As filed with the Securities and Exchange Commission
on April 8, 1997
Registration Nos. 333-19497
811-08009
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 [X]
(Check appropriate box or boxes.)
PBHG INSURANCE SERIES FUND, INC.
_________________________________________________
(Exact name of registrant as specified in charter)
1255 Drummers Lane
Suite 300
Wayne, Pennsylvania 19087-1590
________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 341-9000
Harold J. Baxter
1255 Drummers Lane
Suite 300
Wayne, Pennsylvania 19087-1590
(Name and Address of Agent For Service)
Copies to:
Raymond A. O'Hara III, Esq. and to John M. Zerr, Esq.
Blazzard, Grodd & Hasenauer, P.C. Pilgrim Baxter & Associates, Ltd.
P.O. Box 5108 1255 Drummers Lane, Suite 300
Westport, CT 06881 Wayne, PA 19087-1590
(203) 226-7866 (610) 341-9000
Approximate Date of
Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Calculation of Registration Fee under the Securities Act of 1933:
Registrant is registering an indefinite number of securities under
the Securities Act of 1933 pursuant to Investment Company Act Rule 24f-2.
==============================================================================
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
PBHG INSURANCE SERIES FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 404 (c))
<TABLE>
<CAPTION>
<S> <C> <C>
PART A
N-1A
- --------
Item No. Location
- -------- ------------------------------
1. Cover Page Cover Page
2. Synopsis. Summary; Expense Summary
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Investment Objectives and
Policies; General
Investment Policies and
Strategies; Risk Factors;
Investment Limitations;
General Information--The
Fund
5. Management of the Fund General Information--
Directors of the Fund;
General Information--The
Adviser; General
Information--The Sub-
Adviser (Small Cap Value
and Large Cap Value
Portfolios); General
Information--The
Administrator and the
Sub-Administrator; General
Information--The Transfer
Agent and Sub-Transfer
Agent; General Information--
The Distributor
6. Capital Stock and Other Securities General Information--
Voting Rights; Tax Status,
Dividends and
Distributions
7. Purchase of Securities Being Offered. Purchases and Redemptions;
Net Asset Value
8. Redemption or Repurchase Purchases and Redemptions;
Net Asset Value
9. Pending Legal Proceedings Not Applicable
PART B
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Fund
13. Investment Objectives and Policies Description of Permitted
Investments; Investment
Limitations; Description
of Shares
14. Management of the Fund Directors and Officers of
the Fund; The Administrator
and Sub-Administrator
15. Control Persons and Principal Holders Directors and Officers of
of Securities the Fund
16. Investment Advisory and Other The Adviser; The Sub-Adviser;
Services. The Administrator and Sub-
Administrator; The Distributor
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption and Pricing of Purchase and Redemption of
Securities Being Offered Shares; Determination of Net
Asset Value
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
PART A
PBHG INSURANCE SERIES FUND, INC.
PROSPECTUS DATED MAY 1, 1997
PBHG Insurance Series Fund, Inc. (the "Fund") is an open-end diversified
management investment company authorized to issue multiple series of shares,
each representing a diversified portfolio of investments (individually, a
"Portfolio" and collectively, the "Portfolios"). The Fund currently has
authorized six series.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. The Fund's shares are
offered only to (a) insurance companies ("Participating Insurance Companies")
to fund benefits under their variable annuity contracts ("VA Contracts") and
variable life insurance policies ("VLI Policies") and (b) tax-qualified
pension and retirement plans ("Qualified Plans"), including
participant-directed Qualified Plans which elect to make the Portfolios
available as investment options for Qualified Plan Participants.
Please read this Prospectus carefully and retain it for future reference. This
Prospectus should be read in conjunction with the prospectuses issued by the
Participating Insurance Companies for the VA Contracts and VLI Policies that
accompany this Prospectus or with the Qualified Plan documents or other
informational materials supplied by Qualified Plan sponsors. Additional
information about the Fund and the Portfolios is contained in a Statement of
Additional Information which has been filed with the Securities and Exchange
Commission (the "SEC") and is available to investors without charge by calling
the Fund at 1-800-347-9256. The Statement of Additional Information, as
amended from time to time, bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities of the Fund in any jurisdiction in which such
sale, offer to sell, or solicitation may not be lawfully made.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY
CAUSE THE VALUE OF THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS
REDEEMED, THE VALUE MAY BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED
BY THE INVESTOR.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE AVAILABLE AND ARE BEING OFFERED EXCLUSIVELY (i) AS A
POOLED FUNDING VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL TYPES OF
VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY CONTRACTS AND (ii) TO
TAX-QUALIFIED PENSION AND RETIREMENT PLANS.
TABLE OF CONTENTS
PAGE
SUMMARY
EXPENSE SUMMARY
INVESTMENT OBJECTIVES AND POLICIES
GENERAL INVESTMENT POLICIES AND STRATEGIES
RISK FACTORS
INVESTMENT LIMITATIONS
PURCHASES AND REDEMPTIONS
NET ASSET VALUE
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
PERFORMANCE ADVERTISING
GENERAL INFORMATION
GLOSSARY OF PERMITTED INVESTMENTS
SUMMARY
THE FUND
The Fund is an open-end diversified management investment company which
currently offers shares of six Portfolios as follows: the PBHG Growth II
Portfolio (the "Growth II Portfolio"), PBHG Large Cap Growth Portfolio (the
"Large Cap Growth Portfolio"), PBHG Small Cap Value Portfolio (the "Small Cap
Value Portfolio"), PBHG Large Cap Value Portfolio (the "Large Cap Value
Portfolio"), PBHG Technology & Communications Portfolio (the "Technology &
Communications Portfolio") and PBHG Select 20 Portfolio (the "Select 20
Portfolio"). Each of the Portfolios has distinct investment objectives and
policies. See "Investment Objectives and Policies." Additional Portfolios may
be added to the Fund in the future. This Prospectus will be supplemented or
amended to reflect the addition of any new Portfolios.
This summary, which provides basic information about the Portfolios and the
Fund, is qualified in its entirety by reference to the more detailed
information provided elsewhere in this Prospectus and in the Statement of
Additional Information.
WHAT ARE THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS? The Growth II Portfolio
seeks capital appreciation. The Large Cap Growth and Technology &
Communications Portfolios each seek long-term growth of capital. The Small Cap
Value Portfolio seeks to achieve above-average total return over a market
cycle of three to five years. The Large Cap Value Portfolio seeks long-term
growth of capital and income. Current income is a secondary objective. The
Select 20 Portfolio seeks long-term capital appreciation. There can be no
assurance that a Portfolio will achieve its investment objective. Each
Portfolio will invest primarily in a variety of equity securities in
accordance with its particular investment program and policies. The Growth II
Portfolio invests primarily in equity securities of small and medium
capitalization companies believed by Pilgrim Baxter & Associates, Ltd. (the
"Adviser") to have an outlook for strong earnings growth and the potential for
significant capital appreciation. The Large Cap Growth Portfolio invests
primarily in equity securities of larger capitalization companies that are
perceived by the Adviser to have a strong potential for capital appreciation.
The Small Cap Value Portfolio invests primarily in a diversified portfolio of
equity securities with market capitalizations in the range of companies
represented in the Russell 2000 Index which are deemed by the Adviser and
Newbold's Asset Management, Inc. (the "Sub-Adviser") to be relatively
undervalued based on certain proprietary measures of value. The Large Cap
Value Portfolio invests primarily in a diversified portfolio of equity
securities of large capitalization companies which, in the opinion of the
Adviser and Sub-Adviser, are undervalued or overlooked by the market. The
Technology & Communications Portfolio invests primarily in equity securities
of companies, without regard to market capitalization, which rely extensively
on science and technology in their product development or operations, or which
are expected to benefit from technological improvements and which may be
experiencing exceptional growth in sales and earnings driven by
technology-related products and services. The Select 20 Portfolio invests
primarily in equity securities of a limited number of larger capitalization
companies (no more than 20) that are perceived by the Adviser to have a strong
potential for capital appreciation.
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIOS? Each
Portfolio invests in securities that fluctuate in value, and investors should
expect each Portfolio's net asset value per share to fluctuate. Each Portfolio
may invest in stocks and convertible securities that may be traded in the
over-the-counter market. Some of these securities may not be as liquid as
exchange-listed stocks. In addition, the Growth II and Small Cap Value
Portfolios invest extensively in securities of small capitalization companies
and, to a lesser extent, the Technology & Communications Portfolio also
invests in small or medium capitalization company stocks and, therefore, may
experience greater price volatility than investment companies that invest
primarily in more established, larger capitalized companies. Because the
Select 20 Portfolio invests in equity securities of a relatively small number
of companies, the impact of a change in value of a stock holding may be
magnified. Although the Technology & Communications Portfolio will invest in
the securities of technology companies in many different industries, many of
these industries share common characteristics. Furthermore, equity securities
of technology companies may be subject to greater price volatility than
securities of companies in many other industries. Each of the Portfolios may
invest in equity securities of non-U.S. issuers, which are subject to certain
risks not typically associated with domestic securities. Such risks include
changes in currency rates and in exchange control regulations, costs
associated with conversions between various currencies, limited publicly
available information regarding foreign issuers, lack of uniformity in
accounting, auditing and financial standards and requirements, greater
securities market volatility, less liquidity, less government supervision of
securities markets, changes in taxes on income on securities, and possible
seizure, nationalization or expropriation of the foreign issuer or foreign
deposits. The Portfolios also may enter into futures contracts, which are
subject to special risks. Such risks include the potential of imperfect
correlation between the change in the value of a futures contract purchased or
sold and the market value of the securities held by the Portfolios and the
risk that the Portfolios may not be able to close out a particular futures
contract because of a lack of a liquid secondary market in such futures
contract. See "Investment Objectives and Policies", "Risk Factors" and
"Glossary of Permitted Investments."
WHO IS THE ADVISER? Pilgrim Baxter & Associates, Ltd. serves as the
investment adviser to each Portfolio. Newbold's Asset Management, Inc. serves
as the investment sub-adviser to the Small Cap Value and Large Cap Value
Portfolios. See "Expense Summary", "The Adviser" and "The Sub-Adviser."
WHO ARE THE ADMINISTRATOR AND SUB-ADMINISTRATOR? PBHG Fund Services serves as
the Administrator of the Fund and SEI Fund Resources, an affiliate of the
Fund's distributor, serves as Sub-Administrator of the Fund. See "The
Administrator and Sub-Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent,
dividend disbursing agent and shareholder servicing agent of the Fund. See
"The Transfer Agent."
WHO IS THE DISTRIBUTOR? SEI Financial Services Company provides the Fund with
distribution services. See "The Distributor."
HOW ARE SHARES PURCHASED AND REDEEMED? Individual investors may not purchase
or redeem shares of the Portfolios directly; shares may be purchased or
redeemed only through VA Contracts and VLI Policies offered by separate
accounts of Participating Insurance Companies or through Qualified Plans,
including participant-directed Qualified Plans which elect to make the
Portfolios available as investment options for Qualified Plan Participants.
See "Purchases and Redemptions."
EXPENSE SUMMARY
The purpose of this section is to provide you with information about the
expenses of the various Portfolios.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Large Cap Small Cap Large Cap Technology &
Growth II Growth Value Value Communications Select 20
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- -------------- ---------
Sales Load Imposed on Purchases None None None None None None
Sales Load Imposed on Reinvested Dividends None None None None None None
Deferred Sales Load None None None None None None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets
after applicable expense reimbursements or
fee waivers)
Large Cap Small Cap Large Cap Technology &
Growth II Growth Value Value Communications Select 20
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ---------- ---------- ---------- --------------- ----------
Advisory Fees (after fee waiver) .85% .72% .77% .41% .61% .61%
12b-1 Fees None None None None None None
Other Expenses (after expense reimbursement) .30% .38% .43% .59% .59% .59%
Total Operating Expenses (after fee
waiver/expense reimbursement) 1.15% 1.10% 1.20% 1.00% 1.20% 1.20%
</TABLE>
The Adviser has voluntarily agreed to waive or limit its Advisory Fees or
assume Other Expenses in an amount that operates to limit Total Operating
Expenses of the Portfolios to not more than 1.20% of the average daily net
assets of the Growth II, Small Cap Value, Technology & Communications and
Select 20 Portfolios and to not more than 1.10% and 1.00% of the average daily
net assets of the Large Cap Growth and Large Cap Value Portfolios,
respectively, through December 31, 1997. Total Operating Expenses include, but
are not limited to, expenses such as investment advisory fees, custodian fees,
transfer agent fees, audit fees and legal fees. Such waiver of Advisory Fees
and possible assumptions of Other Expenses by the Adviser is subject to a
possible reimbursement by the Portfolios in future years if such reimbursement
can be achieved within the foregoing annual expense limits. Such fee
waiver/expense reimbursement arrangements may be modified or terminated at any
time after December 31, 1997. Absent such fee waivers/expense reimbursements,
the Advisory Fees and estimated Total Operating Expenses for the Large Cap
Growth, Small Cap Value, Large Cap Value, Technology & Communications and
Select 20 Portfolios would be .75% and 1.13%; 1.00% and 1.43%; .65% and
1.24%; .85% and 1.44%; and .85% and 1.44%, respectively. Given the projected
asset size of the Growth II Portfolio, it is not anticipated that a fee waiver
or expense reimbursement will be necessary with respect to that Portfolio.
EXAMPLE
An investor in a Portfolio would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C> <C>
1 Year 3 Years
------- --------
Growth II Portfolio $ 12.00 $ 37.00
Large Cap Growth Portfolio $ 11.00 $ 35.00
Small Cap Value Portfolio $ 12.00 $ 38.00
Large Cap Value Portfolio $ 10.00 $ 32.00
Technology & Communications Portfolio $ 12.00 $ 38.00
Select 20 Portfolio $ 12.00 $ 38.00
</TABLE>
The example is based upon estimated Total Operating Expenses for the
Portfolios, as set forth in the "Annual Operating Expenses" table above and
reflects the fee waiver/expense reimbursement arrangement in effect. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE TABLE DOES NOT
REFLECT ADDITIONAL CHARGES AND EXPENSES WHICH ARE, OR MAY BE, IMPOSED UNDER
THE VA CONTRACTS, VLI POLICIES OR QUALIFIED PLANS. SUCH CHARGES AND EXPENSES
ARE DESCRIBED IN THE PROSPECTUS OF THE PARTICIPATING INSURANCE COMPANY
SEPARATE ACCOUNT OR IN THE QUALIFIED PLAN DOCUMENTS OR OTHER INFORMATIONAL
MATERIALS SUPPLIED BY QUALIFIED PLAN SPONSORS. The purpose of this table is to
assist the investor in understanding the various costs and expenses that may
be directly or indirectly borne by investors in the Portfolios. See "The
Adviser", "The Sub-Adviser" and "The Administrator."
INVESTMENT OBJECTIVES AND POLICIES
GROWTH II PORTFOLIO
The Growth II Portfolio seeks capital appreciation. The Portfolio will
normally be as fully invested as practicable in common stocks and securities
convertible into common stocks, but also may invest up to 5% of its assets in
warrants and rights to purchase common stocks. In the opinion of the Adviser,
there may be times when the shareholders' interests are best served and the
investment objective is more likely to be achieved by having varying amounts
of the Portfolio's assets invested in convertible securities. Under normal
market conditions, the Portfolio will invest at least 65% of its total assets
in common stocks and convertible securities of small and medium sized growth
companies (market capitalization or annual revenues up to $4 billion). The
average market capitalizations of holdings in the Portfolio may, however,
fluctuate over time as a result of market valuation levels and the
availability of specific investment opportunities. In addition, the Portfolio
may continue to hold securities of companies whose market capitalizations or
annual revenues grow above $4 billion subsequent to purchase, if the company
continues to satisfy the other investment policies of the Portfolio.
The Portfolio will seek to achieve its objective by investing in companies
believed by the Adviser to have an outlook for strong earnings growth and the
potential for significant capital appreciation. Securities will be sold when
the Adviser believes that anticipated appreciation is no longer probable,
alternative investments offer superior appreciation prospects, or the risk of
a decline in market price is too great. Because of its policy with respect to
the sales of investments, the Portfolio may from time to time realize
short-term gains or losses. The Portfolio will likely have somewhat greater
volatility than the stock market in general, as measured by the S&P 500 Index.
Because the investment techniques employed by the Adviser are responsive to
near-term earnings trends of the companies whose securities are owned by the
Portfolio, portfolio turnover can be expected to be fairly high.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market.
The Portfolio may invest up to 15% of its total assets in securities of
foreign issuers (including American Depositary Receipts ("ADRs")), and may
invest up to 15% of its net assets in illiquid securities. This limitation
does not include any Rule 144A security that has been determined to be liquid
pursuant to procedures established by the Board. See "Risk Factors" and
"Glossary of Permitted Investments" in this Prospectus for a fuller
description of the Portfolio's permitted investments and their risks.
LARGE CAP GROWTH PORTFOLIO
The Large Cap Growth Portfolio seeks long-term growth of capital. The
Portfolio will normally be substantially invested in equity securities
(including ADRs and foreign securities). The equity securities in which the
Portfolio will invest are common stocks, warrants and rights to purchase
common stocks, and debt securities and preferred stock convertible into common
stocks. Normally, the Portfolio will purchase exchange-traded and
over-the-counter equity securities, including foreign securities traded in the
United States. The Portfolio may invest in convertible debt securities rated
investment grade by a nationally recognized statistical rating organization
("NRSRO") (i.e., within one of the four highest rating categories).
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks of large capitalization companies that, in the
Adviser's opinion, have an outlook for strong growth in earnings and potential
for capital appreciation. Such companies have market capitalizations in excess
of $1 billion. The Adviser also will consider the diversity of industries in
choosing investments for the Portfolio.
While it has no present intention to do so, the Portfolio reserves the right
to invest up to 10% of its net assets in restricted securities and securities
of foreign issuers traded outside the United States and Canada and, for
hedging purposes only, to purchase and sell options on stocks and stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities, but will not invest more than 5% of its net assets in restricted
securities that the Adviser determines are illiquid based on guidelines
approved by the Board of Directors of the Fund. See "Risk Factors" and
"Glossary of Permitted Investments" in this Prospectus for a fuller
description of the Portfolio's permitted investments and their risks.
SMALL CAP VALUE PORTFOLIO
The Small Cap Value Portfolio seeks to achieve above-average total return over
a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks of small
companies with market capitalizations in the range of companies represented in
the Russell 2000 Index which are considered to be relatively undervalued based
on certain proprietary measures of value.
The current market capitalization of companies in the Russell 2000 Index is
typically between $100 million and $1.5 billion. It is expected that
securities purchased by the Portfolio will typically exhibit lower
price/earnings and price/book value ratios than the average of those in the
Russell 2000 Index. Under normal circumstances, the Portfolio will be
structured taking into account the economic sector weightings of the Russell
2000 Index, with the Portfolio's sector weightings normally within 10% of the
sector weightings of that Index.
In selecting investments for the Portfolio, the Adviser and Sub-Adviser
emphasize fundamental investment value and consider the following factors,
among others, in identifying and analyzing a security's fundamental value: the
relationship of a company's potential earnings power to its current stock
price; current dividend income and the potential for current dividends; low
price/earnings ratio relative to other similar companies; strong competitive
advantages, including a recognized brand or trade name or niche market
position; sufficient resources for expansion; capability of management; and
favorable overall business prospects. The Portfolio may invest in equity
securities of companies that are considered to be financially sound and
attractive investments based on their operating history, but which may be
experiencing temporary earnings declines due to adverse economic conditions
that may be company or industry specific or due to unfavorable publicity. The
Portfolio may invest in such companies when the Adviser and Sub-Adviser
believe that those companies will react positively to changing economic
conditions or that such companies have taken or are expected to take actions
designed to improve their financial fundamentals or to otherwise increase the
market price of their securities. The utilization of a valuation approach may
result in investment selections that may be out-of-favor or counter to those
of other investors. However, such an approach may also produce significant
capital appreciation.
In addition to the Portfolio's primary investment (i.e., 65% of its total
assets) in common stocks of undervalued small capitalization companies, the
Portfolio may also invest in other equity securities (i.e., preferred stocks,
warrants and securities convertible into or exchangeable for common stocks) of
such small capitalization issuers. The Portfolio may also utilize futures
contracts (i.e., purchase and sell futures contracts) to the extent that (i)
aggregate initial margin deposits to establish other than "bona fide hedging"
positions does not exceed 5% of the Portfolio's net assets and (ii) the total
market value of securities underlying all futures contracts does not exceed
50% of the value of the Portfolio's total assets. In addition, the Portfolio
may invest up to 15% of its net assets in restricted or illiquid securities.
This limitation does not include any Rule 144A security that has been
determined to be liquid pursuant to procedures established by the Board. The
Portfolio may use high-quality money market investments or short-term bonds to
reduce downside volatility during uncertain or declining market conditions
and, for temporary defensive purposes, may invest in money market securities
or short-term bonds without limitation. See "General Investment Policies and
Strategies -- Temporary Defensive Positions" below for a fuller description.
The securities in which the Portfolio invests normally will be traded in the
United States or Canada on a registered securities exchange or established
over-the-counter market. The Portfolio may invest up to 15% of its total
assets in securities of foreign issuers, including ADRs and other similar
instruments. In addition, the Portfolio may purchase securities on a
when-issued or delayed delivery basis.
See "Risk Factors" and "Glossary of Permitted Investments" in this Prospectus
for a fuller description of the Portfolio's permitted investments and their
risks.
LARGE CAP VALUE PORTFOLIO
The Large Cap Value Portfolio seeks long-term growth of capital and income.
Current income is a secondary objective. Under normal market conditions, the
Portfolio will invest at least 65% of its total assets in a diversified
portfolio of equity securities (i.e., common stocks, preferred stocks, rights,
warrants and securities convertible into or exchangeable for common stocks) of
large capitalization companies which, in the opinion of the Adviser and
Sub-Adviser, are undervalued or overlooked by the market. Such large companies
have market capitalizations in excess of $1 billion at the time of purchase.
In selecting investments for the Portfolio, the Adviser and Sub-Adviser
emphasize fundamental investment value and consider the following factors,
among others, in identifying and analyzing a security's fundamental value: the
relationship of a company's potential earning power to the current market
price of its stock; continuing dividend income and the potential for
increasing dividend growth; a strong balance sheet with low financial
leverage; low price/earnings ratio relative to either that company's
historical results or the current ratios for other similar companies; and
potential for favorable business developments. The Portfolio may invest in
equity securities of companies that are considered to be financially sound and
attractive investments based on their long-term operating history, but which
may be experiencing temporary earnings declines due to adverse economic
conditions that may be company or industry specific or due to unfavorable
publicity. The Portfolio may invest in such companies when the Adviser and
Sub-Adviser believe that those companies will react positively to changing
economic conditions or that such companies have taken or are expected to take
actions designed to return their earnings to historical levels or otherwise
increase the market price of their securities.
The equity securities in which the Portfolio invests normally will be traded
in the United States or Canada on a registered securities exchange or
established over-the-counter market. The Portfolio may invest up to 15% of its
total assets in securities of foreign issuers, including ADRs, and may also
invest up to 15% of its net assets in restricted or illiquid securities. The
Portfolio may use high-quality money market investments or short-term bonds to
reduce downside volatility during uncertain or declining market conditions.
For temporary or defensive purposes, the Portfolio may invest in money market
securities or short-term bonds without limitation. The Portfolio may purchase
securities on a when-issued or delayed delivery basis.
The utilization of a valuation approach may result in investment selections
that may be out-of-favor or counter to those of other investors. However, such
an approach may also produce significant capital appreciation. See "Risk
Factors" and Glossary of Permitted Investments" in this Prospectus for a
fuller description of the Portfolio's permitted investments and their risks.
TECHNOLOGY & COMMUNICATIONS PORTFOLIO
The Technology & Communications Portfolio seeks long-term growth of capital.
Current income is incidental to the Portfolio's objective. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in
common stocks of companies which rely extensively on technology or
communications in their product development or operations, or which are
expected to benefit from technological advances and improvements, and that may
be experiencing exceptional growth in sales and earnings driven by technology-
or communication-related products and services.
