
and distribution of shares of the Portfolios.
2
<PAGE>
(i) expenses pertaining to the preparation of our audited and
certified financial statements to be included in any amendments ("Amendments")
to the Trust's Registration Statement under the 1933 Act, including the
Prospectus and Statement of Additional Information included therein;
(ii) expenses pertaining to the preparation, printing, and
distribution of any reports or communications, including Prospectus and
Statement of Additional Information, which are sent to existing shareholders of
the Trust;
(iii) filing and other fees to federal and state securities regulatory
authorities necessary to register and maintain registration of the shares; and
(iv) expenses of the [Trust's administrator], including all costs and
expenses in connection with the issuance, transfer and registration of the
shares, including but not limited to any taxes and other governmental charges in
connection therewith.
(b) The Distributor will pay the following expenses:
(i) expenses of printing additional copies of the Prospectus and
Statement of Additional Information and any Amendments or supplements thereto
which are necessary to continue to offer shares of the Trust's Portfolios to the
public;
(ii) expenses pertaining to the printing of additional copies, for use
by the Distributor as sales literature, of reports or other communications which
have been prepared for distribution to existing shareholders of the Trust or
incurred by the Distributor in advertising, promoting and selling our shares to
the public.
7. RECORDS
All records maintained by the Distributor in connection with this Agreement
shall be the property of the Trust and shall be returned to the Trust upon
termination of this Agreement, free from any claims or retention of rights by
the Distributor. The Distributor shall keep confidential any information
obtained pursuant to this Agreement and shall disclose such information, only if
the Trust has authorized such disclosure, or if such disclosure is expressly
required by applicable federal or state regulatory authorities.
8. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective on the date first written above or on
such later date approved by the Company's Board of Trustees, including a
majority of those Trustees who are not parties to this Agreement or interested
persons (as such term is defined in the 1940 Act) thereof. Unless terminated as
provided herein, the Agreement shall continue in full force and effect for two
(2) years from the effective date of this Agreement, and shall continue in
effect from year to year thereafter for successive one (1) year periods if
approved at least annually (i) by a vote of a majority of the outstanding voting
securities of the Portfolios or by a vote of the Trustees of the Trust, and (ii)
3
<PAGE>
by a vote of a majority of the Trustees of the Trust who are not interested
persons or parties to this Agreement (other than as Trustees of the Trust), cast
in person at a meeting called for the purpose of voting on this Agreement.
This Agreement may be terminated at any time without penalty on at least
sixty days notice by the Trust's Board of Trustees or by a majority vote of its
shareholders, with respect to any Portfolio by a majority vote of the
shareholders of the capital stock of such Portfolio, or by Distributor on sixty
days notice.
This Agreement shall terminate automatically in the event of its
assignment.
9. MISCELLANEOUS
This Agreement shall be subject to the laws of the State of Massachusetts
and shall be interpreted and construed to further and promote the operation of
the Trust as an open-end investment company. As used herein, the terms "Net
Asset Value," "Investment Company," "Open-End Investment Company," "Assignment,"
"Principal Underwriter," "Interested Person," and "Majority of the Outstanding
Voting Securities," shall have the meanings set forth in the 1933 Act and the
1940 Act, as applicable, and the rules and regulations promulgated thereunder.
10. LIABILITY
Nothing contained herein shall be deemed to protect the Distributor against
any liability to the Trust or its shareholders to which the Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Distributor's duties hereunder, or by
reason of the Distributor's reckless disregard of its obligations and duties
hereunder.
PILGRIM VARIABLE PRODUCTS TRUST
By:
-------------------------------------
[Name]
[Title]
PILGRIM SECURITIES, INC.
By:
-------------------------------------
[Name]
[Title]
4
<PAGE>
SCHEDULE OF PORTFOLIOS
WITH RESPECT TO THE
DISTRIBUTION AGREEMENT
BETWEEN
PILGRIM VARIABLE PRODUCTS TRUST AND PILGRIM SECURITIES, INC.
Portfolios
- ----------
Pilgrim VP MagnaCap Portfolio
Pilgrim VP Research Enhanced Index Portfolio
Pilgrim VP Growth Opportunities Portfolio
Pilgrim VP MidCap Opportunities Portfolio
Pilgrim VP Growth + Value Portfolio
Pilgrim VP SmallCap Opportunities Portfolio
Pilgrim VP International Value Portfolio
Pilgrim VP High Yield Bond Portfolio
[LETTERHEAD OF DECHERT PRICE & RHOADS]
April 25, 2000
Northstar Galaxy Trust
40 North Central Avenue
Suite 1200
Phoenix, AZ 85004
Dear Ladies and Gentlemen:
This opinion is given in connection with the filing by Northstar Galaxy
Trust (to be renamed Pilgrim Variable Products Trust), a Massachusetts business
trust (the "Trust"), of Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A ("Registration Statement") under the Securities Act of
1933, as amended and Amendment No. 18 under the Investment Company Act of 1940,
as amended, relating to an indefinite amount of authorized shares of beneficial
interest of the separate series of the Trust -- the Pilgrim VP MagnaCap
Portfolio, Pilgrim VP Growth Opportunities Portfolio, and Pilgrim VP MidCap
Opportunities Portfolio (the "Portfolios"). The authorized shares of beneficial
interest of the Portfolios are hereinafter referred to as the "Shares."
We have examined the following Trust documents: the Declaration of Trust
and each amendment thereto; the By-Laws; Post-Effective Amendment No. 16 to the
Trust's Registration Statement on Form N-1A filed on April 11, 2000;
Post-Effective Amendment No. 15 to the Trust's Registration Statement on Form
N-1A filed on January 28, 2000; pertinent provisions of the laws of the
Commonwealth of Massachusetts; and such other corporate records, certificates,
documents and statutes that we have deemed relevant in order to render the
opinion expressed herein.
Based on such examination, we are of the opinion that:
1. The Trust is a Massachusetts business trust duly organized, validly
existing, and in good standing under the laws of the Commonwealth of
Massachusetts; and
<PAGE>
2. The Shares to be offered for sale by the Trust, when issued in the
manner contemplated by the Registration Statement, will be legally
issued, fully-paid and non-assessable by the Trust.
This letter expresses our opinion as to the Massachusetts business trust
law governing matters such as the due organization of the Trust and the
authorization and issuance of the Shares, but does not extend to the securities
or "Blue Sky" laws of the Commonwealth of Massachusetts or to federal securities
or other laws.
Very truly yours,
/s/ Dechert Price & Rhoads
[LETTERHEAD OF DECHERT PRICE & RHOADS]
April 26, 2000
Northstar Galaxy Trust
40 North Central Avenue
Suite 1200
Phoenix, AZ 85004
Re: Post-Effective Amendment No. 17 to Registration
Statement on Form N-1A for Northstar Galaxy Trust
File Nos. 33-73140 and 811-8220
Dear Sirs and Madams:
We hereby consent to the incorporation by reference to our opinion as an
exhibit to Post-Effective Amendment No. 17 to the Registration Statement of
Northstar Galaxy Trust (to be renamed Pilgrim Variable Products Trust) and to
all references to our firm therein. In giving such consent, however, we do not
admit that we are within the category of persons whose consent is required by
Section 7 of the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
Very truly yours,
/s/ Dechert Price & Rhoads
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 17 to the registration statement on Form N-1A ("Registration
Statement") (File Nos. 33-67852 and 811-7978) of our report dated February 15,
2000, relating to the financial statements and financial highlights which
appears in the December 31, 1999 Annual Reports to shareholders of Northstar
Galaxy Trust, respectively, which is also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights", "Independent Accountants" and "Financial
Statements" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
April 26, 2000
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
BRANDES INVESTMENT PARTNERS, L.P.
CODE OF ETHICS
APRIL 1, 1997
A. PREAMBLE.
This Code of Ethics is being adopted to effectuate the purposes and objectives
of Sections 204A and Section 206 of the Investment Advisers Act of 1940 ( the
"Advisers Act") and Rule 204-2 under the Advisers Act and Rule 17j-1 of the
Investment Company Act of 1940. Section 204A of the Advisers Act requires the
establishment and enforcement of policies and procedures reasonably designed to
prevent the misuse of material, nonpublic information by investment advisers.
Rule 204-2 imposes record keeping requirements with respect to personal
securities transactions of certain persons employed by investment advisers.
Section 206 of the Advisers Act makes it unlawful, among other things, for an
investment adviser "to employ any device, scheme or artifice to defraud any
client or prospective clients; to engage in any transaction, practice or course
of business which operates or would operate as a fraud or deceit upon any client
or prospective client; ...or to engage in any act, practice, or course of
business which is fraudulent, deceptive or manipulative."
Rule 17j-1 makes it unlawful for any employee of Brandes Investment Partners,
L.P., or its subsidiaries (all such entities hereafter referred to as "Brandes")
in connection with the purchase or sale, directly or indirectly, by such person
of a security held or to be acquired, as defined in this section, by such
registered investment company (1) to employ any device, scheme or artifice to
defraud such registered investment company; (2) to make to such registered
investment company any untrue statement of a material fact or omit to state to
such registered investment company a material fact necessary in order to make
the statements made, in light of the circumstances under which they are made,
not misleading; (3) to engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any such registered
investment company; or (4) to engage in any manipulative practice with respect
to such registered investment company.
For purposes of Rule 17j-1, "security held or to be acquired" by a registered
investment company means any security which, within the most recent 15 days, (i)
is or has been held by such company, or (ii) is being or has been considered by
such company or its investment adviser for purchase by such company.