Such technology and communications companies may be in many different
industries or fields, including computer software and hardware, electronic
components and systems, network and cable broadcasting, telecommunications,
mobile communications, satellite communications, defense and aerospace,
transportation systems, data storage and retrieval, biotechnology and medical,
and environmental. As a result of this focus, the Portfolio offers investors
the significant growth potential of companies that may be responsible for
breakthrough products or technologies or that are positioned to take advantage
of cutting-edge developments.
The Portfolio will normally be fully invested in common stocks (including
ADRs) of such technology and communications companies, but also may invest in
warrants and rights to purchase common stocks and debt securities and
preferred stocks convertible into common stocks. Stock selections will not be
based on company size, but rather on an assessment of a company's fundamental
prospects. As a result, the Portfolio's stock holdings can range from small
companies developing new technologies or pursuing scientific breakthroughs to
large, blue chip firms with established track records in developing and
marketing such scientific advances.
Normally, the Portfolio will purchase securities traded in the U.S. or Canada
on registered exchanges or in the over-the-counter market. The Portfolio may
also invest, in the aggregate, up to 10% of its net assets in restricted
securities and securities of foreign issuers traded outside the U.S. and
Canada and, for hedging purposes, may purchase and sell options on stocks or
stock indices. The Portfolio also may invest up to 15% of its net assets in
illiquid securities. See "Risk Factors" and "Glossary of Permitted
Investments" in this Prospectus for a fuller description of the Portfolio's
permitted investments and their risks.
SELECT 20 PORTFOLIO
The Select 20 Portfolio seeks long-term growth of capital. The Portfolio will
normally be substantially invested in equity securities (including ADRs and
foreign equity securities). The equity securities in which the Portfolio will
invest are common stocks, warrants and rights to purchase common stocks, and
debt securities and preferred stock that are convertible into common stocks.
The Portfolio may invest in convertible debt securities rated investment grade
by an NRSRO (i.e., within one of the four higher rating categories). The
Adviser will consider the diversity of industries in choosing investments for
the Portfolio.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities of a limited number (i.e., no more than 20
stocks) of large capitalization companies that, in the Adviser's opinion, have
a strong earnings growth outlook and potential for capital appreciation. Such
large companies have market capitalization in excess of $1 billion. Because
the Portfolio focuses on equity securities of a small number of companies, the
impact of a change in value of a single stock holding may be magnified.
While it has no present intention to do so, the Portfolio reserves the right
to invest up to 10% of its net assets in restricted securities and securities
of foreign issuers traded outside the United States and Canada and, for
hedging purposes only, to purchase and sell options on stocks or stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities, but will not invest more than 5% of its net assets in restricted
securities that the Adviser determines are illiquid based on guidelines
approved by the Board of Directors of the Fund. See "Risk Factors" and
"Glossary of Permitted Investments" in this Prospectus for a fuller
description of the Portfolio's permitted investments and their risks.
GENERAL INVESTMENT POLICIES AND STRATEGIES
INVESTMENT PROCESS: GROWTH II, LARGE CAP GROWTH, TECHNOLOGY & COMMUNICATIONS
AND SELECT 20 PORTFOLIOS
The Adviser's investment process in managing the assets of each Portfolio is
both quantitative and fundamental, and is focused on quality earnings growth.
In seeking to identify the investment opportunities for the Portfolios, the
Adviser begins by creating a universe of rapidly growing companies with market
capitalizations within the parameters described for each Portfolio and that
possess certain quality characteristics. Using proprietary software and
research models that incorporate important attributes of successful growth,
such as positive earnings surprises, upward earnings estimate revisions, and
accelerating sales and earnings growth, the Adviser creates a universe of
growing companies. Then, using fundamental research, the Adviser evaluates
each company's earnings quality and assesses the sustainability of the
company's current growth trends. Through this highly disciplined process, the
Adviser seeks to construct investment portfolios for the Portfolios that
possess strong growth characteristics. The Adviser tries to keep each such
Portfolio fully invested at all times. Because the universe of companies will
undoubtedly experience volatility in stock price, it is important that
shareholders in the Portfolios maintain a long-term investment perspective. Of
course, there can be no assurance that use of these techniques will be
successful, even over the long term.
INVESTMENT PROCESS: SMALL CAP VALUE AND LARGE CAP VALUE PORTFOLIOS
The Sub-Adviser's investment process with respect to the Small Cap Value and
Large Cap Value Portfolios, like that of the Adviser, is both quantitative and
fundamental. In seeking to identify attractive investment opportunities for
the Small Cap Value and Large Cap Value Portfolios, the Sub-Adviser first
creates a universe of companies each of whose current share price is low in
relation to its real worth or future prospects. Using custom designed research
models and proprietary software, which incorporate certain key elements of
value investing (such as consistency of dividend payment, balance sheet
strength and, low stock price relative to its assets, earnings, cash flow and
business franchise), the Sub-Adviser screens more than 8,000 possible
companies and creates an initial universe of statistically attractive value
companies. Following the creation of this universe of possible investments,
the Sub-Adviser uses its strong fundamental research capabilities to carefully
identify securities that are currently out of favor but which have the
potential to achieve significant appreciation as the marketplace recognizes
their fundamental value. Once constructed, portfolios are continually
monitored for change. The Sub-Adviser follows a disciplined valuation approach
that requires it to sell any portfolio security that becomes overvalued
relative to the market. Sales of portfolio securities are primarily triggered
by the relative change in a company's price/earnings ratio. Adverse changes in
other key value elements are, of course, factors that would also trigger a
sale. Of course, there can be no assurance that use of these techniques will
be successful.
PORTFOLIO TURNOVER
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases
realized gains and losses. It is expected that under normal market conditions,
the annual portfolio turnover rate for the Large Cap Value Portfolio will not
exceed 100%, and with respect to the Growth II and Large Cap Growth Portfolios
will not exceed 150%. It is expected that under normal market conditions, the
annual portfolio turnover rate for the Small Cap Value Portfolio will not
exceed 200% and with respect to the Select 20 and Technology & Communications
Portfolios will not exceed 300%. High rates of portfolio turnover necessarily
result in correspondingly greater brokerage and portfolio trading costs, which
are paid by the Portfolios. Trading in fixed-income securities does not
generally involve the payment of brokerage commissions, but does involve
indirect transaction costs. In addition, high rates of portfolio turnover may
adversely affect each Portfolio's status as a "regulated investment company"
("RIC") under Section 851 of the Internal Revenue Code of 1986, as amended
("Code").
TEMPORARY DEFENSIVE POSITIONS
Under normal market conditions, each Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Adviser or Sub-Adviser, as appropriate, determines that
market conditions warrant, each Portfolio may invest up to 100% of its assets
in cash and money market instruments (consisting of securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
certificates of deposit, time deposits and bankers' acceptances issued by
banks or savings and loan associations having net assets of at least $500
million as stated on their most recently published financial statements;
commercial paper rated in one of the two highest rating categories by at least
one NRSRO; repurchase agreements involving such securities; and, to the extent
permitted by applicable law and each Portfolio's investment restrictions,
shares of other investment companies investing solely in money market
securities). To the extent a Portfolio is invested in temporary defensive
instruments, it will not be pursuing its investment objective. See "Glossary
of Permitted Investments" and the Statement of Additional Information.
RISK FACTORS
SMALL AND MEDIUM CAPITALIZATION STOCKS
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in each
Portfolio may be more suitable for long-term investors who can bear the risk
of these fluctuations. The Growth II and Small Cap Value Portfolios invest
extensively in securities issued by small capitalization companies and, in
certain cases, the Technology & Communications Portfolio invests in securities
of issuers with small or medium market capitalizations. While the Adviser and
Sub-Adviser intend to invest in small and medium capitalization companies that
have strong balance sheets and that the Adviser's and/or Sub-Adviser's
research indicates should exceed consensus earnings expectations, any
investment in small and medium capitalization companies involves greater risk
and price volatility than that customarily associated with investments in
larger, more established companies. This increased risk may be due to the
greater business risks of their small size, limited markets and financial
resources, narrow product lines and frequent lack of management depth. The
securities of small and medium capitalization companies are often traded in
the over-the-counter market, and might not be traded in volumes typical of
securities traded on a national securities exchange. Thus, the securities of
small and medium capitalization companies are likely to be less liquid, and
subject to more abrupt or erratic market movements, than securities of larger,
more established companies.
OVER-THE-COUNTER MARKET
Each of the Portfolios may invest in over-the-counter stocks. In contrast to
the securities exchanges, the over-the-counter market is not a centralized
facility which limits trading activity to securities of companies which
initially satisfy certain defined standards. Generally, the volume of trading
in an unlisted or over-the-counter common stock is less than the volume of
trading in a listed stock. This means that the depth of market liquidity of
some stocks in which these Portfolios invest may not be as great as that of
other securities and if the Portfolios were to dispose of such a stock, they
might have to offer the shares at a discount from recent prices, or sell the
shares in small lots over an extended period of time.
FOREIGN SECURITIES
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies.
These risks and considerations include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investment in foreign countries
and potential restrictions on the flow of international capital and
currencies. Foreign issuers may also be subject to less government regulation
than U.S. companies. Moreover, the dividends and interest payable on foreign
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to a Portfolio's shareholders.
Further, foreign securities often trade with less frequency and volume than
domestic securities and, therefore, may exhibit greater price volatility.
Changes in foreign exchange rates will affect, favorably or unfavorably, the
value of those securities which are denominated or quoted in currencies other
than the U.S. dollar.
INVESTMENTS IN TECHNOLOGY COMPANIES
Equity securities of technology companies have tended to be subject to greater
volatility than securities of companies that are not dependent upon or
associated with technological issues. Although the Technology & Communications
Portfolio will invest in the securities of technology companies operating in
various industries, many of these industries share common characteristics.
Therefore, an event or issue affecting one such industry may have a
significant impact on these other, related industries and, thus, may affect
the value of the Technology & Communications Portfolio's investments in
technology companies. For example, the technology companies in which the
Technology & Communications Portfolio invests may be strongly affected by
worldwide scientific or technological developments and their products and
services may be subject to governmental regulation or adversely affected by
governmental policies.
FUTURES CONTRACTS
The primary risks associated with the use of futures contracts are: (i)
imperfect correlations between the change in market value of the securities
held by a Portfolio and the prices of futures contracts purchased or sold by a
Portfolio; and (ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures position, which could
have an adverse impact on a Portfolio's ability to execute futures and options
strategies.
For additional information regarding risks and permitted investments for each
Portfolio, see "Glossary of Permitted Investments" and the Statement of
Additional Information.
INVESTMENT LIMITATIONS
The investment objectives of each Portfolio, the investment limitations set
forth below and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of the Portfolios. A
Portfolio's fundamental policies cannot be changed without the consent of the
holders of a majority of the Portfolio's outstanding shares.
A Portfolio, as a fundamental policy, may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if, as a result, more than 5%
of the total assets of the Portfolio would be invested in the securities of
such issuer. This restriction applies to 75% of each Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total
assets of a Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities. For purposes of this
limitation, (i) utility companies will be divided according to their services,
for example, gas distribution, gas transmission, electric and telephone will
each be considered a separate industry, and (ii) financial service companies
will be classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry. For purposes of this limitation, supranational
organizations are deemed to be issuers conducting their principal business
activities in the same industry.
3. Borrow money except for temporary or for emergency purposes and then
only in an amount not exceeding 10% of the value of each Portfolio's total
assets (except not exceeding 33 1/3% of the value of total assets with respect
to the Growth II and Small Cap Value Portfolios). This borrowing provision is
included solely to facilitate the orderly sale of portfolio securities to
accommodate substantial redemption requests if they should occur and is not
for investment purposes. All borrowings in excess of 5% of a Portfolio's total
assets will be repaid before making investments.
The foregoing percentages will apply at the time of the purchase of a
security.
PURCHASES AND REDEMPTIONS
Individual investors may not purchase or redeem shares of the Portfolios
directly; shares may be purchased or redeemed only through VA Contracts and
VLI Policies offered by separate accounts of Participating Insurance Companies
or through Qualified Plans, including participant-directed Qualified Plans
which elect to make the Portfolios available as investment options for
Qualified Plan participants. Please refer to the prospectus of the sponsoring
Participating Insurance Company separate account or to the Qualified Plan
documents or other informational materials supplied by Qualified Plan sponsors
for instructions on purchasing a VA Contract or VLI Policy and on how to
select the Portfolios as investment options for a VA Contract, VLI Policy or
Qualified Plan.
PURCHASES. All investments in the Portfolios are credited to a
Participating Insurance Company's separate account immediately upon acceptance
of the investments by the Portfolios. Each Participating Insurance Company
receives orders from its contract owners to purchase or redeem shares of each
Portfolio on each day that the Portfolio calculates its net asset value (a
"Business Day"). That night, all orders received by the Participating
Insurance Company prior to the close of regular trading on the New York Stock
Exchange Inc. (the "NYSE") (currently 4:00 p.m., Eastern time) on that
Business Day are aggregated, and the Participating Insurance Company places a
net purchase or redemption order for shares of the Portfolios during the
morning of the next Business Day. These orders are executed at the net asset
value (described below under "Net Asset Value") next computed after receipt of
such order by the Participating Insurance Company.
Qualified Plan participants may invest in shares of the Portfolios through
their Qualified Plans by directing the Qualified Plan trustee to purchase
shares for their account. Participants should contact their Qualified Plan
sponsors for information concerning the appropriate procedure for investing in
the Portfolios. All investments in the Portfolios by Qualified Plans are
credited to the Qualified Plans immediately upon acceptance of the investments
by the Portfolios. All orders received from Qualified Plans are executed at
the net asset value next computed after receipt of such orders by the
Portfolios.
The Portfolios reserve the right to reject any specific purchase order.
Purchase orders may be refused if, in the Adviser's opinion, they are of a
size that would disrupt the management of the Portfolio. A Portfolio may
discontinue sales of its shares if management believes that a substantial
further increase in assets may adversely effect the Portfolio's ability to
achieve its investment objective. In such event, however, it is anticipated
that existing VA Contract owners, VLI Policy owners and Qualified Plan
participants would be permitted to continue to authorize investments in the
Portfolios and to reinvest any dividends or capital gains distributions.
REDEMPTIONS. Shares of a Portfolio may be redeemed on any Business Day.
Redemption orders which are received by a Participating Insurance Company or
Qualified Plan prior to the close of regular trading on the NYSE on any
Business Day and transmitted to the Fund or its specified agent during the
morning of the next Business Day will be processed at the next net asset value
computed after receipt of such order by the Participating Insurance Company or
Qualified Plan. Redemption proceeds will normally be wired to the
Participating Insurance Company or Qualified Plan on the Business Day
following receipt of the redemption order by the Participating Insurance
Company or Qualified Plan, but in no event later than seven days after receipt
of such order.
NET ASSET VALUE
Each Portfolio calculates the net asset value of a share by dividing the total
value of its assets, less liabilities, by the number of shares outstanding.
Shares are valued as of the close of trading on the NYSE (currently 4:00 p.m.,
Eastern time). Portfolio securities listed on an exchange or quoted on a
national market system are valued at the last sales price. Other securities
are quoted at the mean between the most recent bid and asked prices.
Short-term obligations are valued at amortized cost. Securities for which
market quotations are not readily available and other assets held by the Fund,
if any, are valued at their fair value as determined in good faith by the
Board of Directors. See "Determination of Net Asset Value" in the Statement of
Additional Information.
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
TAXES
For a discussion of the tax status of a VA Contract, VLI Policy or Qualified
Plan, refer to the Participating Insurance Company separate account prospectus
or Qualified Plan documents or other informational materials supplied by
Qualified Plan sponsors.
Each Portfolio intends to qualify and elect to be treated as a regulated
investment company that is taxed under the rules of Subchapter M of the Code.
As such, a Portfolio will not be subject to federal income tax on its net
ordinary income and net realized capital gains to the extent such income and
gains are distributed to the separate accounts of Participating Insurance
Companies and Qualified Plans which hold its shares. Because shares of the
Portfolios may be purchased only through VA Contracts, VLI Policies and
Qualified Plans, it is anticipated that any income, dividends or capital gain
distributions from the Portfolios are taxable, if at all, to the Participating
Insurance Companies and Qualified Plans and will be exempt from current
taxation of the VA Contract owner, VLI Policy owner, or Qualified Plan
participant if left to accumulate within the VA Contract, VLI Policy or
Qualified Plan.
INTERNAL REVENUE SERVICE REQUIREMENTS
The Portfolios intend to comply with the diversification requirements
currently imposed by the Internal Revenue Service on separate accounts of
insurance companies as a condition of maintaining the tax-deferred status of
VA Contracts and VLI Policies. See the Statement of Additional Information for
more specific information.
DIVIDENDS AND DISTRIBUTIONS
Each of the Portfolios will declare and distribute dividends from net ordinary
income at least annually and will distribute its net realized capital gains,
if any, at least annually. Distributions of ordinary income and capital gains
will be made in shares of such Portfolios unless an election is made on behalf
of a separate account of a Participating Insurance Company to receive
distributions in cash. Participating Insurance Companies and Qualified Plan
sponsors will be informed at least annually about the amount and character of
distributions from the fund for federal income tax purposes.
PERFORMANCE ADVERTISING
From time to time, each Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. Yield refers to the annualized income generated by
an investment in the Portfolio over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
The total return of each Portfolio refers to the average compounded rate of
return on a hypothetical investment for designated time periods (including but
not limited to the period from which the Portfolio commenced operations
through the specified date), assuming that the entire investment is redeemed
at the end of each period and assuming the reinvestment of all dividend and
capital gain distributions.
Total returns quoted for a Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Qualified Plan. Accordingly, the
prospectus of the sponsoring Participating Insurance Company separate account
or Qualified Plan documents or other informational materials supplied by
Qualified Plan sponsors should be carefully reviewed for information on
relevant charges and expenses. Excluding these charges and expenses from
quotations of a Portfolio's performance has the effect of increasing the
performance quoted, and the effect of these charges should be considered when
comparing a Portfolio's performance to that of other mutual funds.
Each Portfolio may periodically compare its performance to that of other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals,
broad groups of comparable mutual funds, unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs and other investment alternatives. Each
Portfolio may quote services such as Morningstar, Inc., a service that ranks
mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. Each Portfolio may use long-term performance of
these capital markets to demonstrate general long-term risk versus reward
scenarios and could include the value of a hypothetical investment in any of
the capital markets. Each Portfolio may also quote financial and business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques.
Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data
and cannot be calculated precisely.
PUBLIC FUND PERFORMANCE
The Large Cap Growth, Technology & Communications and Select 20 Portfolios are
newly organized and do not yet have their own performance records. However,
the Portfolios have the same investment objectives and follow substantially
the same investment strategies as three series of a mutual fund ("public
fund") whose shares are currently sold to the public and managed by the
Adviser.
Set forth below is the historical performance of each of the corresponding
series of the public fund. Investors should not consider the performance data
of the series of the public fund as an indication of the future performance of
the Portfolios. The performance figures shown below reflect the deduction of
the historical fees and expenses paid by the corresponding series of the
public fund, and NOT THOSE TO BE PAID BY THE PORTFOLIOS. The figures also do
not reflect the deduction of any insurance fees or charges which are imposed
by the Participating Insurance Company in connection with its sale of the VA
Contracts and VLI Policies. Investors should refer to the separate account
prospectuses describing the VA Contracts and VLI Policies for information
pertaining to these insurance fees and charges. The insurance separate
account fees will have a detrimental effect on the performance of the
Portfolios. Additionally, although it is anticipated that each Portfolio and
its corresponding public fund series will hold similar securities, their
investment results are expected to differ. In particular, differences in asset
size and in cash flow resulting from purchases and redemptions of Portfolio
shares may result in different security selections, differences in the
relative weightings of securities or differences in the price paid for
particular portfolio holdings. The results shown reflect the reinvestment of
dividends and distributions, and were calculated in the same manner that will
be used by the Portfolios to calculate their own performance.
The following tables show average annualized total returns for the time
periods shown for the series of the public fund.
<TABLE>
<CAPTION>
<S> <C> <C>
LARGE CAP GROWTH PORTFOLIO
1 Year Since Inception
------- ----------------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Large Cap Growth Fund 23.40% 33.42%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TECHNOLOGY & COMMUNICATIONS PORTFOLIO
1 Year Since Inception
------- ----------------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Technology &
Communications Fund 54.42% 59.16%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SELECT 20 PORTFOLIO
Since Inception
---------------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Large Cap 20 Fund -1.59%
</TABLE>
Results shown are through the period ended December 31, 1996 for each public
fund series shown except for the PBHG Large Cap 20 Fund which is through March
31, 1997. The inception dates for each public fund series are April 5, 1995
for the PBHG Large Cap Growth Fund, October 2, 1995 for the PBHG Technology &
Communications Fund and December 2, 1996 for the PBHG Large Cap 20 Fund.
HISTORICAL PERFORMANCE - SMALL CAP VALUE PORTFOLIO MANAGER
Gary D. Haubold, CFA, has managed the Small Cap Value Portfolio since its
inception. Mr. Haubold joined the Sub-Adviser in January 1997. Prior to
joining the Sub-Adviser, Mr. Haubold was employed by Miller Anderson &
Sherrerd ("MAS") from 1993 until January 6, 1997. At MAS, Mr. Haubold served
as the co-manager of the Mid Cap Value Portfolio of the MAS Fund and the
co-manager of the Small Cap Value Portfolio of the MAS Fund ("MAS Small Cap
Value Portfolio"). Prior to joining MAS, Mr. Haubold was Senior Vice President
of Wood, Struthers & Winthrop.
Although Mr. Haubold co-managed the MAS Small Cap Value Portfolio from June 1,
1993 through January 6, 1997, Mr. Haubold was the person primarily responsible
for the day-to-day management of the MAS Small Cap Value Portfolio during that
period. During the time that Mr. Haubold managed the MAS Small Cap Value
Portfolio, it had an investment objective, policies, and strategies that were
substantially similar to those of the Small Cap Value Portfolio. The
cumulative total return for the MAS Small Cap Value Portfolio from January 1,
1995 through December 31, 1996 was 63.59% as compared to 49.65% for the
Russell 2000 Index over the same period. The average annual total returns for
the MAS Small Cap Value Portfolio for one-year and since the inception of Mr.
Haubold's management of the Portfolio (through December 31, 1996) compared
with the performance of the Russell 2000 Index were:
<TABLE>
<CAPTION>
<S> <C> <C>
Year MAS Small Cap
ended 12/31/96 Value Portfolio(1) Russell 2000 Index (2)
- ------------------------------- ------------------ ----------------------
1 Year 35.15% 16.51%
Since the inception of
Mr. Haubold's management (6/93)
of the Portfolio 19.97% 15.00%
<FN>
(1) Average annual total returns reflect changes in share price of the
MAS Small Cap Value Portfolio, reinvestment of all dividends and distributions
and are net of all fund expenses.
(2) The Russell 2000 Index is an unmanaged index of common stocks
generally representative of the small capitalization U.S. stock market. The
index does not reflect investment management fees, brokerage commissions and
other expenses associated with investing in equity securities.
</TABLE>
Historical performance does not indicate future performance. THE MAS SMALL
CAP VALUE PORTFOLIO IS A SEPARATE FUND AND ITS HISTORICAL PERFORMANCE IS NOT
INDICATIVE OF THE POTENTIAL PERFORMANCE OF THE SMALL CAP VALUE PORTFOLIO.
Share prices and investment returns will fluctuate.
PRIVATE ACCOUNT PERFORMANCE
The Growth II Portfolio is newly organized and does not yet have its own
performance record. However, the Growth II Portfolio has an investment
objective, policies and strategies which are substantially similar to those
employed by the Adviser with respect to certain Private Accounts.
Thus, the performance information derived from these Private Accounts may be
relevant to an investor. The performance of the Growth II Portfolio will vary
from the Private Account composite information because the Growth II Portfolio
will be actively managed and its investments will vary from time to time and
will not be identical to the past portfolio investments of the Private
Accounts. Moreover, the Private Accounts are not subject to certain investment
limitations, diversification requirements and other restrictions imposed by
the Investment Company Act of 1940 and the Code which, if applicable, may have
adversely affected the performance results of the Private Account Composites.
The chart below shows performance information derived from historical
composite performance of the Private Accounts included in the Pilgrim Baxter &
Associates, Ltd. Mid-Cap Growth Composite. The performance figures shown for
the Growth II Portfolio represent the performance results of the composite of
Private Accounts managed in a comparable manner, adjusted to reflect the
deduction of the fees and expenses anticipated to be paid by the Growth II
Portfolio. Please refer to "Expense Summary" for further information
concerning fees and expenses.
The Private Account composite performance figures are time-weighted rates of
return which include all income and accrued income and realized and
unrealized gains or losses, but do not reflect the deduction of investment
advisory fees actually charged to the Private Accounts.
Investors should not consider the performance data of these Private Accounts
as an indication of the future performance of the Growth II Portfolio.
The following tables show performance information derived from Private Account
historical composite performance reduced by anticipated Growth II Portfolio
fees and expenses, as well as comparisons with the S&P 500, an unmanaged index
generally considered to be representative of the stock market.
PRIVATE ACCOUNT COMPOSITE PERFORMANCE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 Year 5 Years 10 Years
------- -------- --------
Pilgrim Baxter & Associates, Ltd.
Mid-Cap Growth Composite* 12.66% 15.29% 16.14%
S&P 500 Stock Index 23.07% 15.18% 15.29%
</TABLE>
Results shown are through the period ended December 31, 1996. The inception
date is January 1, 1983 for the Pilgrim Baxter & Associates, Ltd. Mid-Cap
Growth Composite.
GENERAL INFORMATION
THE FUND
The Fund, an open-end management investment company, was incorporated in
Maryland in 1997. All consideration received by the Fund for shares of any
Portfolio and all assets of such Portfolio belong to that Portfolio and are
subject to liabilities related thereto. The Fund reserves the right to create
and issue shares of additional series.
Each Portfolio of the Fund pays its respective expenses relating to its
operation, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the shares of the
Portfolio under federal securities laws, pricing and insurance expenses and
pays additional expenses including litigation and other extraordinary
expenses, brokerage costs, interest charges, taxes and organization expenses.
THE ADVISER
Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been
in business since 1982. The controlling shareholder of the Adviser is United
Asset Management Corporation ("UAM"), a New York Stock Exchange listed holding
company principally engaged, through affiliated firms, in providing
institutional investment management services and acquiring institutional
investment management firms. UAM's corporate headquarters are located at One
International Place, Boston, Massachusetts 02110. The Adviser currently has
discretionary management authority with respect to over $14 billion in assets.
In addition to advising the Portfolios, the Adviser provides advisory services
to other mutual funds and to pension and profit-sharing plans, charitable
institutions, corporations, trusts and estates, and other investment
companies. The principal business address of the Adviser is 1255 Drummers
Lane, Suite 300, Wayne, Pennsylvania 19087.
The Adviser serves as the investment adviser to each of the Portfolios under
an investment advisory agreement with the Fund (the "Advisory Agreement").
Under the Advisory Agreement, the Adviser either continuously reviews,
supervises and administers the investment program of each Portfolio, which
includes managing and selecting investments, or, with respect to the Small Cap
Value and Large Cap Value Portfolios, oversees the investment management of
the Portfolios by the Portfolios' Sub-Adviser, subject to the supervision of,
and policies established by, the Board of Directors of the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 1.00% of the Small Cap Value
Portfolio's average daily net assets, 0.85% of each of the Growth II,
Technology & Communications and Select 20 Portfolios' average daily net
assets, 0.75% of the Large Cap Growth Portfolio's average daily net assets and
0.65% of the Large Cap Value Portfolio's average daily net assets. The
advisory fees paid by each Portfolio are higher than those paid by most
investment companies, although the Adviser believes the fees to be comparable
to those paid by investment companies with similar investment objectives and
policies.
THE SUB-ADVISER (SMALL CAP VALUE AND LARGE CAP VALUE PORTFOLIOS)
Newbold's Asset Management, Inc., 950 Haverford Road, Bryn Mawr, Pennsylvania,
is a registered investment adviser that was formed in 1940. As with the
Adviser, the controlling shareholder of the Sub-Adviser is UAM. The
Sub-Adviser currently has discretionary management authority with respect to
over $4 billion in assets. In addition to advising the Portfolios, the
Sub-Adviser provides advisory services to pension and profit-sharing plans,
charitable institutions, trusts, estates and other investment companies.
The Sub-Adviser serves as the investment sub-adviser for the Small Cap Value
and Large Cap Value Portfolios pursuant to a sub-advisory agreement with the
Fund and the Adviser ("Sub-Advisory Agreement"). Under the Sub-Advisory
Agreement, the Sub-Adviser manages the investments of the Small Cap Value and
Large Cap Value Portfolios, selects investments and places all orders for
purchases and sales of the Portfolios' securities, subject to the general
supervision of the Board of Directors of the Fund and the Adviser.
For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreement, the Sub-Adviser is entitled to receive from the Adviser a fee,
computed daily and paid monthly, at an annual rate equal to .65% of the Small
Cap Value Portfolio's average daily net assets and .40% of the Large Cap Value
Portfolio's average daily net assets.
EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of the Portfolios, the Adviser has
entered into an expense limitation agreement with the Fund ("Expense
Limitation Agreement"), with respect to each Portfolio, pursuant to which the
Adviser has agreed to waive or limit its fees and to assume other expenses of
the Portfolios to the extent necessary to limit the total annual operating
expenses (expressed as a percentage of each Portfolio's average daily net
assets) to not more than 1.20% of the average daily net assets of the Growth
II, Small Cap Value, Technology & Communications and Select 20 Portfolios and
to not more than 1.10% and 1.00% of the average daily net assets of the Large
Cap Growth and Large Cap Value Portfolios, respectively, through December 31,
1997. Such waivers and assumption of expenses by the Adviser may be
discontinued at any time after such date. Reimbursement by the Portfolios of
the advisory fees waived or limited and other expenses paid by the Adviser
pursuant to the Expense Limitation Agreement may be made at a later date when
the Portfolios have reached a sufficient asset size to permit reimbursement to
be made without causing the total annual expense ratio of each Portfolio to
exceed the Total Operating Expense percentages described above.
THE PORTFOLIO MANAGERS
The Growth II Portfolio will be managed by Gary L. Pilgrim, CFA, and Bruce J.
Muzina. Mr. Pilgrim has served as the Chief Investment Officer of the Adviser
since 1990 and has been its President since 1993. Mr. Pilgrim currently
manages or co-manages several series of The PBHG Funds, Inc., another mutual
fund managed by the Adviser. Mr. Muzina joined the Adviser in 1985 from
Citibank, where he was Vice President/Portfolio Manager of U.S. equity
portfolios for international institutional accounts. His experience includes
security analysis and investment research focused on health care and chemical
industries, as well as pension and profit sharing portfolio management at a
major advisory firm and at Philadelphia National Bank. Mr. Muzina is an
honors MBA graduate of Temple University and received his undergraduate degree
from Pennsylvania State University. The Large Cap Growth and Select 20
Portfolios will be managed by James D. McCall. Mr. McCall has been a portfolio
manager with the Adviser since 1994. Prior to joining the Adviser, Mr. McCall
was a portfolio manager with First Maryland Bank Corporation (May 1992 to
November 1994) and a portfolio manager with Provident Mutual Management, Inc.
prior to that time. Mr. McCall co-manages two series of The PBHG Funds, Inc.
with Mr. Pilgrim and has done so since their inception. Mr. McCall also
manages the PBHG Large Cap 20 Fund and has done so since its inception. The
Small Cap Value Portfolio will be managed by Gary D. Haubold. (See "Historical
Performance - Small Cap Value Portfolio Manager" for biographical information
with respect to Mr. Haubold.) The Large Cap Value Portfolio will be managed by
James H. Farrell, CFA. Mr. Farrell joined the Sub-Adviser in September, 1996
and is its Chief Investment Officer. Mr. Farrell also manages another mutual
fund advised by the Sub-Adviser, two series of The PBHG Funds, Inc., and
serves as President of Farrell Seiwell, Inc., an investment adviser. Prior to
joining the Sub-Adviser, he was an Investment Counselor in a sole
proprietorship for two years. From 1983 to 1994, he was a partner at Cashman,
Farrell and Associates, an investment advisory firm.
John F. Force, CFA, will manage the Technology & Communications Portfolio. Mr.
Force joined the Adviser in 1993 and is a portfolio manager and equity analyst
for the Adviser. He currently co-manages the PBHG Technology & Communications
Fund, a series of The PBHG Funds, Inc. Prior to joining the Adviser, Mr. Force
was Vice President/Portfolio Manager at Fiduciary Management Associates from
July, 1987 to September, 1992.
THE ADMINISTRATOR AND THE SUB-ADMINISTRATOR
PBHG Fund Services (the "Administrator") provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel and facilities. For these administrative services, the
Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of the average daily net assets of the
Fund. The principal place of business of the Administrator is 1255 Drummers
Lane, Suite 300, Wayne, Pennsylvania 19087.
SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Corporation ("SEI") and an affiliate of the Fund's
distributor, assists the Administrator in providing administrative services to
the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total average
daily net assets of (i) the Fund and (ii) The PBHG Funds, Inc., and a fee at
the annual rate of 0.025% of the average daily net assets of each Portfolio
with respect to the total average daily net assets of (i) the Fund and (ii)
The PBHG Funds, Inc. in excess of $2.5 billion.
THE TRANSFER AGENT AND SUB-TRANSFER AGENT
DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent, dividend disbursing agent and shareholder servicing agent
for the Fund under a transfer agent agreement with the Fund.
From time to time, the Fund may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
Qualified Plans. These services may include, among other things,
sub-accounting services, answering inquiries relating to the Fund, delivering,
on behalf of the Fund, proxy statements, annual reports, updated Prospectuses,
other communications regarding the Fund, and related services as the Fund or
the beneficial owners may reasonably request.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), 680 East Swedesford Road,
Wayne, Pennsylvania 19087-1658, a wholly-owned subsidiary of SEI, provides the
Fund with distribution services.
DIRECTORS OF THE FUND
The management and affairs of the Fund are supervised by the Board of
Directors under the laws of the State of Maryland. The Directors have approved
agreements under which, as described above, certain companies provide
essential management services to the Fund.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. Shareholders
of each Portfolio will vote separately on matters relating solely to it, such
as approval of advisory agreements and changes in fundamental policies, and
matters affecting some but not all Portfolios of the Fund will be voted on
only by shareholders of the affected Portfolios. Shareholders of all
Portfolios of the Fund will vote together in matters affecting the Fund
generally, such as the election of Directors or selection of accountants. As a
Maryland corporation, the Fund is not required to hold annual meetings of
shareholders but shareholder approval will be sought for certain changes in
the operation of the Fund and for the election of Directors under certain
circumstances. In addition, a Director may be removed by the remaining
Directors or by shareholders at a special meeting called upon written request
of shareholders owning at least 10% of the outstanding shares of the Fund. In
the event that such a meeting is requested, the Fund will provide appropriate
assistance and information to the shareholders requesting the meeting. Under
current law, a Participating Insurance Company is required to request voting
instructions from VA Contract owners and VLI Policy owners and must vote all
shares held in the separate account in proportion to the voting instructions
received. Qualified Plans may or may not pass through voting rights to
Qualified Plan participants, depending on the terms of the Qualified Plan's
governing documents. For a more complete discussion of voting rights, refer to
the Participating Insurance Company separate account prospectus or the
Qualified Plan documents or other informational materials supplied by
Qualified Plan sponsors.
CONFLICTS OF INTEREST. The Portfolio offers its shares to (i) VA
Contracts and VLI Policies offered through separate accounts of Participating
Insurance Companies which may or may not be affiliated with each other and
(ii) Qualified Plans including Participant-directed Plans which elect to make
the Portfolios available as investment options for Qualified Plan
participants. Due to differences of tax treatment and other considerations,
the interests of VA Contract and VLI Policy owners and Qualified Plan
participants participating in the Portfolios may conflict. The Board will
monitor the Portfolios for any material conflicts that may arise and will
determine what action, if any, should be taken. If a conflict occurs, the
Board may require one or more Participating Insurance Company separate
accounts and/or Qualified Plans to withdraw its investments in the Portfolios.
As a result, the Portfolios may be forced to sell securities at
disadvantageous prices and orderly portfolio management could be disrupted. In
addition, the Board may refuse to sell shares of the Portfolios to any VA
Contract, VLI Policy or Qualified Plan or may suspend or terminate the
offering of shares of the Portfolios if such action is required by law or
regulatory authority or is in the best interests of the shareholders of the
Portfolios.
REPORTING
The Fund issues unaudited financial information semi-annually, and audited
financial statements annually for each Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of
record.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Katten Muchin & Zavis serves as counsel to the Fund. Coopers & Lybrand, L.L.P.
serves as the independent accountants of the Fund.
CUSTODIAN
CoreStates Bank, N.A. ("Custodian"), Broad and Chestnut Streets, P.O. Box
7618, Philadelphia, Pennsylvania 19101, serves as the custodian for the Fund.
The Custodian holds cash, securities and other assets of the Fund as required
by the 1940 Act.
MISCELLANEOUS
As of the date of this Prospectus, the Adviser, as each Portfolio's initial
shareholder, owned of record or beneficially, all of the outstanding shares of
each Portfolio, and may be deemed to be a controlling person of each Portfolio
for purposes of the 1940 Act.
GLOSSARY OF PERMITTED INVESTMENTS
The following is a description of permitted investments for certain of the
Portfolios:
American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs")
- -- ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"),
are securities, typically issued by a non-U.S. financial institution, that
evidence ownership interests in a security or a pool of securities issued by
either a U.S. or foreign issuer. ADRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying the
receipt and a depositary, whereas an unsponsored facility may be established
by a depositary without participation by the issuer of the receipt's
underlying security. Holders of an unsponsored depositary receipt generally
bear all the costs of the unsponsored facility. The depositary of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security
or to pass through to the holders of the receipts voting rights with respect
to the deposited securities.
Bankers' Acceptance -- A bill of exchange or time draft drawn on and accepted
by a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
Certificate of Deposit -- A negotiable interest bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit
generally carry penalties for early withdrawal.
Commercial Paper -- The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
typically vary from a few days to nine months.
Convertible Securities -- Securities such as rights, bonds, notes and
preferred stocks which are convertible into or exchangeable for common stocks.
Convertible securities have characteristics similar to both fixed income and
equity securities. Because of the conversion feature, the market value of
convertible securities tends to move together with the market value of the
underlying common stock. As a result, a Portfolio's selection of convertible
securities is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
securities is also affected by prevailing interest rates, the credit quality
of the issuer, and any call provisions.
Demand Instruments -- Certain instruments may involve a conditional or
unconditional demand feature which permits the holder to demand payment of the
principal amount of the instrument. Demand instruments may include variable
amount master demand notes.
Derivatives -- Derivatives are securities that derive their value from other
securities. The following, among others, are considered derivative securities:
futures, options on futures, options (e.g., puts and calls), swap agreements,
mortgage-backed securities (e.g., CMOs, REMICs, IOs and POs), when-issued
securities and forward commitments, floating and variable rate securities,
convertible securities, "stripped" U.S. Treasury securities (e.g., Receipts
and STRIPS) and privately issued stripped securities (e.g., TGRs, TRs and
CATS). See elsewhere in this "Glossary of Permitted Investments" for
discussions of these various instruments, and see "Investment Objectives and
Policies" for more information about the investment policies and limitations
applicable to their use.
Equity Securities -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. Changes in the value of
portfolio securities will not necessarily affect cash income derived from
these securities but will affect a Portfolio's net asset value.
Forward Foreign Currency Contracts -- Foreign currency exchange transactions
may be used to protect against uncertainty in the level of future exchange
rates between a particular foreign currency and the U.S. dollar, or between
foreign currencies in which a Portfolio's portfolio securities are or may be
denominated. Such transactions may be conducted on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or
through entering into forward currency contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency amount
at a future date, which may be any fixed number of days from the date of the
contract, agreed upon by the parties, at a price set at the time of the
contract. Under normal circumstances, consideration of the prospect for
changes in currency exchange rates will be incorporated into each Portfolio's
long-term investment strategies. However, the Adviser believes that it is
important to have the flexibility to enter into forward foreign currency
contracts when it determines that the best interests of a Portfolio will be
served.
When the Adviser believes that the currency of a particular country may suffer
a significant decline against the U.S. dollar or against another currency, the
Portfolio in question may enter into a forward foreign currency contract to
sell, for a fixed amount of U.S. dollars or other appropriate currency, the
amount of foreign currency approximating the value of some or all of the
Portfolio's securities denominated in such foreign currency.
At the maturity of a forward foreign currency contract, a Portfolio may either
sell a portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader, obligating it to purchase, on the same maturity date, the same amount
of the foreign currency. A Portfolio may realize a gain or loss from currency
transactions.
Generally, a Portfolio will enter into forward foreign currency contracts only
as a hedge against foreign currency exposure affecting the Portfolio or to
hedge a specific security transaction or portfolio position. If a Portfolio
enters into forward foreign currency contracts to cover activities which are
essentially speculative, the Portfolio will segregate cash or readily
marketable securities with its custodian, or a designated sub-custodian, in an
amount at all times equal to or exceeding the Portfolio's commitment with
respect to such contracts.
Forward contracts may substantially change the Fund's investment exposure to
changes in currency exchange rates, and could result in losses to the Fund if
currencies do not perform as the Adviser anticipates. For example, if a
currency's value rose at a time when the Adviser had hedged the Fund by
selling that currency in exchange for dollars, the Fund would be unable to
participate in the currency's appreciation. Similarly, if the Adviser
increases the Fund's exposure to a foreign currency, and that currency's value
declines, the Fund will realize a loss.
Futures Contracts -- Futures contracts are derivatives. Futures contracts
provide for the sale by one party and purchase by another party of a specified
amount of a specific security, securities index or currency at a specified
future time and price. A Portfolio will maintain assets sufficient to meet its
obligations under such futures contracts in a segregated margin account with
the custodian bank or will otherwise comply with the SEC's position on asset
coverage. The prices of futures contracts are volatile and are influenced by,
among other things, actual and anticipated changes in the market and interest
rates.
Illiquid Securities -- Securities that cannot be disposed of in the ordinary
course of business within seven days at approximately the price at which the
Portfolio has valued the security.
Mortgage-Backed Securities -- Securities that include interests in pools of
lower-rated debt securities, or consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be significantly
affected by changes in interest rates, the market's perception of the issuers,
and the creditworthiness of the parties involved. Some securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their value highly volatile. These securities may
also be subject to prepayment risk.
Receipts -- Separately traded interest and principal component parts of U.S.
Treasury obligations that are issued by banks or brokerage firms and are
created by depositing U.S. Treasury obligations into a special account at a
custodian bank. The custodian bank holds the interest and principal payments
for the benefit of the registered owners of the receipts. The custodian bank
arranges for the issuance of the receipts evidencing ownership and maintains
the register.
Repurchase Agreements -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days from the date of purchase. The Custodian or its agents will hold the
security as collateral for the repurchase agreement. Collateral must be
maintained at a value at least equal to 102% of the purchase price. Each
Portfolio bears a risk of loss in the event the other party defaults on its
obligations and the Portfolio is delayed or prevented from its right to
dispose of the collateral securities or if the Portfolio realizes a loss on
the sale of the collateral securities. The Adviser and Sub-Adviser will enter
into repurchase agreements on behalf of a Portfolio only with financial
institutions deemed to present minimal risk of bankruptcy during the term of
the agreement based on guidelines established and periodically reviewed by the
Directors. Repurchase agreements are considered loans under the 1940 Act, as
well as for federal and state income tax purposes.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933, as amended ("1933 Act"),
or an exemption from registration. A Portfolio may invest in restricted
securities that the Adviser or Sub-Adviser determines are not illiquid, based
on guidelines and procedures developed and established by the Board of
Directors of the Fund. The Board of Directors will periodically review such
procedures and guidelines and will monitor the Adviser's implementation of
such procedures and guidelines. Under these procedures and guidelines, the
Adviser will consider the frequency of trades and quotes for the security, the
number of dealers in, and potential purchasers for, the securities, dealer
undertakings to make a market in the security, and the nature of the security
and of the marketplace trades. The Fund may purchase restricted securities
sold in reliance upon the exemption from registration provided by Rule 144A
under the 1933 Act. Restricted securities may be difficult to value because
market quotations may not be readily available. Because of the restrictions on
the resale of restricted securities, they may pose liquidity problems for the
Portfolios.
Time Deposit -- A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities.
U.S. Government Agency Obligations -- Certain Federal agencies such as the
Government National Mortgage Association ("GNMA") have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Securities issued by these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States (e.g., GNMA securities) or
supported by the issuing agencies' right to borrow from the Treasury. The
securities issued by other agencies are supported only by the credit of the
instrumentality (e.g., Tennessee Valley Authority securities).
U.S. Government Securities -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. Treasury Obligations -- Bills, notes and bonds issued by the U.S.
Treasury, and separately traded interest and principal component parts of such
obligations that are transferable through the Federal book-entry system known
as Separately Traded Registered Interest and Principal Securities ("STRIPS").
STRIPS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. One type of STRIPS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In some
cases, one class will receive all of the interest ("IO class"), while the
other class will receive all of the principal ("principal-only" or "PO
class"). The yield to maturity on IO classes and PO classes is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on the portfolio yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, a Portfolio may fail to fully recoup its initial investment in
these securities, even if the security is in one of the highest rating
categories.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by a Portfolio may carry variable or floating rates of interest, may involve a
conditional or unconditional demand feature and may include variable amount
master demand notes. Such instruments bear interest at rates which are not
fixed, but which vary with changes in specified market rates or indices, such
as a Federal Reserve composite index. The interest rates on these securities
may be reset daily, weekly, quarterly or some other reset period, and may have
a floor or ceiling on interest rate changes. There is a risk that the current
interest rate on such obligations may not accurately reflect existing market
interest rates. A demand instrument with a demand notice exceeding seven days
may be considered illiquid if there is no secondary market for such
securities.
Warrants -- Instruments giving holders the right, but not the obligation, to
buy shares of a company at a given price during a specified period.
When-Issued and Delayed-Delivery Securities -- When-issued and
delayed-delivery securities are securities subject to settlement on a future
date. For fixed income securities, the interest rate realized on when-issued
or delayed-delivery securities is fixed as of the purchase date and no
interest accrues to a Portfolio before settlement. These securities are
subject to market fluctuation due to changes in market interest rates and will
have the effect of leveraging a Portfolio's assets. The Portfolios are
permitted to invest in forward commitments or when-issued securities where
such purchases are for investment and not for leveraging purposes. One or more
segregated accounts will be established with the Custodian, and the Portfolios
will maintain liquid assets in such accounts in an amount at least equal in
value to each Portfolio's commitments to purchase when-issued securities.
Fund:
PBHG INSURANCE SERIES FUND, INC.
Portfolios:
PBHG GROWTH II PORTFOLIO
PBHG LARGE CAP GROWTH PORTFOLIO
PBHG SMALL CAP VALUE PORTFOLIO
PBHG LARGE CAP VALUE PORTFOLIO
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
PBHG SELECT 20 PORTFOLIO
Investment Adviser:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus. It is intended
to provide additional information regarding the activities and operations of
the PBHG Insurance Series Fund, Inc. (the "Fund") and the PBHG Growth II
Portfolio, PBHG Large Cap Growth Portfolio, PBHG Small Cap Value Portfolio,
PBHG Large Cap Value Portfolio, PBHG Technology & Communications Portfolio and
the PBHG Select 20 Portfolio (the "Portfolios"). It should be read in
conjunction with the Prospectus dated May 1, 1997. The Prospectus may be
obtained without charge by calling 1-800-347-9256.
TABLE OF CONTENTS
THE FUND
DESCRIPTION OF PERMITTED INVESTMENTS
INVESTMENT LIMITATIONS
THE ADVISER
THE SUB-ADVISER
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
THE DISTRIBUTOR
DIRECTORS AND OFFICERS OF THE FUND
PERFORMANCE INFORMATION
PURCHASE AND REDEMPTION OF SHARES
DETERMINATION OF NET ASSET VALUE
TAXES
PORTFOLIO TRANSACTIONS
DESCRIPTION OF SHARES
INFORMATION ABOUT THE TECHNOLOGY & COMMUNICATIONS PORTFOLIO
FINANCIAL STATEMENTS
May 1, 1997
THE FUND
This Statement of Additional Information relates to all Portfolios of the
Fund. Each share of each Portfolio represents an equal proportionate interest
in that Portfolio. See "Description of Shares." No investment in shares of a
Portfolio should be made without first reading the Prospectus. Capitalized
terms not defined herein are defined in the Prospectus. Pilgrim Baxter &
Associates, Ltd. ("Adviser") serves as the investment adviser to each
Portfolio. Newbold's Asset Management, Inc. ("Sub-Adviser") serves as the
investment sub-adviser to the Small Cap Value and Large Cap Value Portfolios.