Brandes owes its clients the highest duty of trust and fair dealing. A
fiduciary, Brandes places clients' interests ahead of its own and holds the
fundamental principle that Brandes personnel should not take inappropriate
advantage of their positions.
<PAGE>
Brandes has certain responsibilities to its clients. These include assuring that
accounts are managed in a suitable manner, providing regular communications
regarding the progress of accounts, providing accurate performance numbers and
refraining from certain practices. These practices include over-trading the
account, purchasing inappropriate issues for the account, making guarantees
about future performance, making unauthorized transactions and borrowing
clients' funds or securities. Brandes maintains trading authorization only and
does not have custody of clients' funds or securities.
Brandes recognizes that its own long-term interests lie in strict adherence to
ethical treatment of its clients, thereby maintaining its reputation for honest
and fair dealing. Employees are expected to act in accordance with this basic
tenet.
While many firms forbid their employees to make investments on behalf of their
own personal accounts, Brandes believes this is an unnecessarily punitive
measure. Brandes permits its employees to trade their own accounts when the
trades are done in such a manner as to avoid conflicts of interest with clients'
transactions. Brandes regularly monitors its employees' trading activity to
assure compliance with the firm's policy.
This Code contains provisions reasonably necessary to prevent persons from
engaging in acts in violation of the law and rules and to assure that Brandes'
clients' interests are considered first. This Code also establishes procedures
reasonably necessary to prevent violations of this Code.
Each shareholder, officer, partner and employee of the administrator for Brandes
Investment Trust (the "Fund"), Investment Company Administration Corporation
(the "Administrator"), is exempt from the reporting and other requirements of
this Code of Ethics, but is required to comply with the reporting and other
requirements of the Administrator's or the Fund's code of ethics, as applicable.
B. PERSONAL TRADES POLICY
DEFINITIONS.
1. Directed Trade.
A directed trade is one for a specific security which the employee must
initiate.
2. Employee-related account.
An "employee-related account" refers to an account for any of the following
persons:
2
<PAGE>
a. the employee;
b. the employee's spouse;
c. the employee's minor child or children;
d. any other relative of the employee or employee's spouse, sharing the
same home as the employee;
e. any other person whose account is managed, controlled or influenced by
or through the employee, or to whom the employee gives advice with
regard to the acquisition or disposition of securities, other than a
Brandes client; examples of such accounts are accounts where the
employee is acting as trustee, executor, pledgee, agent or in any
similar capacity;
f. any other account in which the employee has a beneficial ownership
interest; such beneficial interest (unless otherwise exempted) may
arise where an employee has a beneficial interest in securities under
a trust, will, partnership or other arrangement, or through a closely
held corporation or investment club.
3. Security.
"Security" shall have the meaning set forth in Section 202(a)(18) of the
Advisers Act.
C. PROHIBITED TRANSACTIONS.
1. No employee shall violate Section 206 of the Advisers Act or rule 17j-1 of
the Investment Company Act.
2. No Brandes employee shall receive during any calendar year any gift or
other consideration in merchandise, services or otherwise having a value of
more that $250 from any single person, firm, corporation, association or
other entity that does, or is seeking to do, business with or on behalf of
the Firm. Employees receiving gifts from such sources of over $50 during
any calendar year must report them promptly to the Compliance Department.
3. No employee shall give or offer to give anything of value to any person for
the purpose of influencing the price of any security.
4. No employee shall serve on a Board of Directors of any public company
without the prior approval of the majority of the voting members of the
Investment Committee.
3
<PAGE>
5. No employee shall purchase any securities in an initial public offering
unless a waiver has been granted by any two of the following: Charles H.
Brandes, Glenn R. Carlson, Jeffrey A. Busby. Any person authorized to
purchase securities in an initial public offering shall disclose that
investment when s/he plays a part in any subsequent consideration by
Brandes of an investment in the issuer of such securities.
6. No employee shall purchase any securities in a private placement without
prior written approval of any two of the following: Charles H. Brandes,
Glenn R. Carlson, Jeffrey A. Busby.
7. No employee-related account may sell a security purchased within the
previous 60 calendar days, except a security held for at least 30 days may
be sold at a loss. Trades made in violation of this prohibition should be
canceled to an error account, if possible.
8. No employee-related account shall purchase or sell any securities on the
"Watch List." The Watch List is comprised of securities Brandes is closely
observing and anticipating imminent action in on behalf of clients'
accounts.
D. EXEMPTED TRANSACTIONS.
1. The prohibitions of Sections C7 shall not apply to:
a. Sales of U.S. government securities; and
b. Withdrawals from open-end mutual funds, if the employee or
employee-related account owns less than 5% of the outstanding shares
of such fund;
2. The prohibitions of Sections C8 shall not apply to:
a. Purchases which are part of an automatic dividend reinvestment plan;
b. Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities and sales of such
rights so acquired; and
c. Any other purchases or sales as described at Section E, INFRA.
4
<PAGE>
E. THE WATCH LIST
THE WATCH LIST IS COMPRISED OF SECURITIES BRANDES IS CLOSELY OBSERVING AND
ANTICIPATING IMMINENT ACTION IN ON BEHALF OF CLIENTS' ACCOUNTS AND,
THEREFORE, SECURITIES IN WHICH EMPLOYEES ARE GENERALLY PROHIBITED FROM
TRADING.
I. CONSTRUCTION PROCEDURES
1. Investment Committee designates a Watch List control person charged
with creating the weekly Watch List ("Control Person").
2. On each business day immediately preceding the regular weekly
Investment Committee meeting, the Control Person circulates the
previous week's Watch List to all members of the Portfolio Management
Department asking them each to (a) add the name of each and every
security for which such person is preparing a formal recommendation(1)
where it is expected that such recommendation will be presented for
Investment Committee consideration within the next two weeks; and (b)
delete from the Watch List any and all securities of which such person
is aware that its consideration for investment purposes has been
indefinitely suspended(2) or terminated for any reason whatsoever.
Members of the Portfolio Management Department will have their
responses sent back to the Control Person prior to the Investment
Committee meeting. The Control Person revises the Watch List
accordingly.
3. On each business day immediately preceding the regular weekly
Investment Committee meeting, the Control Person circulates the
previous week's Watch List to a representative of the Trading
Department asking him to (a) delete from the Watch List any and all
securities in which system-wide trading has been completed for
clients' accounts as directed by the Investment Committee; (b) add to
the Watch List those securities which are the subject of any current
and open firm-wide re-balancing or other activity in clients'
- ----------
(1) The term "formal recommendation" here is shorthand to mean those activities
engaged in by the PM department that are necessary and proximate to
presenting a security for the Investment Committee's consideration. At this
point in the process we should strive to identify and isolate only those
securities which WILL or ARE SCHEDULED TO be brought to the Investment
Committee's attention for definite action within the next two weeks.
Securities that are scheduled to be merely reviewed by or discussed with
the Investment Committee but are not in a price range which a member of the
PM staff believes would result in any action by the Investment Committee
need not be included on the Watch List.
(2) Indefinitely suspended, at a minimum, should refer to the case where any
definitive decision regarding the purchase or sale of a security is
unlikely to occur for more than a two-week period.
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accounts(3); and (c) delete from the Watch List any securities which
were the subject of any firm-wide re-balancing or other activity in
clients' accounts and in which trading has been completed with respect
to such securities in such accounts over the past week. The
representative of the Trading department will have his/her response
sent back to the Control Person prior to the Investment Committee
meeting. The Control Person revises the Watch List accordingly.
4. At the conclusion of the Investment Committee meeting, the Control
Person shall delete from the Watch List any and all securities which
were presented to the Investment Committee in the form of a
recommendation for purchase or sale on behalf of clients' accounts and
with respect to which a final decision not to purchase or sell,
respectively, was made by the Investment Committee. Presumably, the
Control Person will not need to add to the Watch List any of the
securities which the Investment Committee voted to purchase or sell on
behalf of clients' accounts since these securities have been on the
Watch List for at least two weeks at this point. All securities
selected by the Investment Committee for purchase or sale activity at
the Tuesday meeting will be placed on the Watch List and will remain
on the Watch List until the Trading Department has indicated that
trading in such securities has been completed for clients' accounts.
5. On the business day immediately following the Investment Committee's
meeting, the Control Person updates the Watch List according to the
foregoing and circulates it to appropriate employees of the firm.
II. SPECIAL SITUATIONS
1. At any time it is concluded (outside of a regularly scheduled
Investment Committee meeting) that Brandes will engage in transactions
in a particular security for client accounts, a voting member of the
Investment Committee will instruct the Control Person to add such
security to the Watch List. Such security will remain on the Watch
List until the Trading Department has indicated that trading in such
security has been completed for clients' accounts.
2. Blanket Prohibitions: In the interest of facilitating the
"pre-clearance" of employee trading as required herein, any blanket
prohibition regarding certain categories or types of securities in
which employees are prohibited from effectuating any personal
transactions should contain a level of specificity that minimizes
- ----------
(3) "Other activity in clients' accounts" should not be interpreted to mean
purchase or sale activity in connection with account opening transactions
on behalf of new wrap or non-institutional separate account clients to the
firm. The focus here should be on identifying securities in which purchase
or sale activity was or will be conducted for clients across the board in
any given investment product offered by Brandes. Securities to be purchased
in connection with account opening activities for institutional clients
should be on the Watch List in advance of such transactions given the
potential impact that such trading could have on the market for those
securities.
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interpretive variance among those charged with approving employee
trades. The Investment Committee, the Trading Department and the Legal
Department should arrive at a clear and exact understanding regarding
the terms of the application of any blanket prohibition prior to the
effectiveness of such prohibition.