The Adviser and the Sub-Adviser are collectively referred to herein as the
"Advisers."
DESCRIPTION OF PERMITTED INVESTMENTS
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (e.g., a Portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or primary securities
dealer as recognized by the Federal Reserve Bank of New York) at an agreed
upon price (including principal and interest) on an agreed upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the underlying
security. A repurchase agreement involves the obligation of the seller to pay
the agreed upon price, which obligation is in effect secured by the value of
the underlying security.
Repurchase agreements are considered to be loans by a Portfolio for purposes
of its investment limitations. The repurchase agreements entered into by a
Portfolio will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement (the
Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by a Portfolio, the Fund's custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults,
a Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of the sale, including accrued interest, are less
than the resale price provided in the agreement including interest. In
addition, even though the Bankruptcy Code provides protection for most
repurchase agreements, if the seller should be involved in bankruptcy or
insolvency proceedings, a Portfolio may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the
Portfolio is treated as an unsecured creditor of the seller and is required to
return the underlying security to the seller's estate.
FUTURES CONTRACTS
Futures Transactions. A futures contract is a bilateral agreement to buy or
sell a security (or deliver a cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contracts) for a set price in the future. Futures contracts
are designated by boards of trade which have been designated "contracts
markets" by the Commodity Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a Portfolio upon entering into a futures contract (and to maintain
the Portfolio's open positions in futures contracts) would be required to
deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash, or other assets, known as "initial margin." The
margin required for a particular futures contract is set by the exchange on
which the contract is traded, and may be significantly modified from time to
time by the exchange during the term of the contract. Futures contracts are
customarily purchased and sold on margin that may range upward from less than
5% of the value of the contract being traded. By using futures contracts as a
risk management technique, given the greater liquidity in the futures market
than in the cash market, it may be possible to accomplish certain results more
quickly and with lower transaction costs.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin.
However, if the value of a position increases because of favorable price
changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Portfolio. These
subsequent payments called "variation margin," to and from the futures broker,
are made on a daily basis as the price of the underlying assets fluctuate
making the long and short positions in the futures contract more or less
valuable, a process known as "marking to the market." A Portfolio expects to
earn interest income on its initial and variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss.
While futures positions taken by a Portfolio will usually be liquidated in
this manner, a Portfolio may instead make or take delivery of underlying
securities whenever it appears economically advantageous to the Portfolio to
do so. A clearing organization associated with the exchange on which futures
are traded assumes responsibility for closing out transactions and guarantees
that as between the clearing members of an exchange, the sale and purchase
obligations will be performed with regard to all positions that remain open at
the termination of the contract.
Securities Index Futures Contracts. Purchases or sales of securities index
futures contracts may be used in an attempt to protect a Portfolio's current
or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes
in the market value of the contract to be credited or debited at the close of
each trading day to the respective accounts of the parties to the contract. On
the contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the future is based.
By establishing an appropriate "short" position in index futures, the
Portfolio may also seek to protect the value of its portfolio against an
overall decline in the market for such securities. Alternatively, in
anticipation of a generally rising market, a Portfolio can seek to avoid
losing the benefit of apparently low current prices by establishing a "long"
position in securities index futures and later liquidating that position as
particular securities are in fact acquired. To the extent that these hedging
strategies are successful, a Portfolio will be affected to a lesser degree by
adverse overall market price movements than would otherwise be the case.
Limitations on Purchase and Sale of Futures Contracts. A Portfolio will not
purchase or sell futures contracts unless either (1) a futures contracts are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (2) if purchased for other purposes, the sum of the
amounts of initial margin deposits on the Portfolio's existing futures
contracts and premiums required to establish non-hedging positions would not
exceed 5% of the liquidation value of the Portfolio's total assets. In
instances involving the purchase of futures contracts by a Portfolio, an
amount of cash or other liquid assets, equal to the cost of such futures
contracts (less any related margin deposits), will be deposited in a
segregated account with its custodian, thereby insuring that the use of such
futures contracts is unleveraged. In instances involving the sale of futures
contracts by a Portfolio, the securities underlying such futures contracts or
options will at all times be maintained by the Portfolio or, in the case of
index futures contracts, the Portfolio will own securities the price changes
of which are, in the opinion of its Advisers expected to replicate
substantially the movement of the index upon which the futures contract is
based.
For information concerning the risks associated with utilizing futures
contracts, please see "Risks of Transactions in Futures Contracts Options"
below.
OPTIONS
Options are contracts that give one of the parties to the contract the right
to buy or sell the security that is subject to the option at a stated price
during the option period, and obligates the other party to the contract to buy
or sell such security at the stated price during the option period. The types
of options transactions that the Portfolios are permitted to utilize are
discussed below.
Writing Call Options. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration
of the option, regardless of the market price of the security during the
option period. A call option on a security is covered, for example, when the
writer of the call option owns the security on which the option is written
(or on a security convertible into such a security without additional
consideration) throughout the option period.
A Portfolio will write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return through the receipt of premiums. In return for the premium income, the
Portfolio will give up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price so long as
its obligations under the contract continue, except insofar as the premium
represents a profit. Moreover, in writing the call option, a Portfolio will
retain the risk of loss should the price of the security decline. The premium
is intended to offset that loss in whole or in part. Unlike the situation in
which a Portfolio owns securities not subject to a call option, a Portfolio,
in writing call options, must assume that the call may be exercised at any
time prior to the expiration of its obligation as a writer, and that in such
circumstances the net proceeds realized from the sale of the underlying
securities pursuant to the call may be substantially below the prevailing
market price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing
purchase transaction if the amount paid to purchase a call option is less or
more than the amount received from the sale of the corresponding call option.
Also, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the exercise or closing out of a call option is likely to be
offset in whole or part by unrealized appreciation of the underlying security
owned by the Portfolio. When an underlying security is sold from the
Portfolio's securities portfolio, the Portfolio will effect a closing purchase
transaction so as to close out any existing covered call option on that
underlying security.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio
when it writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash, or
other liquid obligations having a value equal to or greater than the exercise
price of the option.
A Portfolio may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security
will remain stable or rise during the option period and the option will
therefore not be exercised) or to acquire the underlying security at a net
cost below the current value (e.g., the option is exercised because of a
decline in the price of the underlying security, but the amount paid by the
Portfolio, offset by the option premium, is less than the current price). The
risk of either strategy is that the price of the underlying security may
decline by an amount greater than the premium received. The premium which the
Portfolio receives from writing a put option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to that market price, the historical price volatility of the
underlying security, the option period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on
an outstanding put option or to prevent an outstanding put option from being
exercised.
Purchasing Put and Call Options. A Portfolio may purchase put options on
securities to protect its holdings against a substantial decline in market
value. The purchase of put options on securities will enable the Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in
its portfolio without actually selling the security. In addition, a Portfolio
will continue to receive interest or dividend income on the security. A
Portfolio may also purchase call options on securities to protect against
substantial increases in prices of securities that the Portfolio intend to
purchase pending its ability to invest in an orderly manner in those
securities. A Portfolio may sell put or call options it has previously
purchased, which could result in a net gain or loss depending on whether the
amount received on the sale is more or less than the premium and other
transaction cost paid on the put or call option which was bought.
Securities Index Options. A Portfolio may write covered put and call options
and purchase call and put options on securities indexes for the purpose of
hedging against the risk of unfavorable price movements adversely affecting
the value of the Portfolio's securities or securities it intends to purchase.
A Portfolio will only write "covered" options. A call option on a securities
index is considered covered, for example, if, so long as the Portfolio is
obligated as the writer of the call, it holds securities the price changes of
which are, in the opinion of the Adviser, expected to replicate substantially
the movement of the index or indexes upon which the options written by the
Portfolio are based. A put on a securities index written by the Portfolio will
be considered covered if, so long as it is obligated as the writer of the put,
the Portfolio segregates with its custodian cash or other liquid obligations
having a value equal to or greater than the exercise price of the option.
Unlike a stock option, which gives the holder the right to purchase or sell a
specified stock at a specified price, an option on a securities index gives
the holder the right to receive a cash "exercise settlement amount" equal to
(i) the difference between the exercise price of the option and the value of
the underlying stock index on the exercise date, multiplied by (ii) a fixed
"index multiplier."
A securities index fluctuates with changes in the market value of the
securities so included. For example, some securities index options are based
on a broad market index such as the S&P 500 or the NYSE Composite Index, or a
narrower market index such as the S&P 100. Indexes may also be based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index.
Over-the-Counter Options. A Portfolio may enter into contracts with primary
dealers with whom it may write over-the-counter options. Such contracts will
provide that the Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market
value, as determined in good faith through negotiation between the parties,
but which in no event will exceed a price determined pursuant to a formula
contained in the contract. Although the specific details of the formula may
vary between contracts with different primary dealers, the formula will
generally be based on a multiple of the premium received by the Portfolio for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount the option is "in-the-money"). The formula will also include
a factor to account for the difference between the price of the security and
the strike price of the option if the option is written "out-of-the-money." A
Portfolio has established standards of creditworthiness for these primary
dealers, although the Portfolio may still be subject to the risk that firms
participating in such transactions will fail to meet their obligations. In
instances in which a Portfolio has entered into agreements with respect to the
over-the-counter options it has written, and such agreements would enable the
Portfolio to have an absolute right to repurchase at a pre-established formula
price the over-the-counter option written by it, the Portfolio would treat as
illiquid only securities equal in amount to the formula price described above
less the amount by which the option is "in-the-money," i.e., the amount by
which the price of the option exceeds the exercise price.
For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS
Futures. The prices of futures contracts are volatile and are influenced,
among other things, by actual and anticipated changes in the market and
interest rates, which in turn are affected by fiscal and monetary policies and
national and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading sessions. Once the daily limit has been reached in a particular type
of futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss,
as well as gain, to the investor. For example, if at the time of purchase, 10%
of the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess
of the amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the futures contracts and movements in the
prices of the underlying instruments which are the subject of the hedge. The
Advisers will, however, attempt to reduce this risk by entering into futures
contracts whose movements, in its judgment, will have a significant
correlation with movements in the prices of the Portfolio's underlying
instruments sought to be hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is
also subject to the Portfolio's ability to correctly predict movements in the
direction of the market. It is possible that, when the Portfolio has sold
futures to hedge its portfolio against a decline in the market, the index,
indices, or instruments underlying futures might advance and the value of the
underlying instruments held in the Portfolio's portfolio might decline. If
this were to occur, the Portfolio would lose money on the futures and also
would experience a decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a
board of trade which provides the market for such futures. Although each
Portfolio intends to purchase or sell futures only on exchanges or boards of
trade where there appears to be an active market, there is no guarantee that
such will exist for any particular contract or at any particular time. If
there is not a liquid market at a particular time, it may not be possible to
close a futures position at such time, and, in the event of adverse price
movements, the Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event futures positions are used
to hedge portfolio securities, the securities will not be sold until the
futures positions can be liquidated. In such circumstances, an increase in the
price of securities, if any, may partially or completely offset losses on the
futures contracts.
Options. A closing purchase transaction for exchange-traded options may be
made only on a national securities exchange (exchange). There is no assurance
that a liquid secondary market on an exchange will exist for any particular
option, or at any particular time, and for some options, such as
over-the-counter options, no secondary market on an exchange may exist. If a
Portfolio is unable to effect a closing purchase transaction, the Portfolio
will not sell the underlying security until the option expires or the
Portfolio delivers the underlying security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. A Portfolio will engage in
such transactions only with firms of sufficient credit so as to minimize these
risks. Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the
selected securities index. Perfect correlation is not possible because the
securities held or to be acquired by the Portfolio will not exactly match the
composition of the securities indexes on which options are written. In the
purchase of securities index options the principal risk is that the premium
and transaction costs paid by a Portfolio in purchasing an option will be lost
if the changes (increase in the case of a call, decrease in the case of a put)
in the level of the index do not exceed the cost of the option.
INVESTMENT COMPANY SHARES
The Portfolios may invest in shares of money market mutual funds, to the
extent set forth under "Investment Limitations" below. Since such funds pay
management fees and other expenses, shareholders of a Portfolio would
indirectly pay both the Portfolio's expenses and the expenses of underlying
funds with respect to the Portfolio's assets invested therein. Applicable
regulations prohibit a Portfolio from acquiring the securities of other
investment companies that are "not part of the same group of investment
companies" if, as a result of such acquisition, the Portfolio owns more than
3% of the total voting stock of the company; more than 5% of the Portfolio's
total assets are invested in securities of any one investment company; or more
than 10% of the total assets of the Portfolio are invested in securities
(other than treasury stock) issued by all investment companies.
ILLIQUID INVESTMENTS
Illiquid investments are investments that cannot be sold or disposed of in the
ordinary course of business within seven (7) days at approximately the prices
at which they are valued. Under the supervision of the Board of Directors, the
Advisers determine the liquidity of the Fund's investments and, through
reports from the Advisers, the Board monitors investments in illiquid
instruments. In determining the liquidity of a Portfolio's investments, the
Advisers may consider various factors including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features), and (5) the nature of the
market place for trades (including the ability to assign or offset a
Portfolio's rights and obligations relating to the investment). Investments
currently considered by a Portfolio to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest
within seven (7) days, over the-counter options, and non-government stripped
fixed-rate mortgage backed securities. Also, the Advisers may determine some
government-stripped fixed-rate mortgage backed securities, loans and other
direct debt instruments, and swap agreements to be illiquid. However, with
respect to over-the-counter options a Portfolio writes, all or a portion of
the value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement a Portfolio
may have to close out the option before expiration. In the absence of market
quotations, illiquid investments are priced at fair value as determined in
good faith by a committee appointed by the Board of Directors. If, through a
change in values, net assets or other circumstances, a Portfolio was in a
position where more than 15% of its net assets were invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
RESTRICTED SECURITIES
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, a Portfolio may be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to
seek registration and the time a Portfolio may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Portfolio might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
FOREIGN CURRENCY TRANSACTIONS
A Portfolio may hold foreign currency deposits from time to time, and may
convert dollars and foreign currencies in the foreign exchange markets.
Currency conversion involves dealer spreads and other costs, although
commissions usually are not charged. Currencies may be exchanged on a spot
(i.e., cash) basis, or by entering into forward contracts to purchase or sell
foreign currencies at a future date and price. Forward contracts generally are
traded in an interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The parties to a forward
contract may agree to offset or terminate the contract before maturity, or may
hold the contract to maturity and complete the contemplated currency exchange.
A Portfolio may use currency forward contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Fund.
In connection with purchases and sales of securities denominated in foreign
currencies, a Portfolio may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Advisers expect to enter into settlement hedges in
the normal course of managing the Portfolio's foreign investments. A Portfolio
could also enter into forward contracts to purchase or sell a foreign currency
in anticipation of future purchases or sales of securities denominated in
foreign currency, even if the specific investments have not yet been selected
by the Advisers.
A Portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if
a Portfolio owned securities denominated in pounds sterling, it could enter
into a forward contract to sell pounds sterling in return for U.S. dollars to
hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge", would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security
values caused by other factors. A Portfolio could also hedge the position by
selling another currency expected to perform similarly to the pound sterling -
for example, by entering into a forward contract to sell Deutschemark or
European Currency Units in return for U.S. dollars. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield, or efficiency, but generally would not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover currency
forward contracts. As required by SEC guidelines, each Portfolio will
segregate assets to cover currency forward contracts, if any, whose purpose is
essentially speculative. A Portfolio will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.
Successful use of forward currency contracts will depend on the Advisers'
skill in analyzing and predicting currency values. Forward contracts may
substantially change a Portfolio's investment exposure to changes in currency
exchange rates, and could result in losses to a Portfolio if currencies do not
perform as the Advisers anticipate. For example, if a currency's value rose at
a time when the Advisers had hedged a Portfolio by selling that currency in
exchange for dollars, a Portfolio would be unable to participate in the
currency's appreciation. If the Advisers hedge currency exposure through proxy
hedges, a Portfolio could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in
tandem. Similarly, if the Advisers increase a Portfolio's exposure to a
foreign currency, and that currency's value declines, a Portfolio will realize
a loss. There is no assurance that the Advisers' use of forward currency
contracts will be advantageous to a Portfolio or that it will hedge at an
appropriate time.
The policies described in this section of the Statement of Additional
Information are non-fundamental policies of a Portfolio.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
Each Portfolio has adopted certain investment restrictions which (in addition
to those fundamental investment restrictions set forth in the Prospectus) are
fundamental and may not be changed without approval by a majority vote of the
Portfolio's shareholders. Such majority is defined in the 1940 Act as the
lesser of (i) 67% or more of the voting securities of the Portfolio present in
person or by proxy at a meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy; or (ii)
more than 50% of the outstanding voting securities of the Portfolio.
Each Portfolio may not:
1. Acquire more than 10% of the voting securities of any one issuer
except that such limitation shall only apply to 75% of the Growth II
Portfolio's assets.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only
in an amount not exceeding 10% of the value of the Portfolio's total assets
(except not exceeding 33 1/3% of the value of total assets with respect to the
Growth II and Small Cap Value Portfolios). This borrowing provision is
included solely to facilitate the orderly sale of portfolio securities to
accommodate substantial redemption requests if they should occur and is not
for investment purposes. All borrowings in excess of 5% of the Portfolio's
total assets will be repaid before making investments.
4. Make loans, except that each Portfolio, in accordance with that
Portfolio's investment objectives and policies, may (i) purchase or hold debt
instruments, and (ii) enter into repurchase agreements as described in the
Portfolio's prospectus and this Statement of Additional Information.
5. Pledge, mortgage or hypothecate assets, except (i) to secure
temporary borrowings permitted by each Portfolio's limitation on permitted
borrowings, or (ii) in connection with permitted transactions regarding
options and futures contracts.
6. Purchase or sell real estate, real estate limited partnership
interests, futures contracts, commodities or commodity contracts, except that
this shall not prevent a Portfolio from (i) investing in readily marketable
securities of issuers which can invest in real estate or commodities,
institutions that issue mortgages, or real estate investment trusts which deal
in real estate or interests therein, pursuant to the Portfolio's investment
objective and policies, and (ii) entering into futures contracts and options
thereon that are listed on a national securities or commodities exchange
where, as a result thereof, no more than 5% of the total assets for that
Portfolio (taken at market value at the time of entering into the futures
contracts) would be committed to margin deposits on such futures contracts and
premiums paid for unexpired options on such futures contracts; provided that,
in the case of an option that is "in-the-money" at the time of purchase, the
"in-the-money" amount, as defined under the Commodity Futures Trading
Commission regulations, may be excluded in computing the 5% limit. Each
Portfolio (as a matter of operating policy) will utilize only listed futures
contracts and options thereon.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that each Portfolio may (i) obtain short-term
credits as necessary for the clearance of security transactions and (ii)
establish margin accounts as may be necessary in connection with the
Portfolio's use of options and futures contracts.
8. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies except as permitted
by the 1940 Act and the rules and regulations thereunder.
10. Issue senior securities (as defined in the 1940 Act) except in
connection with a permitted borrowing of money or pledging, mortgaging or
hypothecating assets, as described in each Portfolio's limitation on borrowing
money and each Portfolio's limitation on permitted borrowings and each
Portfolio's limitation on pledging, mortgaging or hypothecating assets, or as
permitted by rule, regulation or order of the SEC.
11. Invest in interests in oil, gas or other mineral exploration or
development programs.
12. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if, as a result, more than 5%
of the total assets of the Portfolio would be invested in the securities of
such issuer. This restriction applies to 75% of each Portfolio's total assets.
13. Purchase any securities which would cause 25% or more of the total
assets of a Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities. For purposes of this
limitation, (i) utility companies will be divided according to their services,
for example, gas distribution, gas transmission, electric and telephone will
each be considered a separate industry, and (ii) financial service companies
will be classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry. For purposes of this limitation, supranational
organizations are deemed to be issuers conducting their principal business
activities in the same industry.
NON-FUNDAMENTAL POLICIES
In addition to the foregoing, and the policies set forth in the Portfolios'
Prospectus, each Portfolio has adopted additional investment restrictions
which may be amended by the Board of Directors without a vote of shareholders.
Each Portfolio may not:
1. Invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of its net assets. This limitation does not include any Rule
144A restricted security that has been determined by, or pursuant to
procedures established by, the Board, based on trading markets for such
security, to be liquid.
2. Purchase or sell puts, calls, straddles, spreads, and any combination
thereof, if by reason thereof, the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets.
THE ADVISER
The Fund and Pilgrim Baxter & Associates, Ltd. (the "Adviser") have entered
into an advisory agreement (the "Advisory Agreement"). The Advisory Agreement
provides certain limitations on the Adviser's liability, but also provides
that the Adviser shall not be protected against any liability to the Fund or
each of its Portfolios or its shareholders by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard of its obligations or duties thereunder.
The Advisory Agreement obligates the Adviser to: (1) provide a program of
continuous investment management for each Portfolio in accordance with the
Portfolio's investment objectives, policies and limitations; (2) make
investment decisions for each Portfolio; and (3) place orders to purchase and
sell securities for each Portfolio, subject to the supervision of the Board of
Directors. The Advisory Agreement requires the Adviser to pay its overhead and
employee costs and the compensation and expenses of all its partners, officers
and employees who serve as officers and executive employees of the Fund. The
Advisory Agreement provides that the Adviser is not responsible for other
expenses of operating the Fund. (See the Prospectus for a description of
expenses borne by the Fund.)
The Adviser is entitled to a fee which is calculated daily and paid monthly.
The fees to be paid under the Advisory Agreement are set forth in the
Prospectus.
The Adviser has agreed to waive or limit its Advisory Fees or assume certain
operating expenses of the Portfolios as described in the Prospectus.
The continuance of the Advisory Agreement with respect to each Portfolio after
the first two years must be specifically approved at least annually (i) by the
Fund's Board of Directors or by vote of a majority of the outstanding voting
securities of such Portfolio and (ii) by the affirmative vote of a majority of
the Directors who are not parties to the agreement or interested persons of
any such party by votes cast in person at a meeting called for such purpose.
The Advisory Agreement with respect to each Portfolio may be terminated (i) at
any time without penalty by the Fund upon the vote of a majority of the
Directors or by vote of the majority of the outstanding voting securities of
such Portfolio upon sixty (60) days' written notice to the Adviser or (ii) by
the Adviser at any time without penalty upon sixty (60) days' written notice
to the Fund. The Advisory Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
THE SUB-ADVISER
The Fund, on behalf of the Small Cap Value and Large Cap Value Portfolios, and
the Adviser have entered into a sub-advisory agreement ("Sub-Advisory
Agreement") with Newbold's Asset Management, Inc. ("Sub-Adviser"). The
Sub-Advisory Agreement provides certain limitations on the Sub-Adviser's
liability, but also provides that the Sub-Adviser shall not be protected
against any liability to the Fund or its shareholders by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard of its obligations or duties thereunder.
The Sub-Advisory Agreement obligates the Sub-Adviser to: (1) manage the
investment operations of the Small Cap Value and Large Cap Value Portfolios
and the composition of these Portfolios' investment portfolios, including the
purchase, retention and disposition thereof in accordance with these
Portfolios' investment objectives, policies and limitations; (2) provide
supervision of the Small Cap Value and Large Cap Value Portfolios' investments
and to determine from time to time what investments and securities will be
purchased, retained or sold by these Portfolios and what portion of the assets
will be invested or held uninvested in cash; and (3) determine the securities
to be purchased or sold by the Small Cap Value and Large Cap Value Portfolios
and place orders with or through such persons, brokers or dealers to carry out
the policy with respect to brokerage set forth in the Prospectus or as the
Board of Directors or the Adviser may direct from time to time, in conformity
with federal securities laws.