F. COMPLIANCE PROCEDURES.
1. PRE-CLEARANCE FOR 24 HOURS ONLY.
All employee-related accounts shall receive prior written approval from the
Trading Strategist or the Compliance Officer before purchasing or selling
any securities except U.S. government securities; shares of registered
open-end mutual funds; securities in employee-related accounts managed by,
and maintained by the firm; securities itemized at Section D2 (a) and (b).
In the absence of these individuals, or if they are the persons requesting
approval, the Trading Strategist's designate or a Managing Partner may give
the approval. Such approval shall be for a 24-hour period only. If an
employee-related account is unable to complete the approved transaction
within a 24-hour period, the employee-related account must receive another
approval from the individuals named above before purchasing or selling
securities. If an employee places a "limit order" on the transaction and
the order is not completed during the day on which the approval is given,
the remaining order must be re-approved by either the Trading Strategist or
by the Legal/Compliance Department.
When requesting approval of a transaction for an employee-related account,
the employee shall disclose to the person to whom s/he is requesting
approval of any conflict of interest of which the employee is aware
concerning the proposed transaction, such as the existence of any economic
relationship between the transaction which is the subject of the
pre-clearance request and securities held or to be acquired by any Brandes
client including any mutual fund portfolio managed by Brandes.
Certain employee-related accounts may be released from the obligation to
pre-clear and report personal trades. This exemption will apply to
employee-related accounts where total investment discretion is with a
non-employee third-party where such third-party does not confer with the
employee regarding trades in such account. This exemption must be obtained
in writing from the Compliance Department.
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2. DISCLOSURE OF PERSONAL HOLDINGS AND EMPLOYEE REPORTING REQUIREMENTS.
a. Upon employment at Brandes, employees are required to disclose interests
in any corporation of which they are an officer or director or which they,
or a family member, hold 5% or more of the outstanding stock. They are also
required to disclose any outside business ventures.
b. Each employee shall arrange to have duplicate confirms or statements
forwarded to the Compliance Manager for each employee-related brokerage
account.
c. Each employee shall complete a Personal Securities Transaction Quarterly
Report for each calendar quarter even if the employee does not have any
personal securities transactions to report and submit the Report to the
Compliance Department no later than 10 days after the end of each calendar
quarter.
d. Quarterly, the Compliance Officer will review employee-related
transactions, the Personal Securities Transaction Quarterly Reports from
each employee, and report the findings to the Chief Compliance Officer.
e. If an employee-related account of a person attending an Investment
Committee meeting or if a member of the Investment Committee holds a
security, or a security economically related thereto, being considered for
purchase or sale by Brandes client accounts, such person shall disclose to
the Investment Committee his holdings of the security at the first occasion
upon which the employee becomes aware that Brandes is considering the
security for purchase for its clients including any mutual fund portfolio
managed by Brandes.
3. ANNUAL CERTIFICATION OF COMPLIANCE.
Each employee shall certify annually that: (a) s/he has read and
understands the Code of Ethics and recognizes s/he is subject thereto; (b)
s/he has complied with the requirements of the Code of Ethics; (c) s/he has
reported all personal securities transactions required to be reported
pursuant to the requirements of the Code of Ethics; and (d) other than as
disclosed on the annual certification, s/he has no knowledge of the
existence of any personal conflict of interest which may involve Brandes
clients, such as any economic relationship between his/her transactions and
securities held or to be acquired by Brandes clients including any mutual
fund portfolio managed by Brandes.
G. REPORTS.
1. The Compliance Department shall submit an annual report on compliance with
the Code of Ethics to Brandes' Managing Partners.
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2. The Compliance Department shall submit a quarterly report on compliance
with the Code of Ethics to the General Council and Chief Compliance
Officer.
3. The Compliance Department or anyone who becomes aware of an apparent
violation of the Code of Ethics shall promptly report such apparent
violation to the Chief Compliance Officer.
4. The Chief Compliance Officer shall review each report of an apparent
violation and make a written determination of whether the apparent
violation could reasonably be found to have resulted in a fraud, deceit or
manipulative practice in violation of Section 206 of the Advisers Act or
Rule 17j-1 of the Investment Company Act. The written determination shall
include the Chief Compliance Officer's reasons for his decision. If the
Chief Compliance Officer finds a violation, he shall report such violation
to Brandes' Managing Partners.
5. Brandes' Managing Partners shall review the report of a violation from the
Chief Compliance Officer and determine what sanctions, if any, should be
imposed.
H. SANCTIONS.
The sanctions for violation of the Code of Ethics may include a letter of
censure, temporary suspension of employment, termination of employment,
disgorgement of any ill-gotten profits, and/or any other sanction deemed
appropriate by Brandes' Managing Partners.
I. RETENTION OF RECORDS.
This Code of Ethics, a copy of each report made by an employee hereunder,
each report made by the Compliance Department, each determination by the
Chief Compliance Officer and any action taken as a result of a violation,
shall be maintained by Brandes.
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I. POLICY STATEMENT ON INSIDER TRADING.
Every officer, partner and employee is responsible for knowing and abiding by
the terms of this policy statement.
Brandes Investment Partners, L.P., forbids any trading on behalf of
employee-related accounts (see the personal Trades Policy for a definition) or
clients accounts (such as mutual funds and private accounts managed by Brandes)
on material nonpublic information, or communicating material nonpublic
information to others in violation of the law. This conduct is referred to as
"insider trading." Brandes' policy applies to every officer, partner and
employee and extends to activities within as well as outside of their duties at
Brandes. Any questions regarding Brandes' policy and procedure should be
referred to General Counsel.
The term "insider trading" is not defined in the federal securities laws, but
generally is used to refer to the use of material nonpublic information to trade
in securities (whether or not one is an "insider") or the communication of such
material nonpublic information to others. Although United States law governs
insider trading, this law applies to information about foreign companies as well
as domestic companies. Thus, if an employee receives nonpublic material
information about a foreign company, the employee is prohibited from trading for
accounts based on that information and from communicating such information to
others.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
1. trading by an insider, while in possession of material nonpublic
information;
2. trading by a non-insider, while in possession of material nonpublic
information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential
or was misappropriated;
3. communicating material nonpublic information to others;
The elements of insider trading and the penalties for such unlawful conduct are
discussed below.
WHO IS AN "INSIDER"?
The concept of "insider" is broad. It includes officers, directors and employees
of a company. In addition, a person can be a "temporary insider" if he or she
enters into a special confidential relationship in the conduct of a company's
affairs and as a result is given access to information solely for the company's
purposes. A temporary insider can include, among others, a company's attorney,
accountants, consultants, bank lending officers and the employees of such
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<PAGE>
organizations. In addition, Brandes may become a temporary insider of a company
it advises or for which it performs other services. According to the Supreme
Court, the company must expect the outsider to keep the disclosed nonpublic
information confidential and the relationship must at least imply such a duty
before the outsider will be considered an insider.
WHAT IS "MATERIAL INFORMATION"?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" is defined generally as
information which a reasonable investor would consider substantially important
in making his or her investment decisions, or information that is reasonably
certain to have a substantial effect on the price of a company's securities.
Information that officers, directors and employees should consider material
includes, but is not limited to: dividend changes, earnings estimates, changes
in previously released estimates, significant merger or acquisition proposals or
agreements, major litigation, liquidation problems and extraordinary management
developments.
Material information does not have to relate to a company's business. For
example, not yet released news items which might have a significant effect on
prices have been found to be material information.
No simple "bright line" test exists to determine when information is material;
assessments of materiality involve a highly fact-specific inquiry. For this
reason, you should direct any questions about whether information is material to
the General Counsel, or his designated representative, in the legal department.
WHAT IS "NONPUBLIC INFORMATION"?
Information is nonpublic until it has been effectively communicated to the
market place. One must be able to point to some fact to show that the
information is generally public. For example, information found in a report
filed with the SEC, or appearing in Dow Jones, Reuters Economic Services, The
Wall Street Journal, or other publications of general circulation would be
considered public.
BASES FOR LIABILITY
FIDUCIARY DUTY
In 1980, the Supreme Court found that there is no general duty to disclose
before trading on material nonpublic information, but that such a duty arises
only where there is a fiduciary relationship. That is, there must be a
relationship between the parties to the transaction such that one party has a
right to expect that the other party will disclose any material nonpublic
information or refrain from trading. Non-insiders can acquire the fiduciary
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duties of insiders by entering into a confidential relationship with the company
through which they gain information (e.g. attorneys, accountants), or they can
acquire a fiduciary duty to the company's shareholders as "tippees" if they are
aware or should have been aware that they have been given confidential
information by an insider who has violated his fiduciary duty to the company's
shareholders.
However, in the "tippee" situation, a breach of duty occurs only if the insider
personally benefits, directly or indirectly, from the disclosure. The benefit
does not have to be pecuniary, but can be a gift, reputational benefit that will
translate into future earnings or even evidence of a relationship that suggests
a quid pro quo.
MISAPPROPRIATION
Another basis for insider trading liability is trading which occurs on material
nonpublic information that was stolen or misappropriated from any other person.
It should be noted that "misappropriation" can be used to include a variety of
individuals not previously thought to be encompassed under the fiduciary duty.
PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material nonpublic information are
severe, both for individuals involved in such unlawful conduct and their
employers. A person can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation. Penalties include:
* civil injunctions
* treble damages
* disgorgement of profits
* jail sentences
* fines for the person who committed the violation of up to three times
the profit gained or losses avoided, whether or not the person
actually benefited;
* fines for the employer or other controlling person of $1,000,000 or
three times the amount of the profit gained or loss avoided, whichever
is greater.
In addition, any violation of this policy statement can be expected to result in
serious sanctions by Brandes, including termination.
IDENTIFYING INSIDE INFORMATION
Before recommending or executing any trade for yourself or others, including
client accounts, you must determine whether you have access to material
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nonpublic information. If you think that you might have access to material
nonpublic information, you should take the following steps:
a. Report the information and proposed trade immediately to the General
Counsel, or his designate.
b. Do not purchase or sell the securities on behalf of yourself or
others, including employee-related accounts and client accounts.
c. Do not communicate the information inside or outside Brandes, other
than to Brandes' attorneys.
d. After the General Counsel, or his designate, has reviewed the issue,
the firm will determine whether the information is material and
nonpublic and, if so, what action the firm should take.
You should consult with General Counsel, or his designate, or Brandes' outside
counsel before taking any action.
CONTACTS WITH PUBLIC COMPANIES
Contacts with public companies represent an important part of Brandes' research
efforts. Brandes may make investment decisions on the basis of the firm's
conclusions formed through such contacts and analysis of publicly available
information. Difficult legal issues arise, however, when, in the course of these
contacts, a Brandes employee becomes aware of material nonpublic information.
This could happen, for example, if a company's Chief Financial Officer
prematurely discloses quarterly results to an analyst or an investor relations
representative makes a selective disclosure of adverse news to a handful of
investors. In such situations, Brandes must make a judgment as to its further
conduct. To protect yourself, your clients and Brandes, you should contact
immediately General Counsel, or his designate, if you believe that you may have
received material nonpublic information.
TENDER OFFERS
Tender offers represent a particular concern in the law of insider trading for
two reasons. First, tender offer activity often produces extraordinary gyrations
in the price of the target company's securities. Trading during this time period
is more likely to attract regulatory attention (and produces a disproportionate
percentage of insider trading cases). Second, the SEC has adopted a rule which
expressly forbids trading and "tipping" while in possession of material
nonpublic information regarding a tender offer received from the tender offerer,
the target company or anyone acting on behalf of either. Brandes employees
should exercise particular caution any time they become aware of nonpublic
information relating to a tender offer.
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SUPERVISORY PROCEDURES
The role of General Counsel is critical to the implementation and maintenance of
Brandes' policy and procedures against insider trading. Supervisory procedures
can be divided into two classifications - prevention of insider trading and
detection of insider trading.
PREVENTION OF INSIDER TRADING
To prevent insider trading, General Counsel should:
1. provide, on a regular basis, an educational program to familiarize
officers, partners and employees with Brandes' policy and procedures;
2. answer questions regarding Brandes' policy and procedures;
3. resolve issues of whether information received by an officer, partner or
employee of Brandes is material and nonpublic;
4. regularly review and update Brandes' policy and procedures;
5. implement measures to prevent dissemination of material nonpublic
information, or restrict trading of the securities involved, when it has
been determined that an officer, partner or employee of Brandes has
material nonpublic information;
6. provide that all employees obtain approval from the trading department at
Brandes prior to trades as described in the Code of Ethics. This is an area
of great concern to the SEC and Brandes.
SPECIAL REPORTS TO COUNSEL
Promptly upon learning of a potential violation of this policy statement,
General Counsel should prepare a written report to Brandes' outside counsel
providing full details, which may include:
1. the name of particular securities involved, if any;
2. the date General Counsel learned of the potential violation and began
investigating;
3. the accounts and individuals involved;
4. actions taken as a result of the investigation, if any; and
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5. recommendations for further action;
DETECTION OF INSIDER TRADING
To detect insider trading General Counsel should:
1. review the trading activity reports filed by each officer, partner and
employee;
2. review the trading activity of accounts managed by Brandes
3. review trading activity of Brandes' own account;
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BRANDES INVESTMENT PARTNERS, L.P.
ANNUAL CERTIFICATION FORM
CODE OF ETHICS
To the Compliance Department of Brandes Investment Partners, L.P., I hereby
certify that:
1. I have read and understand the Code of Ethics and recognize that I am
subject thereto;
2. I have complied with the requirements of the Code of Ethics;
3. I have reported all personal securities transactions required to be
reported pursuant to the requirements of the Code of Ethics;
4. Except as noted on disclosure document, I have no knowledge of the
existence of any personal conflict of interest relationship which may
involve Brandes clients, such as any economic relationship between my
transactions and securities held or to be acquired by Brandes clients
including the Brandes Investment Trust.
Date: _________________ Signature: _________________________
Printed Name: ______________________
Title: _____________________________
FOR COMPLIANCE USE ONLY
Date Initials
CM
Review
Input
Data
Employee
Record
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DISCLOSURE OF HOLDINGS
(This section to be filled out by members of Investment Committee [all pms,
apms, rms, managing partners and institutional group, or personnel with
subsidiaries filling comparable positions], all Trading and Compliance
personnel.)
Date: _______________________________
Name: _______________________________
If all of your securities holdings are directed by Brandes, please so note and
disregard the remainder of the form. Otherwise, please disclose all securities
holdings, whether public or private.
Name of brokerage account(s) and account number(s):
Where account is custodied:
List any securities privately held:
All employees filling out this disclosure are reminded that copies of all
brokerage statements generated on the accounts listed above must be forwarded to
Compliance. If you would like to set up an automatic interested party mailing,
please contact compliance personnel for information.
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QUESTIONNAIRE
(This form is to be completed by all employees.)
Date: ____________________________
Name: ____________________________
1. List any corporation, public or private, for profit or not for profit, of
which you, or a member of your immediate family, are an officer or director
or hold 5% or more of its outstanding stock. Briefly describe the business.
2. List any partnership of which you are either a general or limited partner
and briefly describe for each its business activities and your status as a
general or limited partner.
3. List any joint venture or any other businesses in which you participate,
other than your employment with Brandes.
4. List any trustee or executor relationships you have, other than those
pertaining to your immediate family.
5. List any investment clubs of which you are a member.
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TOPICS REQUIRING REGISTRATION
(This form is to be completed by all employees.)
The following topics may require registration before they can be discussed. They
should be avoided by unlicensed personnel.
Performance
Specific Stocks or Bonds
Buying/Selling
Outlook
Markets (Foreign or US)
Fees (our own or broker's)
Account Size
Related Accounts, (how we trade, process, etc.) Management Style Any
Recent Publications Any discussion about other clients, accounts, etc.
Printed information may be forwarded about these topics by unregistered
personnel in response to unsolicited requests, but other reports and in-depth
conversations or explanations may be provided only by registered persons.
If these topics come up in a conversation and you are not licensed, DO NOT
attempt to address them even if you think you know the answer, but pass person
to a licensed employee - all Portfolio Managers, Associate Portfolio Mangers,
Managing Directors, Regional Managers and the Institutional Group are licensed.
Violations to this policy may result in disciplinary action.
I have read and understand the above policy.
- ---------------------------------------- ----------------------
Signature Date
- ---------------------------------------
Printed Name
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GIFT REPORTING
This form is required for all employees who receive any gift as explained in the
Code of Ethics of $50 or more.
Date: ______________________
Name: ______________________
Description of Gift (date, outside party(ies) involved, approx. value):
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BRANDES INVESTMENT PARTNERS, L.P.
AMENDMENT TO CODE OF ETHICS (DATED APRIL 1, 1997)
EFFECTIVE MARCH 1, 2000
The Code of Ethics for Brandes Investment Partners, L.P. and affiliates, dated
April 1, 1997, is amended hereby to include the following substantive provisions
effective March 1, 2000.
I. POLICY ON PARTICIPATION OF EMPLOYEE-RELATED ACCOUNTS IN INITIAL PUBLIC
OFFERINGS, HOT IPOS AND PRIVATE PLACEMENTS
INITIAL PUBLIC OFFERINGS ("IPO") AND HOT IPOS.
No Employee-Related Account may purchase any securities in an IPO or Hot
IPO; provided, however, an Employee-Related Account may, upon the prior
written approval of Brandes, 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 Employee-Related Account owns a life insurance policy;
(ii) an IPO of a spin-off company where the Employee-Related Account owns
stock in the company that spins off the issuer;
(iii) an IPO of a company in which the Employee-Related Account owns stock
in the company and the stock was acquired through participation in a
private placement previously approved by Brandes; and
(iv) an IPO of the employer of the holder of the Employee-Related
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.
PRIVATE PLACEMENTS
No Employee-Related Account may purchase any securities in a private
placement except upon the PRIOR written approval of Brandes.
<PAGE>
PROCEDURES FOR OBTAINING PRIOR WRITTEN APPROVAL OF THE FIRM WITH RESPECT TO IPOS
AND PRIVATE PLACEMENTS
With respect to the participation in private placements or the permissible
IPOs listed above, an Employee-Related Account may obtain "the prior
written approval of Brandes" by first submitting a written request for
approval to the Legal/Compliance Department using the REQUEST TO
PARTICIPATE IN AN IPO/PRIVATE PLACEMENT IN AN EMPLOYEE-RELATED ACCOUNT Form
(attached hereto). The Legal/Compliance Department shall review the
proposed transaction to determine whether the proposed transaction would
create any material conflicts of interests. If the Legal/Compliance
Department determines that the proposed transaction would create no
material conflicts of interests, the Legal/Compliance Department shall then
seek written approval for the transaction from two managing partners. Such
written approval shall include written justification for the decision of
the managing partners approving the transaction.
Any person authorized to purchase securities in an IPO or private placement
shall disclose that investment when s/he plays a part in any subsequent
consideration by Brandes of an investment in the issuer of such securities.