The continuance of the Sub-Advisory Agreement with respect to the Small Cap
Value and Large Cap Value Portfolios, respectively, after the first two years
must be specifically approved at least annually (i) by the Fund's Board of
Directors or by vote of a majority of the outstanding voting securities of
such Portfolios and (ii) by the affirmative vote of a majority of the
Directors who are not parties to the agreement or interested persons of any
such party by votes cast in person at a meeting called for such purpose. The
Sub-Advisory Agreement with respect to the Small Cap Value and Large Cap Value
Portfolios may be terminated (i) by the Fund, without the payment of any
penalty, by the vote of a majority of the Directors of the Fund or by the vote
of a majority of the outstanding voting securities of a Portfolio, (ii) by the
Adviser at any time, without the payment of any penalty, on not more than
sixty (60) days' nor less than thirty (30) days' written notice to the other
parties, or (iii) by the Sub-Adviser at any time, without the payment of any
penalty, on ninety (90) days' written notice to the other parties. The
Sub-Advisory Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
The Fund and PBHG Fund Services (the "Administrator") entered into an
Administrative Services Agreement (the "Administrative Agreement") on April 1,
1997, pursuant to which the Administrator oversees the administration of the
business and affairs of the Fund, including services provided to it by various
third parties. The Administrator was organized as a Pennsylvania business
trust and has its principal place of business at 1255 Drummers Lane, Suite
300, Wayne, Pennsylvania 19087. Under the Administrative Agreement, the
Administrator is entitled to a fee from the Fund, which is calculated daily
and paid monthly, at an annual rate of 0.15.% of the average daily net assets
of each Portfolio of the Fund. The Administrative Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Fund in connection with the matters to which
the Administrative Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Administrator in the
performance of its duties. The Administrative Agreement shall remain in effect
until December 31, 1998 and shall thereafter continue in effect for successive
periods of one year, unless terminated by either party upon not less than
ninety (90) days' prior written notice to the other party.
The Fund, the Administrator and SEI Fund Resources (the "Sub-Administrator")
entered into the Sub-Administrative Services Agreement ("Sub-Administrative
Agreement") on April 1, 1997 pursuant to which the Sub-Administrator assists
the Administrator in connection with the administration of the business and
affairs of the Fund. The Sub-Administrator is a wholly-owned subsidiary of SEI
Financial Management Company ("SEI Financial"), which is a wholly-owned
subsidiary of SEI Corporation ("SEI"). The Sub-Administrator was organized as
a Delaware business trust, and has its principal business offices at 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658. Under the Sub-Administrative
Agreement, the Sub-Administrator is entitled to a fee from the Administrator,
which is calculated daily and paid monthly, (i) at an annual rate of .07% of
the average daily net assets of each series of the Fund, including the
Portfolios, with respect to the first $2.5 billion of the total average daily
net assets of (i) the Fund and (ii) The PBHG Funds, Inc.; and (ii) at the
annual rate of .025% of average daily net assets of each series of the Fund,
including the Portfolios, with respect to the total average daily net assets
of (i) the Fund and (ii) The PBHG Funds, Inc. in excess of $2.5 billion. The
Sub-Administrative Agreement provides that the Sub-Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Sub-Administrative
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence on the part of the Sub-Administrator in the performance of its
duties. The Sub-Administrative Agreement shall remain in effect until December
31, 1998 and shall thereafter continue in effect for successive periods of one
year, unless terminated by either party upon not less than ninety (90) days'
prior written notice to the other party.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Fund are parties to a distribution agreement (the
"Distribution Agreement") dated April 1, 1997 pursuant to which the
Distributor serves as principal underwriter for the Fund. The Distributor will
receive no compensation for serving in such capacity.
The Distribution Agreement is renewable annually. The Distribution Agreement
may be terminated by the Distributor, by a majority vote of the Directors who
are not interested persons and have no financial interest in the Distribution
Agreement or by a majority vote of the outstanding securities of the Fund upon
not more than sixty (60) days' written notice by either party or upon
assignment by the Distributor.
DIRECTORS AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Directors under
the laws of the State of Maryland. The Directors and executive officers of the
Fund and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. The age of each Director and officer is indicated in the parenthesis.
JOHN R. BARTHOLDSON (51) - Director - Triumph Group Holdings, Inc.
(manufacturing), 1255 Drummers Lane, Suite 200, Wayne, PA 19087-1590. Chief
Financial Officer and Director, the Triumph Group Holdings, Inc. Since 1992.
Senior Vice President and Chief Financial Officer, Lukens, Inc., 1978-1992.
HAROLD J. BAXTER (50)* - Director - Chairman, Chief Executive Officer and
Director, the Adviser, 1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590.
Trustee, the Administrator since May 1996 and Chief Executive Officer,
Newbold's Asset Management, Inc., 950 Haverford Road, Bryn Mawr, PA 19010,
since June 1996.
JETTIE M. EDWARDS (49) - Director - Syrus Associates, 76 Seaview Drive, Santa
Barbara, California 93108. Consultant, Syrus Associates since 1986. Trustee,
Provident Investment Counsel Trust (investment company) since 1992.
ALBERT A. MILLER (62) - Director - 7 Jennifer Drive, Holmdel, New Jersey
07733. Principal and Treasurer, JK Equipment Exporters since 1995. Advisor and
Secretary, The Underwoman Shoppes Inc. (retail clothing stores) since 1980.
Merchandising Group Vice President, R.H. Macy & Co. 1958-1995 (retired).
GARY PILGRIM (55) - President - President, Treasurer and Director, the Adviser
since 1982. Trustee, the Administrator since May 1996.
SANDRA K. ORLOW (42) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of SEI, the Sub-Administrator and the Distributor
since 1983 and SEI Financial since June 1996.
KEVIN P. ROBINS (35) - Vice President, Assistant Secretary - Senior Vice
President, Secretary and General Counsel of SEI, the Sub-Administrator and the
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Sub-Administrator and the Distributor since 1992 and SEI Financial since June
1996. Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
KATHRYN L. STANTON (37) - Vice President, Assistant Secretary - Vice
President, Assistant Secretary of SEI, the Sub-Administrator and the
Distributor since 1994 and SEI Financial since June 1996. Associate, Morgan,
Lewis & Bockius LLP (law firm), 1989-1994.
TODD CIPPERMAN (30) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since
1995 and SEI Financial since June 1996. Associate, Dewey Ballantine (law firm)
1994-1995, Associate, Winston & Strawn (law firm) 1991-1994.
BARBARA A. NUGENT (40) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary, SEI since April 1996. Associate, Drinker, Biddle &
Reath (law firm), 1994-1996. Assistant Vice President, Delaware Service
Company, Inc. (transfer agent), 1988-1993.
STEPHEN G. MEYER (31) - Chief Financial Officer and Controller - Director of
Internal Audit and Risk Management at SEI Corporation since 1992. Senior
Associate at Coopers & Lybrand, LLP (accounting firm), 1990-1992.
MICHAEL HARRINGTON (27) - Assistant Vice President - Mutual Fund Coordinator,
the Adviser since 1994. Secretary, the Administrator since May 1996. Account
Manager, SEI, 1991-1994.
LEE T. CUMMINGS (32) - Vice President - Director of Mutual Fund Operations,
the Adviser since 1996. Treasurer, the Administrator since May 1996.
Investment Accounting Officer, Delaware Group of Funds, 1994-1996. Vice
President, Fund/Plan Services, Inc., 1992-1994. Assistant Vice President,
Fund/Plan Services, Inc., 1990-1992.
BRIAN BEREZNAK (34) - Vice President and Assistant Secretary - Trustee and
President, the Administrator since May 1996, Chief Operating Officer, the
Adviser from 1989 through December 31, 1996.
JOHN M. ZERR (34) - Vice President and Secretary - General Counsel and
Secretary, the Adviser since November 1996. Vice President and Assistant
Secretary, Delaware Management Company, Inc. and the Delaware Group of Funds,
1995-1996. Associate, Ballard Spahr Andrews & Ingersoll (law firm), 1987-1995.
JANE A. KANTER (47) - Vice President and Assistant Secretary - Partner, Katten
Muchin & Zavis, 1025 Thomas Jefferson Street, N.W., East Lobby - Suite 700,
Washington, D.C. 20007 (law firm) since 1994. Partner, Freedman Levy Kroll &
Simonds (law firm), 1987-1994.
___________________
* Mr. Baxter is a Director who may be deemed to be an "interested person"
of the Fund as that term is defined in the 1940 Act.
Each current Director of the Fund who is not an "interested person" of the
Fund is expected to receive the following compensation during the fiscal year
ending December 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued as Part Annual from Registrant
Name of Person, from of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Directors*
- -------------------- ------------- --------------- ------------- -------------------
John R. Bartholdson, $ 16,500 N/A N/A $ 47,000
Director
Harold J. Baxter, N/A N/A N/A N/A
Director**
Jettie M. Edwards, $ 16,500 N/A N/A $ 47,000
Director
Albert A. Miller, $ 16,500 N/A N/A $ 47,000
Director
<FN>
* The Fund is expected to pay approximately $13,000 to each Director who is not
an "interested person" of the Fund for the fiscal year ending December 31, 1997. In
addition, the Fund will compensate each member $500 for each Board and committee meeting
attended. The Portfolio is expected to pay its proportionate share of the total
compensation, based on its total net assets relative to the total net assets of the
Fund.
** Mr. Baxter is a Director who may be deemed to be an "interested person" of the
Fund, as that term is defined in the 1940 Act, and consequently will be receiving no
compensation from the Fund.
</TABLE>
As each Portfolio's initial shareholder, the Adviser holds all of the
outstanding shares, both beneficially and of record, of each Portfolio as of
the date of this Statement of Additional Information.
PERFORMANCE INFORMATION
From time to time, a Portfolio may advertise yield and/or total return. Such
performance data for a Portfolio should be distinguished from the rate of
return of a corresponding division of a Participating Insurance Company's
separate account, which rate will reflect the deduction of additional
insurance charges, including mortality and expense risk charges, and will
therefore be lower. VA Contract owners and VLI Policy owners should consult
their contract and policy prospectuses, respectively, for further information.
The Portfolio's results also should be considered relative to the risks
associated with its investment objectives and policies.
COMPUTATION OF YIELD
From time to time, a Portfolio may advertise yield. These figures will be
based on historical earnings and are not intended to indicate future
performance. The yield of a Portfolio refers to the annualized income
generated by an investment in the Portfolio over a specified 30-day period.
The yield is calculated by assuming that the income generated by the
investment during that period generated each period over one year and is shown
as a percentage of the investment. In particular, yield will be calculated
according to the following formula:
Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c =
the current daily number of shares outstanding during the period that were
entitled to receive dividends; and d = the maximum offering price per share on
the last day of the period.
CALCULATION OF TOTAL RETURN
From time to time, a Portfolio may advertise total return. The total return of
a Portfolio refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including but not limited to, the
period from which the Portfolio commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment
of $1,000; T = average annual total return; n = number of years; and ERV =
ending redeemable value of a hypothetical $1,000 payment made at the beginning
of the designated time period as of the end of such period.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past
performance and is not a guarantee of future results.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made on any day on which the New York Stock
Exchange is open for business. Currently, the following holidays are observed
by the Fund: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Shares of
each Portfolio are offered on a continuous basis.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading
on the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of
which disposal or valuation of each Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Fund also reserves the right to suspend sales of shares of a Portfolio for any
period during which the New York Stock Exchange, the Adviser, the Sub-Adviser,
the Administrator, the Transfer Agent and/or the Custodian are not open for
business.
DETERMINATION OF NET ASSET VALUE
The securities of each Portfolio are valued by the Sub-Administrator. The
Sub-Administrator will use an independent pricing service to obtain valuations
of securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing
service and its valuations are reviewed by the officers of the Fund under the
general supervision of the Board of Directors.
Portfolio securities listed on an exchange or quoted on a national market
system are valued at the last sales price. Other securities are quoted at the
mean between the most recent bid and asked prices. In the event a listed
security is traded on more than one exchange, it is valued at the last sale
price on the exchange on which it is principally traded. If there are no
transactions in a security during the day, it is valued at the mean between
the most recent bid and asked prices. However, debt securities (other than
short-term obligations) including listed issues, are valued on the basis of
valuations furnished by a pricing service which utilizes electronic data
processing techniques to determine valuations for normal institutional size
trading units of debt securities, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations are valued at amortized cost.
Securities for which market quotations are not readily available and other
assets held by the Fund, if any, are valued at their fair value as determined
in good faith by the Board of Directors.
TAXES
The following is only a summary of certain income tax considerations generally
affecting a Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisors with specific reference to their own tax situations, including
their state and local income tax liabilities.
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated
herein.
Each Portfolio intends to qualify as a "regulated investment company" ("RIC")
as defined under Subchapter M of the Code. By maintaining its qualifications
as a RIC, each Portfolio intends to eliminate or reduce to a nominal amount
the federal taxes to which it may be subject.
In order to qualify for treatment as a RIC under the Code, a Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment
company taxable income (generally, net investment income plus net short-term
capital gain) ("Distribution Requirement") and also must meet several
additional requirements. Among these requirements are the following: (i) at
least 90% of the Portfolio's gross income each taxable year must be derived
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock or securities, or certain other
income; (ii) the Portfolio must derive less than 30% of its gross income each
taxable year from the sale or other disposition of stocks or securities held
for less than three months; (iii) at the close of each quarter of the
Portfolio's taxable year, at least 50% of the value of its total assets must
be represented by cash and cash items, U.S. Government securities, securities
of other RICs and other securities, with such other securities limited, in
respect to any one issuer, to an amount that does not exceed 5% of the value
of the Portfolio's assets and that does not represent more than 10% of the
outstanding voting securities of such issuer; and (iv) at the close of each
quarter of the Portfolio's taxable year, not more than 25% of the value of its
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of any one issuer or of two or more issuers
which are engaged in the same, similar or related trades or businesses if the
Portfolio owns at least 20% of the voting power of such issuers.
Notwithstanding the Distribution Requirement described above, which requires
only that a Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital
gain (the excess of net long-term capital gain over net short-term capital
loss), the Portfolio will be subject to a nondeductible 4% federal excise tax
to the extent it fails to distribute by the end of any calendar year 98% of
its ordinary income for that year and 98% of its capital gain net income (the
excess of short- and long-term capital gains over short- and long-term capital
losses) for the one-year period ending on October 31 of that calendar year,
plus certain other amounts.
If a Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates on its net investment income and net
capital gain without any deductions for amounts distributed to shareholders.
In such an event, all distributions (including capital gains distributions)
will be taxable as ordinary dividends to the extent of that Portfolio's
current and accumulated earnings and profits and such distributions will
generally be eligible for the corporate dividends-received deduction.
SECTION 817 DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of segregated asset accounts that fund contracts such as the
VA Contracts and VLI Policies (that is, the assets of the Portfolios), which
are in addition to the diversification requirements imposed on the Portfolios
by the 1940 Act and Subchapter M. Failure to satisfy those standards would
result in imposition of Federal income tax on a VA Contract or VLI Policy
owner with respect to the increase in the value of the VA Contract or VLI
Policy. Section 817(h)(2) provides that a segregated asset account that funds
contracts such as the VA Contracts and VLI Policies is treated as meeting the
diversification standards if, as of the close of each calendar quarter, the
assets in the account meet the diversification requirements for a regulated
investment company and no more than 55% of those assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
The Treasury Regulations amplify the diversification standards set forth in
Section 817(h) and provide an alternative to the provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if (i) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (ii) no more than 70% of such
value is represented by any two investments; (iii) no more than 80% of such
value is represented by any three investments; and (iv) no more than 90% of
such value is represented by any four investments. For purposes of these
Regulations all securities of the same issuer are treated as a single
investment, but each United States government agency or instrumentality shall
be treated as a separate issuer.
Each Portfolio will be managed with the intention of complying with these
diversification requirements. It is possible that, in order to comply with
these requirements, less desirable investment decisions may be made which
would affect the investment performance of a Portfolio.
PORTFOLIO TRANSACTIONS
The Advisers are authorized to select brokers and dealers to effect securities
transactions for each Portfolio. The Advisers will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of executions, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Advisers generally seek
reasonably competitive spreads or commissions, the Fund will not necessarily
be paying the lowest spread or commission available. The Advisers seek to
select brokers or dealers that offer the Portfolios best price and execution
or other services which are of benefit to the Portfolios. In the case of
securities traded in the over-the-counter market, the Advisers expect normally
to seek to select primary market makers.
The Advisers may, consistent with the interests of the Portfolios, select
brokers on the basis of the research services they provide to the Advisers.
Such services may include analyses of the business or prospects of a company,
industry or economic sector, or statistical and pricing services. Information
so received by the Advisers will be in addition to and not in lieu of the
services required to be performed by the Advisers under the Advisory Agreement
and Sub- Advisory Agreement. If, in the judgment of the Advisers, the
Portfolios or other accounts managed by the Advisers will be benefitted by
supplemental research services, the Advisers are authorized to pay brokerage
commissions to a broker furnishing such services which are in excess of
commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or
through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing
of analyses and reports concerning issuers, securities or industries;
providing information on economic factors and trends; assisting in determining
portfolio strategy; providing computer software used in security analyses; and
providing portfolio performance evaluation and technical market analyses. The
expenses of the Advisers will not necessarily be reduced as a result of the
receipt of such supplemental information, and such services may not be used
exclusively, or at all, with respect to each Portfolio or account generating
the brokerage, and there can be no guarantee that the Advisers will find all
of such services of value in advising the Portfolios.
It is expected the Portfolios may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for
a commission in conformity with the 1940 Act, the Securities Exchange Act of
1934 and rules promulgated by the SEC. Under these provisions, the Distributor
is permitted to receive and retain compensation for effecting portfolio
transactions for the Portfolios on an exchange if a written contract is in
effect between the Distributor and the Portfolio expressly permitting the
Distributor to receive and retain such compensation. These rules further
require that commissions paid to the Distributor by the Portfolios for
exchange transactions not exceed "usual and customary" brokerage commissions.
The rules define "usual and customary" commissions to include amounts which
are "reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In addition, the
Advisers may direct commission business to one or more designated
broker-dealers, including the Distributor, in connection with such
broker-dealer's payment of certain of the Portfolios' or the Fund's expenses.
Because shares of the Portfolios are not marketed through intermediary
broker-dealers, it is not the Portfolios' practice to allocate brokerage or
effect principal transactions with broker-dealers on the basis of sales of
shares that may be made through such firms. However, the Advisers may place
orders for the purchase or sale of portfolio securities with qualified
broker-dealers who refer clients to the Portfolios. The Directors, including
those who are not "interested persons" of the Fund, have adopted procedures
for evaluating the reasonableness of commissions paid to the Distributor and
will review these procedures periodically.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the Board of Directors may determine, the Advisers may consider
sales of Fund shares or VA Contracts and VLI Policies as a factor in the
selection of dealers to execute portfolio transactions for the Fund.
The Directors have adopted a Code of Ethics governing personal trading by
persons who manage, of who have access to trading activity by, the Portfolio.
The Code of Ethics allows trades to be made in securities that may be held by
the Portfolio, however, it prohibits a person from taking advantage of
Portfolio trades or from acting on inside information.
DESCRIPTION OF SHARES
The Fund is authorized to issue 500,000,000 shares of each Portfolio and to
create additional portfolios of the Fund. Each share of a Portfolio represents
an equal proportionate interest in that Portfolio with each other share.
Shares are entitled upon liquidation to a pro rata share in the net assets of
the Portfolio available for distribution to shareholders. Shareholders have no
preemptive rights. All consideration received by the Fund for shares of any
Portfolio and all assets in which such consideration is invested would belong
to that Portfolio and would be subject to the liabilities related thereto.
INFORMATION ABOUT THE TECHNOLOGY & COMMUNICATIONS PORTFOLIO
The Technology & Communications Portfolio seeks opportunities in many
explosive growth fields.
COMPUTERS AND SOFTWARE
- The Adviser believes that the home personal computer market is
currently only 38% penetrated and could reach 50% penetration by the year
2000.
- At the end of 1993, there were 50 personal computers for every 100
U.S. workers, compared to only 22 per 100 workers in Europe, 17 per 100 in
Japan, and 1 per 100 in Asia Pacific -- so the Adviser believes that worldwide
market for personal computers could be significant.
- Software companies are currently averaging 30% - 70% annual revenue
growth rates.
COMMUNICATIONS
- The Adviser believes that the wireless equipment market could grow to
$20 billion over the next four years -- 20-fold increase.
- 48% of all U.S. capital investment is in information technology, up
from 35% in the early '90s and 25% in the early '80s.
- 60% of U.S. households are wired for cable -- triple the number ten
years ago.
SEMICONDUCTORS AND ELECTRONICS
- The Adviser believes semiconductor sales growth could go as high as
20% per year from now until 2000.
- The Adviser believes the CD-ROM market could potentially deliver a 45%
compound annual growth between 1995 and 2000.
FINANCIAL STATEMENTS
A Statement of Assets and Liabilities of each of the Portfolios as of April 4,
1997, and the report of Coopers & Lybrand, L.L.P., Independent Accountants,
with respect thereto, is set forth below.
<TABLE>
<CAPTION>
PBHG INSURANCE SERIES FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 4, 1997
LARGE CAP SMALL CAP
GROWTH II GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Cash $16,700 $16,700 $16,700
Organizational Cost $10,000 $10,000 $10,000
------- ------- -------
Total Assets $26,700 $26,700 $26,700
------- ------- -------
LIABILITIES:
Accrued Expenses $10,000 $10,000 $10,000
------- ------- -------
NET ASSETS:
Portfolio shares (authorized 500,000,000
shares - $0.001 par value) based on 1,670,
1,670 and 1,670 outstanding shares of common
stock $16,700 $16,700 $16,700
======= ======= =======
-----------------------------------------------------------------------------------------------------------
Total Net Assets $16,700 $16,700 $16,700
-----------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.00 $10.00 $10.00
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP TECHNOLOGY &
VALUE COMMUNICATIONS SELECT 20
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Cash $16,700 $16,600 $16,600
Organizational Costs $10,000 $10,000 $10,000
------- ------- -------
Total Assets $26,700 $26,600 $26,600
------- ------- -------
LIABILITIES:
Accrued Expenses $10,000 $10,000 $10,000
------- ------- -------
NET ASSETS:
Portfolio shares (authorized 500,000,000
shares - $0.001 par value) based on 1,670,
1,660 and 1,660 outstanding shares of common
stock $16,700 $16,600 $16,600
======= ======= =======
-----------------------------------------------------------------------------------------------------------
Total Net Assets $16,700 $16,600 $16,600
-----------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.00 $10.00 $10.00
</TABLE>
The accompanying notes are an integral part of the statements of assets and
liabilities.
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES
APRIL 4, 1997 PBHG INSURANCE SERIES FUND, INC.
(1) ORGANIZATION
The PBHG Insurance Series Fund, Inc. (the "Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company with six series: the PBHG
Growth II Portfolio (the "Growth II Portfolio"), PBHG Large Cap Growth Portfolio
(the "Large Cap Growth Portfolio"), PBHG Small Cap Value Portfolio (the "Small
Cap Value Portfolio"), PBHG Large Cap Value Portfolio (the "Large Cap Value
Portfolio"), PBHG Technology & Communications Portfolio (the "Technology &
Communications Portfolio") and PBHG Select 20 Portfolio (the "Select 20
Portfolio") (each a "Portfolio" and, collectively, the "Portfolios"). To date,
the Fund has had no transactions other than those relating to organization
matters and the issuance of shares of common stock to Pilgrim Baxter &
Associates, Ltd. (the "Adviser"). Each of the Portfolios has distinct investment
objectives and policies that are described in the prospectus.
(2) SIGNIFICANT ACCOUNTING POLICIES
Organizational Costs - All organizational costs incurred with the start up of
the Portfolios will be amortized on a straight line basis over a period of sixty
months commencing with operations. In the event that any of the initial shares
of the Portfolio are redeemed by any holder thereof during the period that the
Portfolio is amortizing its organizational costs, the redemption proceeds
payable to the holder thereof will be reduced by the unamortized organizational
costs in the same ratio as the number of initial shares being redeemed bears to
the number of initial shares outstanding at the time of redemption.
Federal Income Taxes - Each Portfolio intends to qualify and elect to be treated
as a regulated investment company that is taxed under the rules of Subchapter M
of the Internal Revenue Code. As such, a Portfolio will not be subject to
federal income tax on its net ordinary income and net realized capital gains to
the extent that such income and gains are distributed to the separate accounts
of the Participating Insurance Companies and Qualified Plans which hold its
shares. Because shares of the Portfolios may be purchased only through VA
Contracts, VLI Policies and Qualified Plans, it is anticipated that any income,
dividends or capital gain distributions from the Portfolios are taxable, if at
all, to the Participating Insurance Companies and Qualified Plans and will be
exempt from current taxation of the VA Contract owner, or Qualified Plan
participant if left to accumulate within the VA Contract, VLI Policy or
Qualified Plan.
(3) INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
The Fund and the Adviser are parties to an Investment Advisory Agreement (the
"Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser is
entitled to a fee, which is calculated daily and paid monthly, at an annual rate
of 1.00% of the average daily net assets of the Small Cap Value Portfolio, 0.85%
of the average daily net assets of the Growth II. Technology & Communications
and Select 20 Portfolios, 0.75% of the average daily net assets of the Large Cap
Growth Portfolio, and 0.65% of the average daily net assets of the Large Cap
Value Portfolio.
Newbold's Asset Management, Inc. ("Newbold") serves as the sub-adviser to the
Small Cap Value and Large Cap Value Portfolios. For its services provided
pursuant to its Investment Sub-Advisory Agreement with the Adviser and the Fund,
Newbold receives a fee from the Adviser at an annual rate of 0.65% of the Small
Cap Value Portfolio's average daily net assets and 0.40% of the Large Cap Value
Portfolio's average daily net assets. Newbold receives no fees directly from the
Small Cap Value and Large Cap Value Portfolios.
In the interest of limiting expenses of the Portfolios, the Adviser has entered
into an expense limitation agreement with the Fund (the "Expense Limitation
Agreement"), with respect to each Portfolio, pursuant to which the Adviser has
agreed to waive or limit its fees and to assume other expenses of the Portfolios
to the extent necessary to limit the total annual operating expenses (expressed
as a percentage of each Portfolio's average daily net assets) to not more than
1.20% of the average daily net assets of the Growth II, Small Cap Value,
Technology & Communications and Select 20 Portfolios and to not more than 1.10%
and 1.00% of the average daily net assets of the Large Cap Growth and Large Cap
Value Portfolios, respectively, through December 31, 1997. Such waivers and
assumption of expenses by the Adviser may be discontinued at any time after such
date. Reimbursement by the Portfolios of the advisory fees waived or limited and
other expenses paid by the Adviser pursuant to the Expense Limitation Agreement
may be made at a later date when the Portfolios have reached a sufficient asset
size to permit reimbursement to be made without causing the total annual expense
ratio of each Portfolio to exceed the Total Operating Expense percentages
described above.
PBHG Fund Services (the "Administrator"), provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel and facilities. For these administrative services, the
Administrator is entitled to a fee, which is calculated daily and paid monthly,
at an annual rate of 0.15% of the average daily net assets of the Fund.
SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Corporation (SEI) and an affiliate of the Fund's distributor,
assists the Administrator in providing administrative services to the Fund. For
acting in this capacity, the Administrator pays the Sub-Administrator a fee at
the annual rate of 0.025% of the average daily net assets of the Fund.
SEI Financial Services Company, a wholly-owned subsidiary of SEI, provides the
Fund with distribution services.
DST Systems, Inc. serves as the transfer agent, dividend disbursing agent and
shareholder servicing agent for the Fund under a transfer agent agreement with
the Fund. CoreStates Bank, N.A. serves as the custodian for the Fund.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors
of PBHG Insurance Series Fund, Inc.:
We have audited the accompanying Statement of Assets and Liabilities of PBHG
Insurance Series Fund, Inc. (the "Fund"), comprised of the Growth II Portfolio,
the Large Cap Growth Portfolio, the Small Cap Value Portfolio, the Large Cap
Value Portfolio, the Technology & Communications Portfolio, and the Select 20
Portfolio, as of April 4, 1997. This financial statement is the responsibility
of the Funds management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of PBHG Insurance Series Fund,
Inc. as of April 4, 1997 in conformity with generally accepted accounting
principles.
/s/COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 8, 1997
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
The Financial Statements filed as part of this Registration
Statement are as follows:
Statements of Assets and Liabilities of each of the
Portfolios as of April 4, 1997*
Report of Independent Accountants - Coopers & Lybrand, L.L.P.*
* Included in Part B of this Registration Statement
(b) Exhibits:
1 Articles of Incorporation*
2 By-Laws
3 Not Applicable
4 Not Applicable
5(a) Form of Investment Advisory Agreement between the
Registrant and Pilgrim Baxter & Associates, Ltd.
5(b) Form of Investment Sub-Advisory Agreement between and among
the Registrant, on behalf of the Small Cap Value and Large
Cap Value Portfolios, Pilgrim Baxter & Associates, Ltd. and
Newbold's Asset Management, Inc.
6 Form of Distribution Agreement between the Registrant
and SEI Financial Services Company
7 Not Applicable
8 Form of Custodian Agreement between the Registrant and
CoreStates Bank, N.A.
9(a) Form of Transfer Agency Agreement between the Registrant
and DST Systems, Inc.
9(b) Form of Administrative Services Agreement between the
Registrant and PBHG Fund Services
9(c) Form of Sub-Administrative Services Agreement between the
Registrant and SEI Fund Resources
9(d) Form of Expense Limitation Agreement between the
Registrant and Pilgrim Baxter & Associates, Ltd.
9(e) Form of Fund Participation Agreement
9(f) Form of Organizational Expense Reimbursement Agreement
10(a) Opinion of Counsel (Blazzard, Grodd & Hasenauer, P.C.)
10(b) Consent of Counsel (Katten Muchin & Zavis)
11 Consent of Independent Accountants
12 Not Applicable
13 Form of Stock Subscription Agreement
14 Not Applicable
15 Not Applicable
16 Not Applicable
17 Not Applicable
18 Not Applicable
24 Not Applicable
27 Not Applicable
* Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A (File No. 333-19497) as filed electronically with the
Commission on January 10, 1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons that are controlled by or under common control with the
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Pilgrim Baxter & Associates, Ltd., as the initial shareholder of each
Portfolio of the Fund, holds all of the outstanding shares of the Fund.
ITEM 27. INDEMNIFICATION
The Articles of Incorporation of the Registrant include the following:
ARTICLE VII
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the
procedures required, by the General Laws of the State of Maryland and the 1940
Act. The By-Laws may provide that the Corporation shall indemnify its
employees and/or agents in any manner and within such limits as permitted by
applicable law. Such indemnification shall be in addition to any other right
or claim to which any director, officer, employee or agent may otherwise be
entitled. The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or employee
benefit plan, against any liability (including, with respect to employee
benefit plans, excise taxes) asserted against and incurred by such person in
any such capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such liability. The
rights provided to any person by this Article 7.4 shall be enforceable against
the Corporation by such person who shall be presumed to have relied upon such
rights in serving or continuing to serve in the capacities indicated herein.
No amendment of these Articles of Incorporation shall impair the rights of any
person arising at any time with respect to events occurring prior to such
amendment.
The By-Laws of the Registrant include the following:
ARTICLE VI
Indemnification
"The Corporation shall indemnify (a) its Directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by (i) Maryland law now or hereafter in force, including
the advance of expenses under the procedures and to the full extent permitted
by law, and (ii) the Investment Company Act of 1940, as amended, and (b) other
employees and agents to such extent as shall be authorized by the Board of
Directors and be permitted by law. The foregoing rights of indemnification
shall not be exclusive of any other rights to which those seeking
indemnification may be entitled. The Board of Directors may take such action
as is necessary to carry out these indemnification provisions and is expressly
empowered to adopt, approve and amend from time to time such resolutions or
contracts implementing such provisions or such further indemnification
arrangements as may be permitted by law."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, 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 director, officer or controlling person of the
Registrant in the successful defense of any action, suite or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser
or principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason of
willful misfeasance, bad faith, or gross negligence, in the performance of his
duties, or by reason of his contract or agreement, will be interpreted and
enforced in a manner consistent with the provisions of Sections 17(h) and (i)
of the Investment company Act of 1940, as amended, and Release No. IC-11330
issued thereunder.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
Other business, profession, vocation, or employment of a substantial
nature in which each director or principal officer of Pilgrim Baxter &
Associates, Ltd. is or has been, at any time during the last two fiscal years,
engaged for his own account or in the capacity of director, officer, employee,
partner or trustee are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Position with
Pilgrim Baxter & Connection
Associates, Ltd. Name of Other Company with Other Company
- ------------------------- --------------------------- -----------------------
Harold J. Baxter PBHG Fund Services Trustee
Director, Chairman &
Chief Executive Officer United Asset Management Member, Board of
Corporation Directors
Newbold's Asset Management, Chief Executive Officer
Inc.
Gary L. Pilgrim
Director, President,
Secretary, Treasurer & PBHG Fund Services Trustee
Chief Investment Officer
Brian F. Bereznak PBHG Fund Services President and Trustee
Chief Operating Officer
(from 1989 through 1996)
Eric C. Schneider Newbold's Asset Management, Chief Financial Officer
Chief Financial Officer Inc.
John M. Zerr Newbold's Asset Management, General Counsel
General Counsel Inc.
</TABLE>
Business and Other Connections of Sub-Adviser:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Position with
Newbold's Asset Connection
Management, Inc. Name of Other Company with Other Company
- ------------------------ ----------------------- ------------------------
Harold J. Baxter Pilgrim Baxter & Director, Chairman &
Chief Executive Officer Associates, Ltd. Chief Executive Officer
PBHG Fund Services Trustee
United Asset Management Member, Board of
Corporation Directors
Brian F. Bereznak Pilgrim Baxter & Chief Operating Officer
Director Associates, Ltd. (from 1989 through 1996)
PBHG Fund Services President and Trustee
Gary L. Pilgrim Pilgrim Baxter & Director, President,
Director Associates, Ltd. Treasurer & Chief
Investment Officer
PBHG Fund Services Trustee
Timothy M. Havens None None
Chairman
James Farrell Farrell Seiwell, Inc. President
Chief Investment Officer
David W. Jennings Pilgrim Baxter & Director of Client
President & Chief Associates, Ltd. Service
Operating Officer
Eric C. Schneider Pilgrim Baxter & Chief Financial Officer
Chief Financial Officer Associates, Ltd.
John M. Zerr Pilgrim Baxter & General Counsel
General Counsel Associates, Ltd.
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing the
securities of the Registrant also acts as a principal underwriter, distributor
or investment adviser.
Registrant's distributor, SEI Financial Services Company ("SFS"), acts as
distributor for:
<TABLE>
<CAPTION>
<S> <C>
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFund May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
1784 Funds (R) June 1, 1993
MarquisSM Funds August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
Inventor Funds, Inc. August 1, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
Ark Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
Turner Funds April 30, 1996
The PBHG Funds, Inc. June 1, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
</TABLE>
SFS provides numerous financial services to investment managers, pension plan
sponsors, and bank trust departments. These services include portfolio
evaluation, performance measurement and consulting services ("Funds
Evaluation") and automated execution, clearing and settlement of securities
transactions ("MarketLink").
(b) Furnish the information required by the following table with respect
to each director, officer or partner of each principal underwriter named in
the answer to Item 21 of Part B.
<TABLE>
<CAPTION>
<S> <C> <C>
Positions and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- -------------------- -------------------------------------- -------------------
Alfred P. West, Jr. Director, Chairman -
& Chief Executive Officer
Henry H. Greer Director, President -
& Chief Executive Officer
Carmen V. Romeo Director, Executive Vice President -
& Treasurer
Gilbert L. Beebower Executive Vice President -
Richard B. Lieb Executive Vice President, President - -
Investment Services Division
Leo J. Dolan, Jr. Senior Vice President -
Carl A. Guarino Senior Vice President -
Jerome Hickey Senior Vice President -
Larry Hutchinson Senior Vice President -
David G. Lee Senior Vice President -
Steven Kramer Senior Vice President -
William Madden Senior Vice President -
Jack May Senior Vice President -
A. Keith McDowell Senior Vice President -
Dennis J. McGonigle Senior Vice President -
Hartland J. McKeown Senior Vice President -
Barbara J. Moore Senior Vice President -
James V. Morris Senior Vice President -
Steven Onofrio Senior Vice President -
Kevin P. Robins Senior Vice President, General Counsel Vice President &
and Secretary Assistant Secretary
Robert Wagner Senior Vice President -
Patrick K. Walsh Senior Vice President -
Kenneth Zimmer Senior Vice President -
Marc H. Cahn Vice President & Assistant Secretary -
Robert Crudup Vice President & Managing Director -
Vic Galef Vice President & Managing Director -
Kim Kirk Vice President & Managing Director -
John Krzeminski Vice President & Managing Director -
Carolyn McLaurin Vice President & Managing Director -
Donald Pepin Vice President & Managing Director -
Mark Samuels Vice President & Managing Director -
Wayne M. Withrow Vice President & Managing Director -
Mick Duncan Vice President & Team Leader -
Vicki Malloy Vice President & Team Leader -
Robert Aller Vice President -
Gordon W. Carpenter Vice President -
Todd Cipperman Vice President & Assistant Secretary -
Ed Daly Vice President -
Jeff Drennen Vice President -
Kathy Heilig Vice President -
Michael Kantor Vice President -
Samuel King Vice President -
Donald H. Korytowski Vice President -
Robert S. Ludwig Vice President & Team Leader -
W. Kelso Morrill Vice President -
Barbara A. Nugent Vice President & Assistant Secretary Vice President &
Assistant Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice President &
Assistant Secretary
Larry Pokora Vice President -
Kim Rainey Vice President -
Paul Sachs Vice President -
Steve Smith Vice President -
Daniel Spaventa Vice President -
Kathryn L. Stanton Vice President & Assistant Secretary Vice President &
Assistant Secretary
William Zawaski Vice President -
James Dougherty Director of Brokerage Services -
</TABLE>
c. None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3);
(6); (8); (12); and 31a-1(d), the required books and records are maintained at
the offices of Registrant's Custodian:
CoreStates Bank, N.A.
Broad and Chestnut Streets
P.O. Box 7618
Philadelphia, PA 19101
(b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D);
(4); (5); (6); (8); (9); (10); (11) and 31a-1(f), the required books and
records are currently maintained at the offices of Registrant's
Sub-Administrator:
SEI Fund Resources
One Freedom Valley Road
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f),
the required books and records are maintained at the principal offices of the
Registrant's Adviser or Sub-Adviser:
Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Newbold's Asset Management, Inc.
950 Haverford Road
Bryn Mawr, PA 19010
ITEM 31. MANAGEMENT SERVICES:
None
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940 inform the
Board of Directors of their desire to communicate with Shareholders of the
Fund, the Directors will inform such Shareholders as to the approximate number
of Shareholders of record and the approximate costs of mailing or afford said
Shareholders access to a list of Shareholders.
Registrant undertakes to call a meeting of Shareholders for the purpose
of voting upon the question of removal of a Director(s) when requested in
writing to do so by the holders of at least 10% of Registrant's outstanding
shares and in connection with such meetings to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940 relating to Shareholder
communications.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
Shareholders, upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment,
including financial statements which need not be audited, within 4-6 months
from the later of the commencement of operations of the Registrant or the
effective date of the Registrant's 1933 Act Registration Statement.
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant has duly caused this Pre-Effective Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned thereto
duly authorized, in the City of Wayne, and Commonwealth of Pennsylvania, on
the 8th day of April, 1997.
PBHG INSURANCE SERIES FUND, INC.
_______________________________________
Registrant
By: /S/ HAROLD J. BAXTER
___________________________________
Harold J. Baxter
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective
Amendment No. 1 to the Registration Statement has been signed below by the
following persons on the 8th day of April, 1997 in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE AND TITLE DATE
/S/ HAROLD J. BAXTER Chairman and Chief Executive 4/8/97
- ------------------------ Officer, and Director ------
Harold J. Baxter
* Director
- ------------------------ -------
John R. Bartholdson
* Director
- ------------------------ -------
Jettie M. Edwards
* Director
- ------------------------ -------
Albert A. Miller
* Chief Financial Officer
- ------------------------ and Controller -------
Stephen G. Meyer
</TABLE>
*By: /S/ HAROLD J. BAXTER
------------------------------------
Harold J. Baxter
Attorney-in-Fact
POWER OF ATTORNEY
We, the undersigned Directors of the PBHG Insurance Series Fund, Inc. (the
"Fund"), whose signatures appear below, hereby make, constitute and appoint
Harold J. Baxter, John M. Zerr and Jane A. Kanter, and each of them acting
individually, to be our true and lawful attorneys and agents, each of them with
the power to act without any other and with full power of substitution, to
execute, deliver and file in each undersigned Director's capacity as shown
below, any and all instruments that said attorneys and agents may deem necessary
or advisable to enable the Fund to comply with the Securities Act of 1933, as
amended, including any and all pre-effective and post-effective amendments to
the Fund's registration statement, and any rules, regulations, orders or other
requirements of the Securities and Exchange Commission thereunder in connection
with the registration of shares or additional shares of common stock of the Fund
or any of its series or classes thereof, and the registration of the Fund or any
of its series under the Investment Company Act of 1940, as amended, including
any and all amendments to the Fund's registration statement; and without
limitation of the foregoing, the power and authority to sign the name of the
Fund on its behalf, and to sign the name of each such Director on his or her
behalf, and we hereby grant to said attorney or attorneys, full power and
authority to do and perform each and every act and thing whatsoever as said
attorney or attorneys may deem necessary or advisable to carry out fully the
intent of this Power of Attorney to the same extent and with the same effect as
if we might or could do personally in our capacity as aforesaid and we ratify,
confirm and approve all acts and things which said attorney or attorneys might
do or cause to be done by virtue of this Power of Attorney and his and her
signatures as the same may be signed by said attorney or attorneys.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ HAROLD J. BAXTER Director 4-8-97
- ----------------------- ----------
Harold J. Baxter
/s/ JOHN R. BARTHOLDSON Director 4-8-97
- ----------------------- ----------
John R. Bartholdson
/s/ JETTIE M. EDWARDS Director 4-8-97
- ----------------------- ----------
Jettie M. Edwards
/s/ ALBERT A. MILLER Director 4-8-97
- ----------------------- ----------
Albert A. Miller
</TABLE>
POWER OF ATTORNEY
We, the undersigned Officers of the PBHG Insurance Series Fund, Inc. (the
"Fund"), whose signatures appear below, hereby make, constitute and appoint
Harold J. Baxter, John M. Zerr and Jane A. Kanter, and each of them acting
individually, to be our true and lawful attorneys and agents, each of them with
the power to act without any other and with full power of substitution, to
execute, deliver and file in each undersigned Officer's capacity as shown
below, any and all instruments that said attorneys and agents may deem necessary
or advisable to enable the Fund to comply with the Securities Act of 1933, as
amended, including any and all pre-effective and post-effective amendments to
the Fund's registration statement, and any rules, regulations, orders or other
requirements of the Securities and Exchange Commission thereunder in connection
with the registration of shares or additional shares of common stock of the Fund
or any of its series or classes thereof, and the registration of the Fund or any
of its series under the Investment Company Act of 1940, as amended, including
any and all amendments to the Fund's registration statement; and without
limitation of the foregoing, the power and authority to sign the name of the
Fund on its behalf, and to sign the name of each such Officer on his or her
behalf, and we hereby grant to said attorney or attorneys, full power and
authority to do and perform each and every act and thing whatsoever as said
attorney or attorneys may deem necessary or advisable to carry out fully the
intent of this Power of Attorney to the same extent and with the same effect as
if we might or could do personally in our capacity as aforesaid and we ratify,
confirm and approve all acts and things which said attorney or attorneys might
do or cause to be done by virtue of this Power of Attorney and his
signatures as the same may be signed by said attorney or attorneys.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ HAROLD J. BAXTER Chairman and Chief 4-8-97
- ----------------------- Executive Officer ----------
Harold J. Baxter
Vice President and
- ----------------------- Assistant Secretary ----------
Brian F. Bereznak
/s/ STEPHEN G. MEYER Chief Financial Officer 4-8-97
- ----------------------- and Controller ----------
Stephen G. Meyer
</TABLE>
EXHIBIT LIST
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Sequentially
Number Description Numbered Pages
EX-99.B2 Bylaws
EX-99.B5(a) Form of Investment Advisory Agreement between the
Registrant and Pilgrim Baxter & Associates, Ltd.
EX-99.B5(b) Form of Investment Sub-Advisory Agreement between
and among the Registrant, on behalf of the Small
Cap Value and Large Cap Value Portfolios, Pilgrim
Baxter & Associates, Ltd. and Newbold's Asset
Management, Inc.
EX-99.B6 Form of Distribution Agreement between the Registrant
and SEI Financial Services Company
EX-99.B8 Form of Custodian Agreement between the Registrant and
CoreStates Bank, N.A.
EX-99.B9(a) Form of Transfer Agency Agreement between the Registrant
and DST Systems, Inc.
EX-99.B9(b) Form of Administrative Services Agreement between the
Registrant and PBHG Fund Services
EX-99.B9(c) Form of Sub-Administrative Services Agreement between the
Registrant and SEI Fund Resources
EX-99.B9(d) Form of Expense Limitation Agreement between the
Registrant and Pilgrim Baxter & Associates, Ltd.
EX-99.B9(e) Form of Fund Participation Agreement
EX-99.B9(f) Form of Organizational Expense Reimbursement Agreement
EX-99.B10(a) Opinion of Counsel (Blazzard, Grodd & Hasenauer, P.C.)
EX-99.B10(b) Consent of Counsel (Katten Muchin & Zavis)
EX-99.B11 Consent of Independent Accountants
EX-99.B13 Form of Stock Subscription Agreement
</TABLE>
BYLAWS
FOR
PBHG INSURANCE SERIES FUND, INC.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation in
the State of Maryland shall be in the City of Baltimore.
SECTION 2. OTHER OFFICES. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETING. Subject to this Article II, an annual meeting of
stockholders for the election of Directors and the transaction of such other
business as may properly come before the meeting shall be held at such time and
place as the Board of Directors shall select. The Corporation shall not be
required to hold an annual meeting of its stockholders in any year in which the
election of Directors is not required to be acted upon under the Investment
Company Act of 1940.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders may be called
at any time by the President, the Secretary or by a majority of the Board of
Directors and shall be held at such time and place as may be stated in the
notice of the meeting.
Special meetings of the stockholders shall be called by the Secretary upon
receipt of written request of the holders of shares entitled to cast not less
than 10% of the votes entitled to be cast at such meeting, provided that (1)
such request shall state the purposes of such meeting and the matters proposed
to be acted on, and (2) the stockholders requesting such meeting shall have paid
to the Corporation the reasonably estimated cost of preparing and mailing the
notice thereof, which the Secretary shall determine and specify to such
stockholders. No special meeting shall be called upon the request of
stockholders to consider any matter which is substantially the same as a matter
voted upon at any special meeting of the stockholders held during the preceding
12 months, unless requested by the holders of a majority of all shares entitled
to be voted at such meeting.
SECTION 3. PLACE OF MEETINGS. Meetings of stockholders shall be held at
such place within or without the State of Maryland or abroad as the Board of
Directors may from time to time determine.
SECTION 4. NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of the place, date
and time of the holding of each stockholders' meeting and, if the meeting is a
special meeting, the purpose or purposes of the meeting, shall be given
personally or by mail, not less than ten nor more than ninety days before the
date of such meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting.
SECTION 5. QUORUM; ADJOURNMENT OF MEETINGS. The presence at any
stockholders' meeting, in person or by proxy, of stockholders of one third of
the shares of the stock of the Corporation thereat shall be necessary and
sufficient to constitute a quorum for the transaction of business, except for
any matter which, under applicable statutes or regulatory requirements, requires
approval by a separate vote of one or more classes of stock, in which case the
presence in person or by proxy of stockholders of one third of the shares of
stock of each class required to vote as a class on the matter shall constitute a
quorum. The holders of a majority of shares entitled to vote at the meeting and
present in person or by proxy, whether or not sufficient to constitute a quorum,
or, any officer present entitled to preside or act as Secretary of such meeting,
may adjourn the meeting without determining the date of the new meeting and/or
without further notice to a date not more than 120 days after the original
record date. Any business that might have been transacted at the meeting
originally called may be transacted at any such adjourned meeting at which a
quorum is present.