II. INFORMATION REQUIRED IN QUARTERLY EMPLOYEE TRANSACTION REPORT
Each quarterly transaction report filed for the calendar quarter ending March
31, 2000 (due April 10, 2000), and for subsequent quarters must now include all
information required under amended rule 17j-1(d)(1)(ii).1 Quarterly Employee
Transaction Reports shall be filed with the Legal/Compliance Department no later
than 10 days after the end of a calendar quarter and must contain the following
information:
(A) With respect to any transaction during the quarter in a Security
reportable under the Code in which the employee or Employee Related
Person (as defined below) had any direct or indirect beneficial
ownership:
(1) The date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of each Security involved;
(2) The nature of the transaction (I.E., purchase, sale or any other
type of acquisition or disposition);
- ----------
(1) The additional information required under this amendment is: (i) the date
that the quarterly transaction report is filed; (ii) the name of any
Employee Related Account established by an employee or Employee Related
Person during that quarter; and (iii) the date the account was established.
See, amended rule 17j-1(d)(1)(ii)(A)(5) and (B).
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(3) The price of the Security at which the transaction was effected;
(4) The name of the broker, dealer or bank with or through which the
transaction was effected; and
(5) The date that the report is submitted by the employee.
(B) With respect to any Employee Related Account established by the
employee or Employee Related Person in which any Securities were held
during the quarter for the direct or indirect benefit of the employee
or Employee Related Person:
(1) The name of the broker, dealer or bank with whom the employee or
Employee Related Person established the account;
(2) The date the account was established; and
(3) The date that the report is submitted by the employee.
Note that employees need not file a quarterly transaction report if the
information would duplicate information that Brandes has received in a broker's
confirmation or account statement. See, amended rule 17j-1(d)(2)(v). Amended
Quarterly Employee Transaction Reports will be distributed for subsequent
reporting usage by March 31, 2000.
An Employee Related Person is any non-employee who has an Employee Related
Account as defined in the Code to which the Code's pre-clearance and reporting
procedures with respect to Securities transactions therein applies.
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REQUEST TO PARTICIPATE IN AN IPO/PRIVATE PLACEMENT IN AN EMPLOYEE-RELATED
ACCOUNT*
Date: ___________________________
I, _______________________________, intend to subscribe in an initial public
NAME OF EMPLOYEE
offering/Private Placement of the security referenced below for
______________________________- _______________ account. I will execute the
NAME ON ACCOUNT ACCOUNT #
transaction only upon receiving prior approval of the intended activity.
Security:__________________________________
APPROVED [ ] DENIED [ ]
Reviewed by: _______________________________ Date:_________________________
Legal/Compliance Department
Reviewed by:________________________________ Date:_________________________
MANAGING PARTNER
Reviewed by:________________________________ Date:_________________________
MANAGING PARTNER
Justification for Approval:
* Please attach prospectus or offering memorandum if available.
REMINDER: No Employee Related Account may sell a security purchased within the
previous 60 calendar days, except a security held for at least 30 days may be
sold at a loss.
LEGAL/COMPLIANCE DEPARTMENT - ORIGINAL COPY
EMPLOYEE - RETAIN COPY FOR PERSONAL RECORDS
4
CODE OF ETHICS
1. PURPOSES
This Code of Ethics (the "Code") has been adopted by the Directors of J.P.
Morgan Investment Management Inc. (the "Adviser"), in accordance with Rule
17j-1(c) promulgated under the Investment Company Act of 1940, as amended (the
"Act"). Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to purchases or sales of securities Held or to be
Acquired (defined in Section 2(k) of this Code) by investment companies, if
effected by associated persons of such companies. The purpose of this Code is to
adopt provisions reasonably necessary to prevent Access Persons from engaging in
any unlawful conduct as set forth in Rule 17j-1(b) as follows:
It is unlawful for any affiliated person of or principal underwriter for a
Fund, or any affiliated person of an investment adviser of or principal
underwriter for a Fund, in connection with the purchase or sale, directly or
indirectly, by the person of a Security Held or to be Acquired by the Fund:
(a) To employ any device, scheme or artifice to defraud the Fund;
(b) To make any untrue statement of a material fact to the Fund or
omit to state a material fact necessary in order to make the statements made to
the Fund, in light of the circumstances under which they are made, not
misleading;
(c) To engage in any act, practice, or course of business that
operates or would operate as a fraud or deceit on the Fund; or
(d) To engage in any manipulative practice with respect to the Fund.
2. DEFINITIONS
(a) "Access Person" means any director, officer, general partner or
Advisory Person of the Adviser.
(b) "Administrator" means Morgan Guaranty Trust Company.
(c) "Advisory Person" means (i) any employee of the Adviser or the
Administrator (or any company in a control relationship to the Adviser) who, in
connection with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of securities for a Fund,
or whose functions relate to the making of any recommendations with respect to
such purchases or sales; and (ii) any natural person in a control relationship
to the Adviser who obtains information concerning recommendations regarding the
purchase or sale of securities by a Fund.
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(d) "Beneficial ownership" shall be interpreted in the same manner as
it would be under Exchange Act Rule 16a-1(a)(2)in determining whether a person
is subject to the provisions of Section 16 of the Securities Exchange Act of
1934 and the rules and regulations thereunder.
(e) "Control" has the same meaning as in Section 2(a)(9) of the Act.
(f) "Covered Security" shall have the meaning set forth in Section
2(a)(36) of the Act, except that it shall not include shares of open-end funds,
direct obligations of the United States Government, bankers' acceptances, bank
certificates of deposit, commercial paper and high quality short-term debt
instruments, including repurchase agreements.
(g) "Fund" means an Investment Company registered under the Investment
Company Act of 1940.
(h)"Initial Public Offering" means an offering of Securities
registered under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements of
Sections 13 or 15(d) of the Securities Exchange Act.
(i)"Limited Offering" means an offering that is exempt from
registration under the Securities Act pursuant to Section 4(2) or Section 4(6)
or pursuant to Rule 504, Rule 505, or Rule 506 under the Securities Act.
(j)"Purchase or sale of a Covered Security" includes, among other
things, the writing of an option to purchase or sell a Covered Security.
(k)"Security Held or to be Acquired" by a Adviser means: (i) any
Covered Security which, within the most recent 15 days, is or has been held by a
Fund or other client of the Adviser or is being or has been considered by the
Adviser for purchase by a Fund or other client of the Adviser; and (ii) any
option to purchase or sell, and any security convertible into or exchangeable
for, a Covered Security described in Section 2(k)(i) of this Code.
3. STATEMENT OF PRINCIPLES
It is understood that the following general fiduciary principles govern the
personal investment activities of Access Persons:
(a)the duty to at all times place the interests of shareholders and
other clients of the Adviser first;
(b)the requirement that all personal securities transactions be
conducted consistent with this Code of Ethics and in such a manner as to avoid
any actual or potential conflict of interest or any abuse of an individual's
position of trust and responsibility;
(c)the fundamental standard that Investment Personnel may not take
inappropriate advantage of their position; and
(d)all personal transactions must be oriented toward investment, not
short-term or speculative trading.
It is further understood that the procedures, reporting and recordkeeping
requirements set forth below are hereby adopted and certified by the Adviser as
reasonably necessary to prevent Access Persons from violating the provisions of
this Code of Ethics.
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4. PROCEDURES TO BE FOLLOWED REGARDING PERSONAL INVESTMENTS BY ACCESS PERSONS
(a)Pre-clearance requirement. Each Access Person must obtain prior
written approval from his or her group head (or designee) and from the Adviser's
trading desk before transacting in any Covered Security based on certain
quidelines set forth from time to time by the Adviser's compliance Department.
For details regarding transactions in mutual funds, see Section 4(e).
(b)Brokerage transaction reporting requirement. Each Access Person
working in the United States must maintain all of his or her accounts and the
accounts of any person of which he or she is deemed to be a beneficial owner
with a broker designated by the Adviser and must direct such broker to provide
broker trade confirmations to the Adviser's legal/compliance department, unless
an exception has been granted by the Adviser's legal/compliance department. Each
Access Person to whom an exception to the designated broker requirement has been
granted must instruct his or her broker to forward all trade confirms and
monthly statements to the Adviser's legal/compliance department. Access Persons
located outside the United States are required to provide details of each
brokerage transaction of which he or she is deemed to be the beneficial owner,
to the Adviser's legal/compliance group, within the customary period for the
confirmation of such trades in that market.
(c)Initial public offerings (new issues). Access Persons are
prohibited from participating in Initial Public Offerings, whether or not J.P.
Morgan or any of its affiliates is an underwriter of the new issue, while the
issue is in syndication.
(d)Minimum investment holding period. Each Access Person is subject to
a 60-day minimum holding period for personal transactions in Covered Securities.
An exception to this minimum holding period requirement may be granted in the
case of hardship as determined by the legal/compliance department.
(e)Mutual funds. Each Access Person must pre-clear transactions in
shares of closed-end Funds with the Adviser's trading desk, as they would with
any other Covered Security. See Section 4(a). Each Access Person must obtain
pre-clearance from his or her group head(or designee) before buying or selling
shares in an open-end Fund or a sub-advised Fund managed by the Adviser if such
Access Person or the Access Person's department has had recent dealings or
responsibilities regarding such mutual fund.
(f)Limited offerings. An Access Person may participate in a limited
offering only with written approval of such Access Person's group head (or
designee) and with advance notification to the Adviser's compliance group.
(g)Blackout periods. Advisory Persons are subject to blackout periods
7 calendar days before and after the trade date of a Covered Security where such
Advisory Person makes, participates in, or obtains information regarding the
purchase or sale of such Covered Security for any of their client accounts. In
addition, Access Persons are prohibited from executing a transaction in a
Covered Security during a period in which there is a pending buy or sell order
on the Adviser's trading desk.
(h)Prohibitions. Short sales are generally prohibited. Transactions in
options, rights, warrants, or other short-term securities and in futures
contracts (unless for bona fide hedging) are prohibited, except for purchases of
options on widely traded indices specified by the Adviser's compliance group if
made for investment purposes.
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(i)Securities of J.P. Morgan. No Access Person may buy or sell any
security issued by J.P. Morgan from the 27th of each March, June, September, and
December until the first full business day after earnings are released in the
following month. All transactions in securities issued by J.P. Morgan must be
pre-cleared with the Adviser's compliance group and executed through an approved
trading area. Transactions in options and short sales of J.P. Morgan stock are
prohibited.
(j)Certification requirements. In addition to the reporting
requirements detailed in Sections 6 below, each Access Person, no later than 30
days after becoming an Access Person, must certify to the Adviser's compliance
group that he or she has complied with the broker requirements in Section 4(b).
5. OTHER POTENTIAL CONFLICTS OF INTEREST
(a)Gifts. No employee of the Adviser or the Administrator may
(i)accept gifts, entertainment, or favors from a client, potential client,
supplier, or potential supplier of goods or services to the Adviser or the
Administrator unless what is given is of nominal value and refusal to accept it
would be discourteous or otherwise harmful to the Adviser or Administrator;
(ii)provide excessive gifts or entertainment to clients or potential clients;
and (iii) offer bribes, kickbacks, or similar inducements.
(b)Outside Business Activities. The prior consent of the Chairman of
the Board of J.P. Morgan, or his or her designee, is required for an officer of
the Adviser or Administrator to engage in any business-related activity outside
of the Adviser or Administrator, whether the activity is intermittent or
continuing, and whether or not compensation is received. For example, such
approval is required such an officer to become:
- An officer, director, or trustee of any corporation (other than a
nonprofit corporation or cooperative corporation owning the
building in which the officer resides);
- A member of a partnership (other than a limited partner in a
partnership established solely for investment purposes);
- An executor, trustee, guardian, or similar fiduciary advisor
(other than for a family member).
6. REPORTING REQUIREMENTS
(a) Every Access Person must report to the Adviser:
(i)Initial Holdings Reports. No later than 10 days after the
person becomes an Access Person, the following information: (A)
the title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership when the person became an Access Person; (B)
the name of any broker, dealer or bank with whom the Access
Person maintained an account in which any Covered Securities were
held for the direct or indirect benefit of the Access Person as
of the date the person became an Access Person; and (C) the date
that the report is submitted by the Access Person.
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(ii)Quarterly Transaction Reports. No later than 10 days after
the end of a calendar quarter, with respect to any transaction
during the quarter in a Covered Security in which the Access
Person had any direct or indirect Beneficial Ownership: (A) the
date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and principal
amount of each Covered Security involved; (B) the nature of the
transaction; (C) the price of the Covered Security at which the
transaction was effected; (D) the name of the broker, dealer or
bank with or through which the transaction was effected; and (E)
the date that the report is submitted by the Access Person.
(iii)New Account Report. No later than 10 days after the calendar
quarter, with respect to any account established by the Access
Person in which any Covered Securities were held during the
quarter for the direct or indirect benefit of the Access Person:
(A) the name of the broker, dealer or bank with whom the Access
Person established the account; (B) the date the account was
established; and (C) the date that the report is submitted by the
Access Person.
(iv)Annual Holdings Report. Annually, the following information
(which information must be current as of a date no more than 30
days before the report is submitted): (A) the title, number of
shares and principal amount of each Covered Security in which the
Access Person had any direct or indirect beneficial ownership;
(B) the name of any broker, dealer or bank with whom the Access
Person maintains an account in which any Covered Securities are
held for the direct or indirect benefit of the Access Person: and
(C) the date that the report is submitted by the Access Person.
(b) Exceptions from the Reporting Requirements.
(i) Notwithstanding the provisions of Section 6(a), no Access
Person shall be required to make:
A. a report with respect to transactions effected for any
account over which such person does not have any direct
or indirect influence or control;
B. a Quarterly Transaction or New Account Report under
Sections 6(a)(ii) or (iii) if the report would
duplicate information contained in broker trade
confirmations or account statements received by the
Adviser with respect to the Access Person no later than
10 days after the calendar quarter end, if all of the
information required by Sections 6(a)(ii) or (iii), as
the case may be, is contained in the broker trade
confirmations or account statements, or in the records
of the Adviser.
(c) Each Access Person shall promptly report any transaction which
is, or might appear to be, in violation of this Code. Such report
shall contain the information required in Quarterly Transaction
Reports filed pursuant to Section 6(a)(ii).
(d) All reports prepared pursuant to this Section 6 shall be filed
with the appropriate compliance personnel designated by the
Adviser and reviewed in accordance with procedures adopted by
such personnel.
(e) The Adviser will identify all Access Persons who are required to
file reports pursuant to this Section 6 and will inform them of
their reporting obligation.
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(f) The Adviser no less frequently than annually shall furnish to a
Fund's board of directors for their consideration a written
report that:
(a) describes any issues under this Code of Ethics or related
procedures since the last report to the board of directors,
including, but limited to, information about material
violations of the Code or procedures and sanctions imposed
in response to the material violations; and
(b) certifies that the Adviser has adopted procedures reasonably
necessary to prevent Access Persons from violating this Code
of Ethics.
7. RECORDKEEPING REQUIREMENTS
The Adviser must at its principal place of business maintain records in the
manner and extent set out in this Section of this Code and must make
available to the Securities and Exchange Commission (SEC) at any time and
from time to time for reasonable, periodic, special or other examination:
(a) A copy of its code of ethics that is in effect, or at any time within
the past five years was in effect, must be maintained in an easily
accessible place;
(b) A record of any violation of the code of ethics, and of any action
taken as a result of the violation, must be maintained in an easily
accessible place for at least five years after the end of the fiscal
year in which the violation occurs;
(c) A copy of each report made by an Access Person as required by Section
6(a) including any information provided in lieu of a quarterly
transaction report, must be maintained for at least five years after
the end of the fiscal year in which the report is made or the
information is provided, the first two years in an easily accessible
place.
(d) A record of all persons, currently or within the past five years, who
are or were required to make reports as Access Persons or who are or
were responsible for reviewing these reports, must be maintained in an
easily accessible place.
(e) A copy of each report required by 6(f) above must be maintained for at
least five years after the end of the fiscal year in which it is made,
the first two years in an easily accessible place.
(f) A record of any decision and the reasons supporting the decision to
approve the acquisition by Access Persons of securities under Section
4(f) above, for at least five years after the end of the fiscal year
in which the approval is granted.
8. SANCTIONS
Upon discovering a violation of this Code, the Directors of the Adviser may
impose such sanctions as they deem appropriate, including, INTER ALIA, financial
penalty, a letter of censure or suspension or termination of the employment of
the violator.
6
NAVELLIER FUND MANAGEMENT, INC.
CODE OF ETHICS
This Code of Ethics ("Code") is adopted by:
Navellier Fund Management, Inc., a registered investment adviser, acting as
investment adviser to the Northstar Funds, Northstar Growth + Value Fund.
(referred to herein as the "Fund"), comprised of one individual series
(referred to herein individually as the "Portfolio"), pursuant to Rule
17j-1 promulgated by the Securities and Exchange Commission (the "Rule")
under the Investment Company Act of 1940.
Statement of General Principles
This Code is adopted in recognition of the general fiduciary principles
that govern personal investment activities of all individuals associated
with the Adviser.
It is the duty of all individuals associated with the Adviser at all times
to place the interests of the Trust's shareholders first. Priority must be
given to the Trust's trades over personal securities trades.
Individuals are prohibited from trading on the basis of material non-public
information as defined by federal courts and the SEC in interpreting Rule
10b-5 under the Securities Exchange Act of 1934. Individuals are also
prohibited from trading in their personal accounts before trades in a
Portfolio of the Trust for the same security ("front-running").
All personal securities transactions must be conducted consistent with this
Code and in such a manner as to avoid any actual or potential conflict of
interest or any abuse of an individual's position of trust and
responsibility.
Individuals should not take advantage of their positions with the Adviser.
<PAGE>
TABLE OF CONTENTS
Page
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1. General Prohibitions 1
2. Definitions 1
Access Person 1
Advisory Person 1
Beneficial Interest 1
Blind Trust 2
Compliance Department 2
Day 2
For his or her own account 2
Immediate Family 2
Investment Company 2
Investment Personnel 2
Related Issuer 2
Security 2
3. Required Compliance Procedures 3
3.1 Preclearance of Securities Transactions by Access Persons 3
3.2 Post-Trade Monitoring of Precleared Transactions 3
3.3 Disclosure of Personal Holdings 3
3.4 Certification of Compliance With Code of Ethics 4
4. Restrictions and Disclosure Requirements 4
4.1 Initial Public Offerings 4
4.2 Private Placements 4
4.3 Blackout Periods 4
4.5 Same Day Price Switch 5
4.6 Gifts 6
4.7 Service as Director of Publicly Traded Companies 6
4.8 Insider Trading - Prevention of Misuse of Non-Public Information 6
5. Procedures with Regard to Dissemination of Information 7
6. Reporting by Access Persons 7
6.1 General Requirement 7
6.2 Contents 7
7. Compliance Department 8
8. Annual Report to Board of Trustees 8
9. Implementation 8
9.1 Forms 8
9.2 Exceptions 8
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1. GENERAL PROHIBITIONS
No individual associated with the Adviser in connection with the purchase or
sale, directly or indirectly, by such person of a security held or to be
acquired by the Trust, shall:
Employ any device, scheme or artifice to defraud such Trust;
Make to the Trust any untrue statement of a material fact or omit to state
to the Trust a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not
misleading;
Engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any such Portfolio of the Trust;
Engage in any manipulative practice with respect to such Portfolio;
Engage in any transaction in a security while in possession of material
nonpublic information regarding the security or the issuer of the security;
or
Engage in any transaction intended to raise, lower, or maintain the price
of any security or to create a false appearance of active trading.