SECTION 6. ORGANIZATION. At each meeting of the stockholders, the Chairman
of the Board (if one has been designated by the Board), or in his absence or
inability to act, the President, or in the absence or inability to act of the
Chairman of the Board and the President, a Senior Vice President or a Vice
President, shall act as chairman of the meeting; provided, however, that if no
such officer is present or able to act, a chairman of the meeting shall be
elected at the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
SECTION 7. ORDER OF BUSINESS. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
SECTION 8. VOTING. Except as otherwise provided by statute or the Articles
of Incorporation, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders to one
vote for every full share of such stock, with a fractional vote for any
fractional shares, standing in his name on the record of stockholders of the
Corporation as of the record date determined pursuant to Section 9 of this
Article or if such record date shall not have been so fixed, then at the later
of (i) the close of business on the day on which notice of the meeting is mailed
or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholders or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these ByLaws,
any corporate action to be taken by vote of the stockholders shall be authorized
by a majority of the total votes validly cast at a meeting of stockholders at
which a quorum is present.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
SECTION 9. FIXING OF RECORD DATE. The Board of Directors may fix a time not
less than 10 nor more than 90 days prior to the date of any meeting of
stockholders or prior to the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose without a meeting, as
the time as of which stockholders entitled to notice of and to vote at such a
meeting or whose consent or dissent is required or may be expressed for any
purpose, as the case may be, shall be determined; and all persons who were
holders of record of voting stock at such time and no other shall be entitled to
notice of and to vote at such meeting or to express their consent or dissent, as
the case may be. If no record date has been fixed, the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the later of the close of business on the day on which
notice of the meeting is mailed or the thirtieth day before the meeting, or, if
notice is waived by all stockholders, at the close of business on the tenth day
next preceding the day on which the meeting is held. The Board of Directors may
fix a record date for determining stockholders entitled to receive payment of a
dividend or an allotment of any rights, but such date shall be not more than 90
days before the date on which such payment or allotment is made. If no record
date has been fixed, the record date for determining stockholders entitled to
receive dividends or an allotment of rights shall be the close of business on
the day on which the resolution of the Board of Directors declaring the dividend
or an allotment of rights is adopted, but the payment or allotment shall not be
made more than 60 days after the date on which the resolution is adopted.
SECTION 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Except as otherwise
provided by statute or the Articles of Incorporation, any action required to be
taken at any meeting of stockholders, or any action which may be taken at any
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if the following are filed with the records of
stockholders' meetings: (i) a unanimous written consent which sets forth the
action and is signed by each stockholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each stockholder entitled to
notice of the meeting but not entitled to vote thereat.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors and all powers
of the Corporation may be exercised by or under authority of the Board of
Directors.
SECTION 2. NUMBER OF DIRECTORS. The number of directors shall be fixed from
time to time by resolution of the Board of Directors adopted by a majority of
the Directors then in office; provided, however, that the number of Directors
shall in no event be less than three (3) nor more than fifteen (15); except that
the Corporation shall have at least one (1) Director if there is no stock
outstanding and may have a number of Directors or fewer than three (3)
stockholders. Any vacancy created by an increase in Directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
Directors shall have the effect of removing any Director from office prior to
the expiration of his term unless such Director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be stockholders.
SECTION 3. ELECTION AND TERM OF DIRECTORS. Directors shall be elected
annually, by written ballot at the annual meeting of stockholders or a special
meeting held for that purpose; provided, however, that if no annual meeting of
the stockholders of the Corporation is required to be held in a particular year
pursuant to Section 1 of Article II of these By-Laws, Directors shall be elected
at the next annual meeting held. The term of office of each Director shall be
from the time of his election and qualification until the election of Directors
next succeeding his election and until his successor shall have been elected and
shall have qualified.
SECTION 4. RESIGNATION. A Director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 5. REMOVAL OF DIRECTORS. Any Director of the Corporation may be
removed in accordance with the Articles of Incorporation.
SECTION 6. VACANCIES. If any vacancies shall occur in the Board of
Directors (i) by reason of death, resignation, removal or otherwise, the
remaining Directors shall continue to act, and such vacancies (if not previously
filled by the stockholders) may be filled by a majority of the remaining
Directors, although less than a quorum, or (ii) by reason of an increase in the
authorized number of Directors, such vacancies (if not previously filled by the
stockholders) may be filled only by a majority vote of the entire Board of
Directors.
SECTION 7. PLACE OF MEETING. The Directors may hold their meetings, have
one or more offices, and keep the books of the Corporation, outside the State of
Maryland, and within or without the United States of America, at any office or
offices of the Corporation or at any other place as they may from time to time
by resolution determine, or in the case of meetings, as they may from time to
time by resolution determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
SECTION 8. REGULAR MEETINGS. The Board of Directors from time to time may
provide by resolution for the holding of regular meetings and fix their time and
place as the Board of Directors may determine. Notice of such regular meetings
need not be in writing, provided that notice of any change in the time or place
of such fixed regular meetings shall be communicated promptly to each Director
not present at the meeting at which such change was made in the manner provided
in Section 9 of this Article III for notice of special meetings. Members of the
Board of Directors or any committee designated thereby may participate in a
meeting of such Board or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at a meeting.
SECTION 9. SPECIAL MEETING. Special meetings of the Board of Directors may
be held at any time or place and for any purpose when called by the President,
the Secretary or two or more of the Directors. Notice of special meetings,
stating the time and place, shall be communicated to each Director personally by
telephone or transmitted to him by telegraph, telefax, telex, cable or wireless
at least one day before the meeting.
SECTION 10. WAIVER OF NOTICE. No notice of any meeting of the Board of
Directors or a committee of the Board need be given to any Director who is
present at the meeting or who waives notice of such meeting in writing (which
waiver shall be filed with the records of such meeting), either before or after
the time of the meeting.
SECTION 11. QUORUM AND VOTING. At all meetings of the Board of Directors,
the presence of one third of the entire Board of Directors shall constitute a
quorum unless there are only two or three Directors, in which case two Directors
shall constitute a quorum. If there is only one Director, the sole Director
shall constitute a quorum. At any adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally called.
SECTION 12. ORGANIZATION. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President, or, in his absence
or inability to act, another Director chosen by a majority of the Directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.
SECTION 13. WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING. Subject to
the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
SECTION 14. COMPENSATION. Directors may receive compensation for services
to the Corporation in their capacities as directors or otherwise in such manner
and in such amounts as may be fixed from time to time by the Board.
ARTICLE IV
COMMITTEES
SECTION 1. ORGANIZATION. By resolution adopted by the Board of Directors,
the board may designate one or more committees, including an Executive
Committee, composed of two or more Directors. The Chairman of such committees
shall be elected by the Board of Directors. The Board of Directors shall have
the power at any time to change the members of such committees and to fill
vacancies in the committees. The Board may delegate to these committees any of
its powers, except the power to authorize the issuance of stock, declare a
dividend or distribution on stock, recommend to stockholders any action
requiring stockholder approval, amend these By-Laws, or approve any merger or
share exchange which does not require stockholder approval. If the Board of
Directors has given general authorization for the issuance of stock, a committee
of the Board, in accordance with a general formula or method specified by the
Board by resolution or by adoption of a stock option or other plan, may fix the
terms of stock subject to classification or reclassification and the terms on
which any stock may be issued, including all terms and conditions required or
permitted to be established or authorized by the Board of Directors.
SECTION 2. PROCEEDINGS AND QUORUM. In the absence of an appropriate
resolution of the Board of Directors, each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable. In the event any member of any committee is absent
from any meeting, the members thereof present at the meeting, whether or not
they constitute a quorum, may appoint a member of the Board of Directors to act
in the place of such absent member.
ARTICLE V
OFFICERS, AGENTS AND EMPLOYEES
SECTION 1. GENERAL. The officers of the Corporation shall be a
President, a Secretary and a Treasurer, and may include one or more Executive
Vice Presidents, Vice Presidents, Assistant Secretaries or Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 8 of this Article.
SECTION 2. ELECTION, TENURE AND QUALIFICATIONS. The officers of the
Corporation, except those appointed as provided in Section 8 of this Article V,
shall be elected by the Board of Directors at its first meeting and thereafter
annually at an annual meeting. If any officers are not chosen at any annual
meeting, such officers may be chosen at any subsequent regular or special
meeting of the Board. Except as otherwise provided in this Article V, each
officer chosen by the Board of Directors shall hold office until the next annual
meeting of the Board of Directors and until his successor shall have been
elected and qualified. Any person may hold one or more offices of the
Corporation except the offices of President and Vice President.
SECTION 3. REMOVAL AND RESIGNATION. Whenever in the judgment of the Board
of Directors the best interest of the Corporation will be served thereby, any
officer may be removed from office by the vote of a majority of the members of
the Board of Directors at any regular meeting or at a special meeting called for
such purpose. Any officer may resign his office at any time by delivering a
written resignation to the Board of Directors, the President, the Secretary, or
any Assistant Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
SECTION 4. PRESIDENT. The President shall be the chief executive officer of
the Corporation. Subject to the supervision of the Board of Directors, he shall
have general charge of the business, affairs and property of the Corporation and
general supervision over its officers, employees and agents. Except as the Board
of Directors may otherwise order, he may sign in the name and on behalf of the
Corporation all deeds, bonds, contracts, or agreements. He shall exercise such
other powers and perform such other duties as from time to time may be assigned
to him by the Board of Directors.
SECTION 5. EXECUTIVE VICE PRESIDENT AND VICE PRESIDENT. The Board of
Directors may from time to time elect one or more Executive Vice Presidents who
shall have such powers and perform such duties as from time to time may be
assigned to them by the Board of Directors or the President. At the request or
in the absence or disability of the President, the Executive Vice President (or,
if there are two or more Executive Vice Presidents, then the more senior of such
officers present and able to act) may perform all the duties of the President
and, when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may perform such duties as
the Board of Directors may assign.
SECTION 6. TREASURER AND ASSISTANT TREASURER. The Treasurer shall be the
principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. He shall render to the
Board of Directors, whenever directed by the Board, an account of the financial
condition of the Corporation and of all his transactions as Treasurer. He shall
perform all acts incidental to the Office of Treasurer, subject to the control
of the Board of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, the Assistant Treasurer (or if there are two or more Assistant
Treasurers, then the more senior of such officers present and able to act) may
perform all of the duties of the Treasurer.
SECTION 7. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall attend
to the giving and serving of all notices of the Corporation and shall record all
proceedings of the meetings of the stockholders and Directors in books to be
kept for that purpose. He shall keep in safe custody the seal of the
Corporation, and shall have charge of the records of the Corporation, including
such books and papers as the Board of Directors may direct and such books,
reports, certificates and other documents required by law to be kept, all of
which shall at all reasonable times be open to inspection by any Director. He
shall perform such other duties as appertain to his office or as may be required
by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary of the Board of Directors may assign, and, in the absence of the
Secretary, he may perform all the duties of the Secretary.
SECTION 8. SUBORDINATE OFFICERS. The Board of Directors from time to time
may appoint such other officers or agents as it may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
rights, terms of office, authorities and duties.
SECTION 9. REMUNERATION. The salaries or other compensation, if any, of
the officers of the Corporation shall be fixed from time to time by resolution
of the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 8 of this Article V.
SECTION 10. SURETY BONDS. The Board of Directors may require any officer or
agent of the Corporation to execute a bond (including, without limitation, any
bond required by the Investment Company Act of 1940, as amended, and the rules
and regulations of the Securities and Exchange Commission) to the Corporation in
such sum and with such surety or sureties as the Board of Directors may
determine, conditioned upon the faithful performance of his duties to the
Corporation, including responsibility for negligence and for the accounting of
any of the Corporation's property, funds or securities that may come into his
hands.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify (a) its Directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by (i) Maryland law now or hereafter in force, including
the advance of expenses under the procedures and to the full extent permitted by
law, and (ii) the Investment Company Act of 1940, as amended, and (b) other
employees and agents to such extent as shall be authorized by the Board of
Directors and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be permitted
by law.
ARTICLE VII
CAPITAL STOCK
SECTION 1. STOCK CERTIFICATES. The interest of each stockholder of the
Corporation may be evidenced by certificates for shares of stock in such forms
as the Board of Directors may from time to time prescribe. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the President, an Executive Vice President or a Vice President
and countersigned by the Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer. Certificates may be sealed with the actual corporate
seal or a facsimile of it or in any other form. Any or all of the signatures or
the seal on the certificate may be manual or a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate shall be issued, it may be issued by the
Corporation with the same effect as if such officer, transfer agent or registrar
were still in office at the date of issue unless written instructions of the
Corporation to the contrary are delivered to such officer, transfer agent or
registrar.
SECTION 2. STOCK LEDGERS. The stock ledgers of the Corporation, containing
the names and addresses of the stockholders and the number of shares held by
them respectively, shall be kept at the principal office of the Corporation or,
if the Corporation employs a transfer agent, at the office of the transfer agent
of the Corporation.
SECTION 3. TRANSFER OF SHARES. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for such shares properly endorsed or accompanied by proper evidence or
succession, assignment or authority to transfer, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require and the payment of all taxes thereon. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive rights of a
person in whose name any share or shares stand on the record of stockholders as
the owner of such share or shares for all purposes, including, without
limitation, the rights to receive dividends or other distributions, and to vote
as such owner, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in any such share or shares on the part of any
other person. The Board may make such additional rules and regulations, not
inconsistent with these By-Laws, as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may from
time to time appoint or remove transfer agents and/or registrars of transfers of
shares of stock of the Corporation and it may appoint the same person as both
transfer agent and registrar. Upon any such appointment being made all
certificates representing shares of capital stock thereafter issued shall be
countersigned by one of such transfer agents or by one of such registrars of
transfers or by both and shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one countersignature by
such person shall be required.
SECTION 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
ARTICLE VIII
SEAL
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors, the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Maryland". The form of the seal may be altered by the Board of
Directors. Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced. Any Officer or Director
of the Corporation shall have the authority to affix the corporate seal of the
Corporation to any document requiring the same.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Company shall be determined by resolution of the
Board of Directors.
ARTICLE X
DEPOSITORIES AND CUSTODIAN
SECTION 1. DEPOSITORIES. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of
the Corporation may from time to time determine.
SECTION 2. CUSTODIANS. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
ARTICLE XI
EXECUTION OF INSTRUMENTS
SECTION 1. CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts, acceptances,
bills of exchange and other orders or obligations for the payment of money shall
be signed by such officer or officers or person or persons as the Board of
Directors by resolution shall from time to time designate or as these By-Laws
provide.
SECTION 2. SALE OF TRANSFER OF SECURITIES. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or so transferred or otherwise disposed of subject to any limits
imposed by these By-laws and pursuant to authorization by the Board and, when so
authorized to be held on behalf of the Corporation or sold, transferred or
otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President, any Executive Vice President, any Vice President
or the Treasurer or pursuant to any procedure approved by the Board of
Directors, subject to applicable law.
ARTICLE XII
INDEPENDENT PUBLIC ACCOUNTANTS
The Corporation shall employ an independent public accountant or a firm of
independent public accountants as its accountants to examine the accounts of the
Corporation and to sign and certify financial statements filed by the
Corporation.
ARTICLE XIII
AMENDMENTS
These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any special meeting of the
stockholders at which a quorum is present or represented, provided that notice
of the proposed amendment, alteration or repeal be contained in the notice of
such special meeting. These By-Laws may also be amended, altered or repealed by
the affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors, except any particular By-Law which is
specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of 1940, as amended.
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on ________, 1997, between Pilgrim Baxter
& Associates, Ltd. (the "Adviser") and PBHG Insurance Series Fund, Inc. (the
"Fund").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated _______, 1997, (the "Articles") and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
diversified management investment company;
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund and the Adviser is willing to furnish such
services to the portfolios listed on Schedule A hereto (the "Portfolios");
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Fund and the Adviser as follows:
1. APPOINTMENT. The Fund hereby appoints the Adviser to act as investment
adviser to the Fund for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. INVESTMENT ADVISORY DUTIES. Subject to the supervision of the Directors of
the Fund, the Adviser will, (a) provide a program of continuous investment
management for the Portfolios in accordance with the Portfolios' investment
objectives, policies and limitations as stated in each Portfolio's prospectus
and Statement of Additional Information included as part of the Fund's
Registration Statement filed with the Securities and Exchange Commission, as
they may be amended from time to time, copies of which shall be provided to the
Adviser by the Fund; (b) make investment decisions for the Portfolios; and (c)
place orders to purchase and sell securities for the Portfolios.
In performing its investment management services to the Portfolios
hereunder, the Adviser will provide the Portfolios with ongoing investment
guidance and policy direction, including oral and written research, analysis,
advice, statistical and economic data and judgments regarding individual
investments, general economic conditions and trends and long-range investment
policy. The Adviser will determine the securities, instruments, repurchase
agreements, options, futures and other investments and techniques that the
Portfolios will purchase, sell, enter into or use, and will provide an ongoing
evaluation of the Portfolios' investments. The Adviser will determine what
portion of the Portfolios' investments shall be invested in securities and other
assets, and what portion, if any, should be held uninvested. The Adviser shall
furnish to the Fund adequate (i) office space, which may be space within the
offices of the Adviser or in such other places as may be agreed upon from time
to time and (ii) office furnishings, facilities and equipment as may be
reasonably required for managing the corporate affairs and conducting the
business of the Fund, including complying with the corporate reporting
requirements of the various states in which the Fund does business, and
conducting correspondence and other communications with the stockholders of the
Fund. The Adviser shall employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide such services. Subject
to the approval of the Board of Directors (including a majority of the Fund's
Directors who are not "interested persons" of the Fund as defined in the 1940
Act) and of the shareholders of the Fund, the Adviser may delegate to a
sub=adviser its duties enumerated in Section 2 hereof. The Adviser shall
continue to supervise the performance of any such sub-adviser and shall report
regularly thereon to the Fund's Board of Directors. The Adviser further agrees
that, in performing its duties hereunder, it will:
(a) 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, and with any applicable procedures
adopted by the Directors;
(b) use reasonable efforts to manage each Portfolio so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for each
Portfolio directly with the issuer, or with any broker or dealer, in accordance
with applicable policies expressed in each Portfolio's prospectus and/or
Statement of Additional Information and in accordance with applicable legal
requirements;
(d) furnish to the Fund whatever statistical information the Fund may
reasonably request with respect to each Portfolio's assets or contemplated
investments. In addition, the Adviser will keep the Fund and the Directors
informed of developments materially affecting each Portfolio's investments and
shall, on the Adviser's own initiative, furnish to the Fund from time to time
whatever information the Adviser believes appropriate for this purpose;
(e) make available to the Fund, promptly upon its request, such copies of
the Adviser's investment records and ledgers with respect to the Portfolios as
may be required to assist the Fund in its compliance with applicable laws and
regulations. The Adviser will furnish the Directors with such periodic and
special reports regarding each Portfolio as they may reasonably request; and
(f) immediately notify the Fund in the event that the Adviser or any of its
affiliates; (1) becomes aware that it is subject to a statutory disqualification
that prevents the Adviser from serving as investment adviser pursuant to this
Agreement; or (2) 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 Adviser further agrees to notify the
Fund immediately of any material fact known to the Adviser respecting or
relating to the Adviser that is not contained in the Fund'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.
3. ADDITIONAL SERVICES. If the Fund so requests, the Adviser shall also maintain
all internal bookkeeping, accounting and auditing services and records in
connection with maintaining the Fund's financial books and records, and shall
calculate each Portfolio's daily net asset value. For these services, each
Portfolio shall pay to the Adviser a monthly fee, which shall be in addition to
the fees payable pursuant to Section 5 hereof, to reimburse the Adviser for its
costs, without profit, for performing such services.
4. ALLOCATION OF CHARGES AND EXPENSES. Except as otherwise specifically provided
in this Section 4, the Adviser shall pay the compensation and expenses of all
its directors, officers and employees who serve as officers and executive
employees of the Fund (including the Fund's share of payroll taxes for such
persons), and the Adviser shall make available, without expense to the Fund, the
service of its directors, officers and employees who may be duly-elected
officers of the Fund, subject to their individual consent to serve and to any
limitations imposed by law.
The Adviser shall not be required to pay any expenses of the Fund other
than those specifically allocated to the Adviser in this Section 4. In
particular, but without limiting the generality of the foregoing, the Adviser
shall not be responsible, except to the extent of the reasonable compensation of
such of the Fund's employees as are officers or employees of the Adviser whose
services may be involved, for the following expenses of the Fund; organization
and certain offering expenses of the Fund (including out-of-pocket expenses, but
not including the Adviser's overhead and employee costs); fees payable to the
Adviser and to any other Fund advisers or consultants; legal expenses; auditing
and accounting expenses; interest expenses; telephone, telex, facsimile, postage
and other communications expenses; taxes and governmental fees; fees, dues and
expenses incurred by or with respect to the Fund in connection with membership
in investment company trade organizations; costs of insurance relating to
fidelity coverage for the Fund's officers and employees; fees and expenses of
the Fund's custodian, any sub-custodian, transfer agent registrar, or dividend
disbursing agent; payments to the Adviser for maintaining the Fund's financial
books and records and calculating the daily net asset value pursuant to Section
3 hereof, other payments for portfolio pricing or valuation services to pricing
agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates; other expenses in connection with the issuance,
offering, distribution, sale or redemption of securities issued by the Fund;
expenses relating to investor and public relations; expenses of registering and
qualifying shares of the Fund for sale; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
or other assets of the Fund, or of entering into other transactions or engaging
in any investment practices with respect to the Fund; expenses of printing and
distributing prospectuses, Statements of Additional Information, reports,
notices and dividends to stock-holders; costs of stationery; any litigation
expenses; costs of stockholders' meetings; the compensation and all expenses
(specifically including travel expenses relating to the Fund's business) of
officers, directors and employees of the Fund who are not interested persons of
the Adviser; and travel expenses (or an appropriate portion thereof) of officers
or directors of the Fund who are officers, directors or employees of the Adviser
to the extent that such expenses relate to attendance at meetings of the Board
of Directors of the Fund with respect to matters concerning the Fund, or any
committees thereof or advisers thereto.
5. COMPENSATION. As compensation for the services provided and expenses assumed
by the Adviser under this Agreement, except for any additional services provided
by the Adviser pursuant to Section 3 hereof, each Portfolio will pay the Adviser
at the end of each calendar month an advisory fee as set forth in Schedule A
hereto. The advisory fee is computed daily as a percentage of each Portfolio's
average daily net assets. The "average daily net assets" of a Portfolio shall
mean the average of the values placed on the Portfolio's net assets as of 4:00
p.m. (Eastern 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 Articles 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 5, 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 securities may lawfully be determined, on that day. If the
determination of the net asset value of the shares of a Portfolio has been so
suspended for a period including any month and when the Adviser's compensation
is payable at the end of such month, then such value 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 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 5.
In the event that the Adviser's gross compensation hereunder shall, when
added to the other expenses of a Portfolio, cause the aggregate expenses of the
Portfolio to exceed the maximum expenses permitted under the lowest applicable
expense limitation established pursuant to the statutes or regulations of any
jurisdiction in which the shares of the Portfolio may be qualified for offer and
sale, the total compensation paid or payable to the Adviser shall be reduced
(but not below zero), to the extent necessary to cause the Portfolio not to
exceed such expense limitation. Except to the extent that such reduction has
been reflected in lowered monthly payments to the Adviser, the Adviser shall
refund to the Portfolio the amount by which the total of payments received by
the Adviser are in excess of such expense limitation as promptly as practicable
after the end of such fiscal year, provided that the Adviser shall not be
required to pay the Portfolio an amount greater than the fee otherwise payable
to the Adviser in respect of such year. As used in this Section 5, "expenses"
shall mean those expenses included in the applicable expense limitation having
the broadest specifications thereof, and "expense limitation" mean a limitation
on the maximum annual expenses which may be incurred by an investment company as
determined by applicable law. The words "lowest applicable expense limitation"
shall be deemed to be that which results in the largest reduction of the
Adviser's compensation for any fiscal year of a Portfolio; provided, however,
that nothing in this Agreement shall limit the Adviser's fees if not required by
an applicable statute or regulation referred to above in this Section 5.
6. BOOKS AND RECORDS. The Adviser agrees to maintain such books and records with
respect to its services to the Fund 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 that
Section, and those rules and legal provisions. The Adviser also agrees that
records it maintains and preserves pursuant to Rules 31a-1 and 31a-2 under the
1940 Act as otherwise in connection with its services hereunder are the property
of the Fund and will be surrendered promptly to the Fund upon its request. And
the Adviser further agrees that it will furnish 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 Fund are being conducted in accordance with applicable law and
regulations.