2. DEFINITIONS
The following words have the following meanings, regardless of whether such
terms are capitalized or not in this Code:
ACCESS PERSON - all directors, officers, or Advisory Persons of the
Adviser.
ADVISORY PERSON - 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, participates in, or obtains information regarding
the purchase or sale of a security by any Portfolio of the Trust, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales.
BENEFICIAL INTEREST - a person has a beneficial interest in an account in
which he or she may profit or share in the profit from transactions. Without
limiting the foregoing, a person has a beneficial interest when the securities
in the account are held:
(i) in his or her name;
(ii) in the name of any of his or her Immediate Family;
(iii)in his or her name as trustee for himself or herself or for his
or her Immediate Family;
(iv) in a trust in which he or she has a beneficial interest or is the
settlor with a power to revoke;
(v) by another person and he or she has a contract or an understanding
with such person that the securities held in that person's name are
for his or her benefit;
(vi) in the form of a right to acquisition of such security through
the exercise of warrants, options, rights, or conversion rights;
(vii) by a partnership of which he or she is a member;
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(viii) by a corporation which he or she uses as a personal trading
medium;
(ix) by a holding company which he or she controls; or
(x) any other relationship in which a person would have beneficial
ownership under Section 16 of the Securities Exchange Act of 1934 and
the rules and regulations thereunder, except that the determination of
direct or indirect beneficial interest shall apply to all securities
which an Access Person has or acquires.
Any person who wishes to disclaim a beneficial interest in any securities must
submit a written request to the Compliance Department explaining the reasons
therefor. Any disclaimers granted by the Compliance Department must be made in
writing. Without limiting the foregoing, if a disclaimer is granted to any
person with respect to shares held by a member or members of his or her
Immediate Family, the provisions of this Code of Ethics applicable to such
person shall not apply to any member or members of his or her Immediate Family
for which such disclaimer was granted.
BLIND TRUST - a trust in which an Access Person or employee has a
beneficial interest or is the settlor with a power to revoke, with respect to
which the Compliance Department has determined that such Access Person or
employee has no direct or indirect influence or control and no knowledge of
transactions therein, PROVIDED, HOWEVER, that direct or indirect influence or
control of such trust is held by a person or entity not associated with Adviser
or any affiliate of Adviser and not a relative of such Access Person or
employee.
COMPLIANCE DEPARTMENT - Adviser's Compliance Department.
DAY - a calendar day.
FOR HIS OR HER OWN ACCOUNT - transactions in securities held in an
individual's own name or for any account in which he or she has a beneficial
interest.
IMMEDIATE FAMILY - any of the following relatives sharing the same
household with an individual: child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, sister-in-law, including adoptive
relationships.
INVESTMENT COMPANY - each registered investment company and series thereof
for which the Adviser is the investment adviser.
INVESTMENT PERSONNEL - any Access Person who, in connection with his or her
regular functions or duties, provides information and advice to the Trust or
advisory accounts or who helps execute the Adviser's decisions.
RELATED ISSUER - an issuer with respect to which an Investment Personnel or
his or her Immediate Family: (i) has a business relationship with such issuer or
any promoter, underwriter, officer, director, or employee of such issuer; or
(ii) is related to any officer, director or employee of such issuer.
SECURITY - any option, stock or option thereon, instrument, bond,
debenture, pre-organization certificate, investment contract, any other interest
commonly known as a security, and any security or instrument related to, but not
necessarily the same as, those held or to be acquired by a Portfolio; PROVIDED,
HOWEVER, that the following shall not be considered a "security": securities
issued by the United States Government, bankers' acceptances, bank certificates
of deposit, commercial paper, shares of registered open-end investment
companies, commodities, futures, and options on futures.
3. REQUIRED COMPLIANCE PROCEDURES
3.1 PRECLEARANCE OF SECURITIES TRANSACTIONS BY ACCESS PERSONS.
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(a) Every Access Person and member of his or her Immediate Family must
obtain prior approval from the Compliance Department before executing any
personal securities transaction for his or her own account. Before executing any
such transaction, the Compliance Department shall determine that:
(i) No Investment Company has a pending "buy" or "sell" order in that
security;
(ii) The security does not appear on any "restricted" list of the
Adviser; and
(iii) Such transaction is not short selling or option trading that is
economically opposite any pending transaction for any Investment
Company.
(b) The following securities are exempt from preclearance requirements:
(i) Securities transactions where neither the Access Person nor his or
her Immediate Family knows of the transaction before it is completed;
(ii) The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate reorganizations
or distributions generally applicable to all holders of the same class
of securities;
(iii) The acquisition of securities through the exercise of rights
issued by an issuer PRO RATA to all holders of a class of securities,
to the extent the rights were acquired in the issue, and sales of such
rights so acquired;
(iv) Repurchase agreements;
(v) Options on the Standard & Poor's "500" Composite Stock Price
Index; and
(vi) Other securities that may from time to time be so designated in
writing by the Compliance Department.
(c) Obtaining preclearance approval does not constitute a waiver of any
prohibitions, restrictions, or disclosure requirements in this Code of Ethics.
3.2 POST-TRADE MONITORING OF PRECLEARED TRANSACTIONS.
After the Compliance Department has granted preclearance to an Access
Person or member of his or her Immediate Family with respect to any personal
securities transaction, the investment activity of such Access Person and member
of his or her Immediate Family shall be monitored by the Compliance Department
to ascertain that such activity conforms to the preclearance so granted and the
provisions of this Code.
3.3 DISCLOSURE OF PERSONAL HOLDINGS.
All Investment Personnel are required to disclose all their personal
securities holdings and those of their Immediate Family to the Compliance
Department upon commencement of employment and thereafter on an annual basis.
3.4 CERTIFICATION OF COMPLIANCE WITH CODE OF ETHICS.
All Access Persons are required to certify annually in writing that they
have:
(a) read and understand the Code of Ethics and recognize that they
are subject thereto;
(b) complied with the requirements of the Code of Ethics;
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(c) disclosed or reported all personal securities transactions
required to be disclosed or reported pursuant to the
requirements of the Code; and
(d) with respect to any blind trusts in which such person has a
beneficial interest, that such person has no direct or indirect
influence or control and no knowledge of any transactions
therein.
4. RESTRICTIONS AND DISCLOSURE REQUIREMENTS
4.1 INITIAL PUBLIC OFFERINGS.
All Investment Personnel and members of their Immediate Family are
prohibited from acquiring any securities in an initial public offering, in order
to preclude any possibility of their profiting improperly from their positions
on behalf of a Portfolio.
4.2 PRIVATE PLACEMENTS.
(a) No Investment Personnel or member of his or her Immediate Family may
acquire any securities in private placements without prior written approval by
the Compliance Department.
(b) Prior approval shall take into account, among other factors, whether
the investment opportunity should be reserved for a Trust or Portfolio and its
shareholders and whether the opportunity is being offered to an individual by
virtue of his or her position or relationship to the Portfolio.
(c) An Investment Personnel who has (or a member of whose Immediate Family
has) acquired securities in a private placement is required to disclose such
investment to the Compliance Department when such Investment Personnel plays a
part in any subsequent consideration of an investment in the issuer for any
Portfolio of the Trust. In any such circumstances, the decision to purchase
securities of the issuer for a Portfolio of the Trust is subject to an
independent review by Investment Personnel with no personal interest in the
issuer. Such independent review shall be made in writing and furnished to the
Compliance Department.
4.3 BLACKOUT PERIODS.
(a) No Access Person or member of his or her Immediate Family may execute a
securities transaction on a day during which any Investment Company has a
pending "buy" or "sell" order in that same security until that order is executed
or withdrawn; PROVIDED, HOWEVER, that this prohibition shall not apply to an
Access Person for DE MINIMIS transactions (e.g., transactions involving a
relatively small number of shares of a company with a large market
capitalization and high average daily trading volume).
(b) No Portfolio Manager or member of his or her Immediate Family may buy
or sell a security for his or her own account within seven (7) Days before or
after a Portfolio that he or she manages trades in that security, PROVIDED,
HOWEVER, that this prohibition shall not apply to:
(i) Securities transactions effected in any account over which such
employee has no direct or indirect influence or control, including
blind trusts;
(ii) Securities transactions that are non-volitional on the part of
either the Access Person or the Portfolio;
(iii) Securities transactions where neither the Portfolio Manager nor
his or her Immediate Family knows of the transaction before it is
completed;
(iv) The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate reorganizations
or distributions generally applicable to all holders of the same class
of securities;
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(v) The acquisition of securities through the exercise of rights
issued by an issuer PRO RATA to all holders of a class of securities,
to the extent the rights were acquired in the issue, and sales of such
rights so acquired;
(vi) Repurchase agreements;
(vii) Options on the Standard & Poor's "500" Composite Stock Price
Index; and
(viii) Other securities that may from time to time be so designated in
writing by the Compliance Department.
(c) Any profits on trades within the proscribed periods shall be disgorged
to the Portfolio.
(d) The foregoing blackout periods should not operate to the detriment of
any Investment Company. Without limiting the scope or meaning of this statement,
the following procedure is to be implemented under extraordinary situations:
(i) If a Portfolio Manager of a Portfolio or member of his or her
Immediate Family has executed a transaction in a security for his or
her own account and within seven (7) Days thereafter such security is
considered for purchase or sale by such Portfolio, such Portfolio
Manager shall submit a written memorandum to the Compliance Department
prior to the entering of the purchase or sale order for the Portfolio.
Such memorandum shall describe the circumstances underlying the
consideration of such transaction for the Portfolio.
(ii) Based on such memorandum and other factors it deems relevant
under the specific circumstances, the Compliance Department shall have
authority to determine that the prior transaction by the Portfolio
Manager or member of his or Immediate Family for his or her own
account shall not be considered a violation of the provisions of
paragraph (b) of this section.
(iii) The Compliance Department shall make a written record of any
determination made under paragraph (d)(ii) of this section, including
the reasons therefor. The Compliance Department shall maintain records
of any such memoranda and determinations.
4.5 SAME DAY PRICE SWITCH.
(a) If any employee of the Adviser or member of his or her Immediate Family
purchases a security (other than a fixed income security) for his or her own
account, and subsequent thereto a Portfolio purchases the same security during
the same day, then, to the extent that the price paid per share by the Portfolio
for such purchase is less favorable than the price paid per share by such
employee, the Portfolio shall have the benefit of the more favorable price per
share.
(b) If any such employee or member of his or her Immediate Family sells a
security for his or her own account and subsequent thereto a Portfolio sells the
same security during the same day, then, to the extent that the price per share
received by the Portfolio for such sale is less favorable than the price per
share received by the employee, the Portfolio shall have the benefit of the more
favorable price per share.
(c) An amount of money necessary to effectuate the price adjustment shall
be transferred from the account of the employee subject to the price adjustment
policies, to the Portfolio's account. The price adjustment shall be limited to
the number of shares purchased or sold by the employee or the number of shares
purchased or sold by the Portfolio, whichever is smaller.
(d) Notwithstanding the foregoing, price switching shall not apply to:
(i) Securities transactions effected in any account over which such
employee has no direct or indirect influence or control, including
blind trusts;
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(ii) Securities transactions that are non-volitional on the part of
either the Access Person or the Portfolio;
(iii) Securities transactions where neither the employee nor his or
her Immediate Family knows of the transaction before it is completed;
(iv) The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate reorganizations
or distributions generally applicable to all holders of the same class
of securities;
(v) The acquisition of securities through the exercise of rights
issued by an issuer PRO RATA to all holders of a class of securities,
to the extent the rights were acquired in the issue, and sales of such
rights so acquired;
(vi) Repurchase agreements;
(vii) Options on the Standard & Poor's "500" Composite Stock Price
Index; or
(viii) Other securities that may from time to time be so designated in
writing by the Compliance Department.
4.6 GIFTS.
(a) All Access Persons and employees are prohibited from receiving any gift
or other thing of more than DE MINIMIS value from any person or entity that does
business with or on behalf of the Trust in any one year.
(b) All gifts must be reported in writing to the Compliance Department no
more than 30 days after the end of each calendar quarter.
(c) The foregoing restrictions do not apply to customary and occasional (i)
business meals, (ii) tickets to sports or cultural events, or (iii) business
entertainment.
4.7 SERVICE AS DIRECTOR OF PUBLICLY TRADED COMPANIES.
Investment Personnel are prohibited from serving on the Boards of Directors
of publicly traded companies, absent prior authorization based upon the
determination that such board service would not be inconsistent with the
interests of the Trust and its shareholders.
4.8 INSIDER TRADING - PREVENTION OF MISUSE OF NON-PUBLIC INFORMATION
In accordance with Section 204A of the Investment Advisers Act of 1940, the
following procedures are adopted to prevent the misuse of non-public
information.
All employees of the Adviser are prohibited from trading on material
non-public information, as defined by federal courts and the SEC interpreting
Rule 10b-5 under the Securities Exchange Act of 1934 for their personal accounts
or on behalf of the Trust or any advisory accounts. Neither will such employee
disclose such information to anyone other than legal counsel.
"Material non-public information" is any information: (i) about a company,
or (ii) the market for the company's securities, (iii) which has come directly
or indirectly from the company or from an outsider to the company in a position
to influence the market for the securities of the company, (iv) which has not
been disclosed generally to the marketplace, (v) the dissemination of which is
likely to affect the market price of any of the company's securities or is
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likely to be considered important by a reasonable investor in determining
whether to trade in such securities.
"Material information" is generally defined as information which there is a
substantial likelihood that a reasonable investor would consider is important in
making his or her investment decisions, or information which is reasonably
certain to have an effect on the price of a company's securities. Employees
should assume that information is "material" if it relates to such matters as
dividend increases or decreases, earnings estimates, significant expansion or
curtailment of operations, significant increase or decline in orders for
products of the company, significant merger or acquisition proposals or
agreements, significant new products or discoveries, extraordinary management
changes or the purchase or sale of substantial assets.
Material information can, of course, come directly from the company or its
affiliates, professional advisers or others associated with the company who may
be considered "insiders" ("inside information"). However, it can also come from
a complete outsider to the company who is in a position to affect the market
price of the securities of the company ("market information"). For example, in
CARPENTER V. U.S., 108 U.S. 316 (1987), the Supreme Court considered as material
certain information about the contents of a forthcoming newspaper column that
was expected to affect the market price of a security. In that case, a WALL
STREET JOURNAL reporter was found criminally liable for disclosing to others the
dates when reports on various companies would appear in the WALL STREET JOURNAL
and whether those reports would be favorable or not.
"Non-Public information" is information about a company which is known to a
select number of people and has not been disclosed to the public generally. An
employee should consider material information to be non-public unless he or she
can identify the manner in which the information has been made public; for
example, its being announced on the broad tape, contained in a report filed with
the SEC, or published in a trade journal or a widely circulated newspaper.
5. PROCEDURES WITH REGARD TO DISSEMINATION OF INFORMATION.
Access Persons are prohibited from revealing information relating to
current or anticipated investment intentions, portfolio transactions or
activities of Portfolios except to persons whose responsibilities require
knowledge of the information.
6. REPORTING BY ACCESS PERSONS.
6.1 GENERAL REQUIREMENT.
Every Access Person shall report to the Compliance Department the
information described in Section 6.2 with respect to transactions in any
security in which such Access Person or member of his or her Immediate Family
has, or by reason of such transaction acquires, any direct or indirect
beneficial interest; PROVIDED, HOWEVER, that no report is required with respect
to transactions effected for any account over which such person does not have
any direct or indirect influence or control.
6.2 CONTENTS.
Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(i) The date of the transaction, the title and the number of shares,
and the principal amount of each security involved;
(ii) The nature of the transaction (I.E., purchase, sale or any other
type of acquisition or disposition);
(iii) The price at which the transaction was effected; and
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(iv) The name of the broker, dealer or bank with or through whom the
transaction was effected.
Unless otherwise stated, no report shall be construed as an admission by the
person making such report that he or she has any direct or indirect beneficial
interest in the security to which the report relates.
7. COMPLIANCE DEPARTMENT
The Adviser's Compliance Department shall be responsible for implementation
of this Code of Ethics.
Any person who has knowledge of any violation of this Code shall report
said violation to the Compliance Department.
The Compliance Department shall provide the management of the Adviser with
such reports as are required herein or as are requested by management.
A quarterly report shall be provided to the Trustees of the Trust
certifying that except as specifically disclosed to the Compliance Department,
the Compliance Department knows of no violation of this Code. A representative
of the Compliance Department shall attend meetings of the Trustees no less
frequently than quarterly to report on the implementation of this Code.
The Adviser shall have authority to impose sanctions for violations of this
Code. Such recommendations may include a letter of censure, suspension or
termination of the employment of the violator, forfeiture of profits, forfeiture
of personal trading privileges, forfeiture of gifts, or any other penalty the
officer designated by the Adviser deems to be appropriate. All such
recommendations shall be submitted to the management of the Adviser.
8. ANNUAL REPORT TO BOARD OF TRUSTEES.
The Adviser shall prepare an annual report to the Board of Trustees of the
Trust that:
(i) summarizes existing procedures concerning personal investing and
any changes in the procedures made during the past year;
(ii) identifies any violations requiring significant remedial action
during the past year; and
(iii) identifies any recommended changes in existing restrictions or
procedures based upon the Adviser's experience under the Code of
Ethics, evolving industry practices, or developments in applicable
laws or regulations.
9. IMPLEMENTATION.
9.1 FORMS.
The Compliance Department is authorized, with the advice of counsel, to
prepare written forms for use in implementing this Code. Such forms shall be
attached as an Appendix to this Code and shall be disseminated to all
individuals subject to the Code.
9.2 EXCEPTIONS.
Exceptions to the requirements of this Code shall rarely, if ever, be
granted. However, the Compliance Department shall have authority to grant
exceptions on a case-by-case basis. Any exceptions granted must be in writing
and reported to the Compliance Department.
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APPENDICES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
James M. Hennessy, Jeffrey S. Puretz and Karen L. Anderberg, and each of them
his true and lawful attorney-in-fact as agent with full power of substitution
and resubstitution of him in his name, place, and stead, to sign any and all
registration statements on Form N-1A applicable to the Northstar Galaxy Trust
(to be renamed, Pilgrim Variable Products Trust) and any amendment or supplement
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: April 11, 2000
/s/ Robert W. Stallings
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President (Principal Executive Officer)