7. STANDARD OF CARE AND LIMITATION OF LIABILITY. The Adviser shall exercise its
best judgment in rendering the services provided by it under this Agreement. The
Adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund or the holders of the Fund's shares in connection
with the matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect the Adviser against
any liability to the Fund or to holders of the Fund's shares to which the
Adviser 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 Adviser's reckless disregard of its obligations and duties under this
Agreement. As used in this Section 7, the term "Adviser" shall include any
officers, directors, employees or other affiliates of the Adviser performing
services with respect to the Fund.
8. SERVICES NOT EXCLUSIVE. It is understood that the services of the Adviser are
not exclusive, and that nothing in this Agreement shall prevent the Adviser from
providing similar services to other investment companies or to other series of
investment companies, or from engaging in other activities, provided such other
services and activities do not, during the term of the Agreement, interfere in a
material manner with the Adviser's ability to meet its obligations to the Fund
hereunder. When the Adviser recommends the purchase or sale of the same security
for a Portfolio, it is understood that in light of its fiduciary duty to the
Portfolio, such transactions will be executed on a basis that is fair and
equitable to the Portfolio. In connection with purchases or sales of portfolio
securities for the account of a Portfolio, neither the Adviser nor any of its
directors, officers or employees shall act as a principal or agent or receive
any commission, provided that portfolio transactions for a Portfolio may be
executed through firms affiliated with the Adviser, in accordance with
applicable legal requirements. If the Adviser provides any advice to its clients
concerning the shares of the Fund, the Adviser shall act solely as investment
counsel for such clients and not in any way on behalf of the Fund.
9. DURATION AND TERMINATION. This Agreement shall continue until April 28, 1997,
and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (i) the
Directors or (ii) a vote of a "majority" (as defined in the 1940 Act) of each
Portfolio's outstanding voting securities (as defined in the 1940 Act), provided
that in either event the continuance is also approved by a majority of the
Directors who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. Notwithstanding the foregoing, this
Agreement may be terminated as to a Portfolio (a) at any time without penalty by
the Fund upon the vote of a majority of the Directors or by vote of the majority
of the Portfolio's outstanding voting securities, upon sixty (60) days' written
notice to the Adviser or (b) by the Adviser at any time without penalty, upon
sixty (60) days' written notice to the Fund. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
10. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Directors, including a
majority of Directors who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
11. MISCELLANEOUS.
a. This Agreement shall be governed by the laws of the State of Maryland,
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 thereunder.
b. The captions of this 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. If any provision of this Agreement shall be held or made invalid by a
court decision statute, rule or otherwise, the remainder of this Agreement shall
not be affected hereby and, to this extent, the provisions of this Agreement
shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of ________, 1997.
PBHG INSURANCE SERIES FUND, INC.
By: ____________________________________
Title:
PILGRIM BAXTER & ASSOCIATES, LTD.
By: ____________________________________
Title:
SCHEDULE A DATED ________, 1997
TO THE INVESTMENT ADVISORY AGREEMENT DATED
________, 1997 BETWEEN
PBHG INSURANCE SERIES FUND, INC.
AND
PILGRIM BAXTER & ASSOCIATES, LTD.
Pursuant to Section 5 of this Agreement, each Portfolio shall pay the
Adviser, at the end of each calendar month, compensation computed daily at an
annual rate of the Portfolio's average daily net assets as follows:
PORTFOLIO FEE
PBHG Growth II Portfolio .85%
PBHG Large Cap Growth Portfolio .75%
PBHG Select 20 Portfolio .85%
PBHG Technology & Communications Portfolio .85%
PBHG Large Cap Value Portfolio .65%
PBHG Small Cap Value Portfolio .85%
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this ___ day of _____, 1997, by and among Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), Newbold's Asset Management, Inc.
(the "Sub-Adviser") and PBHG Insurance Series Fund, Inc., a Maryland
corporation (the "Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, pursuant to the Investment Advisory Agreement dated ___________,
1997 and Schedule A dated ___________, 1997 between the Adviser and the Company,
the Adviser will act as investment adviser to certain series of the Company as
set forth in Schedule A attached hereto ("Portfolios"); and
WHEREAS, the Adviser and the Company each desire to retain the Sub-Adviser
to provide investment advisory services to the Company in connection with the
management of the Portfolios, and the Sub-Adviser is willing to render such
investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Company's Board of
Directors, the Sub-Adviser shall manage the investment operations of each
Portfolio and the composition of each Portfolio's portfolio, including the
purchase, retention and disposition thereof, in accordance with each Portfolio's
investment objectives, policies and restrictions as stated in the Portfolios'
Prospectus (such Prospectus and Statement of Additional Information, as
currently in effect and as amended or supplemented from time to time, being
herein called the "Prospectus"), and subject to the following understandings:
(1) The Sub-Adviser shall provide supervision of each Portfolio's
investments and determine from time to time what investments and securities will
be purchased, retained or sold by each Portfolio, and what portion of the assets
will be invested or held uninvested in cash.
(2) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the Company's Articles
of Incorporation and the Prospectus and with the instructions and directions of
the Adviser and of the Board of Directors and will conform and comply with the
requirements of the 1940 Act, the Internal Revenue Code of 1986, as amended, and
all other applicable federal and state laws and regulations, as each is amended
from time to time.
(3) The Sub-Adviser shall determine the securities to be purchased or
sold by each Portfolio and will place orders with or through such persons,
brokers or dealers to carry out the policy with respect to brokerage set forth
in the Portfolios' Registration Statement (as defined herein) and Prospectus or
as the Board of Directors or the Adviser may direct from time to time, in
conformity with federal securities laws. In providing each Portfolio with
investment supervision, the Sub-Adviser will give primary consideration to
securing the most favorable price and efficient execution. Within the framework
of this policy, the Sub-Adviser may consider the financial responsibility,
research and investment information and other services provided by brokers or
dealers who may effect or be a party to any such transaction or other
transactions to which the Sub-Adviser's other clients may be a party. It is
understood that it is desirable for each Portfolio that the Sub-Adviser have
access to supplemental investment and market research and security and
economic analysis provided by brokers who may execute brokerage transactions
at a higher cost to the Portfolios than may result when allocating brokerage to
other brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, the Sub-Adviser is authorized to place orders
for the purchase and sale of securities for each Portfolio with such brokers,
subject to review by the Company's Board of Directors from time to time with
respect to the extent and continuation of this practice. It is understood that
the services provided by such brokers may be useful to the Sub-Adviser in
connection with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of a Portfolio as well as other clients of
the Sub-Adviser, the Sub-Adviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be so purchased or sold 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
transaction, will be made by the Sub-Adviser in the manner it considers to be
the most equitable and consistent with its fiduciary obligations to the
Portfolio in question and to such other clients.
(4) The Sub-Adviser shall maintain all books and records with respect
to each Portfolio's portfolio transactions required by subparagraphs (b)(5),
(6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act
and shall render to the Company's Board of Directors such periodic and special
reports as the Company's Board of Directors may reasonably request.
(5) The Sub-Adviser shall provide the Portfolios' Custodian on each
business day with information relating to all transactions concerning each
Portfolio's assets and shall provide the Adviser with such information upon
request of the Adviser.
(6) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the Sub-Adviser shall be
free to render similar services to others, as long as such services do not
impair the services rendered to the Adviser or the Company.
(b) Services to be furnished by the Sub-Adviser under this Agreement may be
furnished through the medium of any of the Sub-Adviser's officers or employees.
It is understood that the Sub-Adviser may obtain certain administrative
services, including, without limitation, services relating to trade
reconciliation and the production of client reports, from its parent company in
carrying out its obligations under this Agreement.
(c) The Sub-Adviser shall keep each Portfolio's books and records required
to be maintained by the Sub-Adviser pursuant to paragraph 1(a) of this Agreement
and shall timely furnish to the Adviser all information relating to the
Sub-Adviser's services under this Agreement needed by the Adviser to keep the
other books and records of the Portfolios required by Rule 31a-1 under the 1940
Act. The Sub-Adviser agrees that all records that it maintains on behalf of each
Portfolio are property of the Portfolios and the Sub-Adviser will surrender
promptly to the Portfolio any of such records upon that Portfolio's request;
provided, however, that the Sub-Adviser may retain a copy of such records. The
Sub-Adviser further agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act any such records as are required to be maintained by
it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to be
provided to each Portfolios pursuant to the Advisory Agreement and shall oversee
and review the Sub-Adviser's performance of its duties under this Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the following
documents and will deliver to it all future amendments and supplements, if any:
(a) Articles of Incorporation, as filed with the Secretary of State of
Maryland (such Articles of Incorporation as in effect on the date of this
Agreement and as amended from time to time, are herein called the "Articles of
Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the "ByLaws");
(c) Certified resolutions of the Company's Board of Directors
authorizing the appointment of the Adviser and the Sub-Adviser and approving
the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on form N-1A (the "Registration Statement"), as filed with the
Securities and Exchange Commission (the "Commission") relating to the Portfolios
and shares of the Portfolios' beneficial shares, and all amendments thereto;
(e) Notification of Registration of the Portfolios under the 1940 Act on
form N-8A as filed with the Commission, and all amendments thereto; and
(f) Prospectus of the Portfolios.
4. For the services to be provided by the Sub-Adviser pursuant to this Agreement
for each of the Portfolios set forth in Schedule A, the Adviser will pay to the
Sub-Adviser as full compensation therefor a fee at an annual rate as specified
in Schedule A. Each such fee will be paid to the Sub-Adviser from the Adviser's
advisory fee for such Portfolio.
5. The Sub-Adviser shall not be liable for any error of judgment or for any loss
suffered by a Portfolio or the Adviser in connection with performance of its
obligations under this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the 1940 Act), or a loss resulting from willful
misfeasance, bad faith or gross negligence on the Sub-Adviser's part in the
performance of its duties or from reckless disregard of its obligations and
duties under this Agreement, except as may otherwise be provided under
provisions of applicable state law which cannot be waived or modified hereby.
6. This Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as continuance is specifically approved at
least annually in conformance with the 1940 Act; provided, however, that this
Agreement may be terminated (a) by a Portfolio at any time, without the payment
of any penalty, by the vote of a majority of Directors of the company or by the
vote of a majority of the outstanding voting securities of a Portfolio, (b) 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 parties, or (c) by the
Sub-Adviser at any time, without the payment of any penalty, on 90 days' written
notice to the other parties. This Agreement shall terminate automatically and
immediately in the event of its assignment. As used in this Section 6, the terms
"assignment" and "vote of a majority of the outstanding voting securities" shall
have the respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by the
Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of the
Sub-Adviser's directors, officers, or employees to engage in any other business
or to devote his or her time and attention in part to the management or other
aspects of any business, whether of a similar or dissimilar nature, nor limit or
restrict the Sub-Adviser's right to engage in any other business or to render
services of any kind to any other corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements, reports
to shareholders, sales literature or other materials prepared for distribution
to shareholders of the Portfolios, the Company or the public that refers to the
Sub-Adviser or its clients in any way prior to use thereof and not to use
material if the Sub-Adviser reasonably objects in writing within five business
days (or such other period as may be mutually agreed) after receipt thereof. The
Sub-Adviser's right to object to such materials is limited to the portions of
such materials that expressly relate to the Sub-Adviser, its services and its
clients. The Adviser agrees to use its reasonable best efforts to ensure that
materials prepared by its employees or agents or its affiliates that refer to
the Sub-Adviser or its clients in any way are consistent with those materials
previously approved by the Sub-Adviser as referenced in the first sentence of
this paragraph. Sales literature may be furnished to the Sub-Adviser by
first-class or overnight mail, facsimile transmission equipment or hand
delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved by
the vote of the majority of the outstanding voting securities of a Portfolio.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being inconsistent
with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among the
parties hereto, and supersedes all prior agreements and understandings relating
to this Agreement's subject matter. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
13. Any notice, advice or report to be given pursuant to this Agreement shall
be delivered or mailed:
To the Adviser at:
1255 Drummers Lane, Suite 300
Wayne, PA 19087
To the Sub-Adviser at:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
14. Where the effect of a requirement of the 1940 Act reflected in any provision
of this Agreement is altered by a rule, regulation or order of the Commission,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
PILGRIM BAXTER & ASSOCIATES, LTD. PBHG INSURANCE SERIES FUND, INC.
By: ____________________________ By: ____________________________
Title: Title:
NEWBOLD'S ASSET MANAGEMENT, INC.
By: ____________________________
Title:
SCHEDULE A DATED _______________, 1997
Pursuant to Section 4 of this Agreement, the Sub-Adviser for each Portfolio
listed below shall be entitled to compensation, to be paid by the Adviser, which
shall be computed daily and paid monthly at the annual rate specified below with
respect to each Portfolio's average daily net assets:
PORTFOLIO FEE
Small Cap Value Portfolio 0.65%
Large Cap Value Portfolio 0.40%
less 50% of any fee waivers borne by the Adviser.
FORM OF
DISTRIBUTION AGREEMENT
PBHG INSURANCE SERIES FUND, INC.
THIS AGREEMENT is made as of this ___ day of ____, 1997 between PBHG
Insurance Series Fund, Inc. (the "Company"), a Maryland corporation, and SEI
Financial Services Company (the "Distributor"), a Pennsylvania corporation.
WHEREAS, the Company is registered as an investment company with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended (the "1940 Act"), and is authorized to issue shares of common
stock ("Shares") in separately designated series ("Funds"), each with its own
objectives, investment program, policies and restrictions; and
WHEREAS, the Company has registered the Shares of the Funds under the
Securities Act of 1933, as amended (the "1933 Act"), pursuant to a registration
statement on Form N-1A (the "Registration Statement"), including a prospectus
("Prospectus") and a statement of additional information ("Statement of
Additional Information"); and
WHEREAS, the Company has adopted a Service Plan Pursuant to Rule 12b-1
under the 1940 Act (the "Service Plan") with respect to one of its classes of
shares, i.e., the Trust Class, and may enter into related agreements providing
for the distribution of the Shares of the Funds; and
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"); and
WHEREAS, the Company wishes to continue to engage the services of the
Distributor as principal underwriter and distributor of the Shares of the Funds
that now exist and that hereafter may be established, which are listed on
Schedule A to this Agreement as may be amended from time to time, and the
Distributor is willing to continue to serve in that capacity.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT OF DISTRIBUTOR.
(a) The Company hereby appoints the Distributor as principal
underwriter and distributor of the Funds of the Company to sell the Shares of
the Funds in jurisdictions wherein the Shares may be legally offered for sale.
The Distributor shall be the exclusive agent for the distribution of Shares of
the Funds; provided, however, that the Company in its absolute discretion may
issue Shares of the Funds otherwise than through the Distributor in connection
with (i) the payment or reinvestment of dividends or distributions, (ii) any
merger or consolidation of the Company or a Fund with any other investment
company or trust or any personal holding company, or the acquisition of the
assets of any such entity by the Company or any Fund, and (iii) any offer of
exchange authorized by the Board of Directors of the Company. Notwithstanding
any other provision hereof, the Company may terminate, suspend, or withdraw the
offering of the Shares of a Fund whenever, in its sole discretion, it deems such
action to be desirable.
(b) The Distributor agrees that it will use all reasonable efforts,
consistent with its other business, in connection with the distribution of
Shares of the Company; provided, however, that the Distributor shall not be
prevented from entering into like arrangements with other issuers. The
provisions of this paragraph do not obligate the Distributor to register as a
broker or dealer under the state Blue Sky laws of any jurisdiction when it
determines it would be uneconomical for it to do so or to maintain its
registration in any jurisdiction in which it is now registered nor obligate the
Distributor to sell any particular number of Shares. The Distributor is
currently registered as a broker-dealer or exempt from registration in all
jurisdictions listed in Schedule B hereto. The Distributor shall promptly notify
the Company in the event it fails to maintain its registration in any
jurisdiction in which it is currently registered. The Distributor shall sell
Shares of the Funds as agent for the Company at prices determined as hereinafter
provided and on the terms set forth herein, all according to applicable federal
and state Blue Sky laws and regulations and the Articles of Incorporation and
By-Laws of the Company. The Distributor may sell Shares of the Funds to or
through qualified brokers, dealers or others and shall require each such person
to conform to the provisions hereof, the Registration Statement, the then
current Prospectus and Statement of Additional Information, and applicable law.
Neither the Distributor nor any such person shall withhold the placing of
purchase orders for Shares so as to make a profit thereby.
(c) The Distributor shall order Shares of the Funds from the Company
only to the extent that it shall have received purchase orders therefor. The
Distributor will not make, or authorize any brokers, dealers, or others to make,
(i) any short sales of Shares or (ii) any sales of Shares to any Director or
officer of the Company, the Distributor, or any corporation or association
furnishing investment advisory, managerial, or supervisory services to the
Company, or to any such corporation or association, unless such sales are made
in accordance with the Company's then current Prospectus and Statement of
Additional Information.
(d) The Distributor is not authorized by the Company to give any
information or to make any representation other than those contained in the then
current Prospectus, Statement of Additional Information, and Fund shareholder
reports ("Shareholder Reports"), or in supplementary sales materials
specifically approved by the Company. The Distributor may prepare and distribute
sales literature and other material as it may deem appropriate, provided that
such literature and materials have been approved by the Company prior to their
use.
2. OFFERING PRICE OF SHARES. All Shares of each Fund sold under this
Agreement shall be sold at the public offering price per Share in effect at the
time of the sale as described in the Company's then current Prospectus and
Statement of Additional Information; provided, however, that any public offering
price for the Shares shall be the net asset value per Share, as determined in
the manner described in the Company's then current Prospectus and/or Statement
of Additional Information. At no time shall the Company receive less than the
full net asset value of the Shares, determined in the manner set forth in the
then current Prospectus and/or Statement of Additional Information.
3. REGISTRATION OF SHARES. The Company agrees that it will take all actions
necessary to register Shares under the Federal and state Blue Sky securities
laws so that there will be available for sale the number of Shares the
Distributor may reasonably be expected to sell and to pay all fees associated
with said registration.
4. SERVICE PLAN PAYMENTS.
(a) The Company has adopted a Service Plan pursuant to Rule 12b-1
under 1940 Act to enable the Trust Class Shares of each Fund to directly and
indirectly bear certain expenses relating to the distribution of such Shares.
Pursuant to such Service Plan, the Company shall be entitled to pay to financial
intermediaries, plan fiduciaries, and investment professionals ("Service
Providers") a shareholder servicing fee at the aggregate annual rate of up to
0.25% of each Fund's average daily net assets attributable to Trust Class
Shares. The shareholder servicing fee is intended to compensate Service
Providers for providing to shareholders or the underlying beneficial owners of
Trust Class Shares: (a) personal support services; (b) distribution assistance
and distribution support services; and (c) account maintenance services. In
addition, insurance companies or their affiliates may be paid the shareholder
servicing fee described in this Section 5 for providing similar services to
variable annuity or variable life insurance contract holders ("Contract
Holders") or their participants for which such insurance companies are not
otherwise compensated by Contract Holders or participants.
(b) The Distributor shall prepare and deliver written reports to the
Board of Directors of the Company on a regular basis (at least quarterly)
setting forth the payments made to Service Providers pursuant to the Service
Plan, and the purposes for which such expenditures were made, as well as any
supplemental reports as the Board of Directors of the Company may from time to
time reasonably request.
5. PAYMENT OF EXPENSES.
(a) Except as otherwise provided herein, the Distributor shall pay, or
arrange for others to pay, all of the following expenses: (i) payments to sales
representatives of the Distributor and at the discretion of the Distributor to
qualified brokers, dealers and others in respect of the sale of Shares of the
Funds; (ii) compensation and expenses of employees of the Distributor who engage
in or support distribution of Shares of the Funds or render shareholder support
services not otherwise provided by the Company's transfer and shareholder
servicing agent; and (iii) the cost of obtaining such information, analysis, and
reports with respect to marketing and promotional activities as the Company may
from time to time reasonably request.
(b) The Company shall pay, or arrange for others to pay, the following
expenses: (i) preparation, printing, and distribution to shareholders of
Prospectuses and Statements of Additional Information; (ii) preparation,
printing, and distribution of Shareholder Reports and other communications
required by law to shareholders; (iii) registration of the Shares of the Funds
under the federal securities laws; (iv) qualification of the Shares of the Funds
for sale in such states as the Distributor and the Company may approve; (v)
maintaining facilities for the issue and transfer of Shares; (vi) supplying
information, prices, and other data to be furnished by the Company under this
Agreement; and (vii) taxes applicable to the sale or delivery of the Shares of
the Funds or certificates therefor.
(c) In connection with the Distributor's distribution of sales materials,
Prospectuses, Statements of Additional Information, and Shareholder Reports to
potential investors in the Company, the Company shall make available to the
Distributor such number of copies of such materials as the Distributor may
reasonably request. The Company shall also furnish to the Distributor copies of
all information, financial statements and other documents the Distributor may
reasonably request for use in connection with the distribution of Shares of the
Company. The Company will enter into arrangements providing that persons other
than the Company will bear any and all expenses of preparing, printing and
providing to the Distributor, sales materials, Prospectuses, Statements of
Additional Information and Shareholder Reports for distribution to potential
investors in the Company.
6. COMPENSATION. It is understood that the Distributor will not
receive any commissions or other compensation for acting as the Company's
principal underwriter and distributor.
7. REPURCHASE OF SHARES. The Distributor as agent and for the account of
the Company may repurchase Shares of the Funds offered for resale to it and
redeem such Shares at their net asset value determined as set forth in the then
current Prospectus and Statement of Additional Information.
8. INDEMNIFICATION OF DISTRIBUTOR. The Company agrees to indemnify and hold
harmless the Distributor and each of its directors and officers and each person,
if any, who controls the Distributor within the meaning of Section 15 of the
1933 Act against any loss, liability, claim, damages or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
damages, claim, or expense, and any reasonable counsel fees and disbursements
incurred in connection therewith) arising by reason of any person acquiring any
Shares, based upon the ground that the Registration Statement, Prospectuses,
Statements of Additional Information, Shareholder Reports or other information
filed or made public by the Company (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements made not misleading.
However, the Company does not agree to indemnify the Distributor or hold it
harmless to the extent that the statements or omission was made in reliance
upon, and in conformity with, information furnished to the Company by or on
behalf of the Distributor.
In no case (i) is the indemnity of the Company to be deemed to protect the
Distributor against any liability to the Company or its shareholders to which
the Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of its failure to exercise due care in rendering its services and duties
under this Agreement, or (ii) is the Company to be liable to the Distributor
under the indemnity agreement contained in this section with respect to any
claim made against the Distributor or any person indemnified unless the
Distributor or other person shall have notified the Company in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or such other person (or after the Distributor or
the person shall have received notice of service on any designated agent).
However, failure to notify the Company of any claim shall not relieve the
Company from any liability which it may have to the Distributor or any person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this section.
The Company shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Company elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Company and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Company
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Company does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of
any counsel retained by the indemnified defendants.
The Company agrees to notify the Distributor promptly of the commencement
of any litigation or proceedings against it or any of its officers or Directors
in connection with the issuance or sale of any of its Shares.
9. INDEMNIFICATION OF COMPANY. The Distributor covenants and agrees that it
will indemnify and hold harmless the Company and each of its directors and
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense, and reasonable counsel fees and
disbursements incurred in connection therewith) based upon the 1933 Act or any
other statute or common law and arising by reason of any person acquiring any
Shares, and alleging (i) a wrongful act or deed of the Distributor or any of its
employees or sales representatives, or (ii) that the Registration Statement,
Prospectuses, Statements of Additional Information, shareholder reports or other
information filed or made public by the Company (as from time to time amended)
included an untrue statement of a material fact or omitted to state a material
fact required to be stated or necessary in order to make the statements not
misleading, insofar as any such statements or omissions were made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Distributor.
In no case (i) is the indemnity of the Distributor in favor of the Company
or any other person indemnified to be deemed to protect the Company or any other
person against any liability to which the Company or such other person would
otherwise be subject by reason of willful misfeasance or bad faith in the
performance of its duties or by reason of its failure to exercise due care in
rendering its services and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this section
with respect to any claim made against the Company or any person indemnified
unless the Company or person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
claim shall have been served upon the Company or upon any person (or after the
Company or such person shall have received notice of service on any designated
agent). However, failure to notify the Distributor of any claim shall not
relieve the Distributor from any liability which it may have to the Company or
any person against whom the action is brought otherwise than on account on its
indemnity agreement contained in this section.
The Distributor shall be entitled to participate, at its own expense, in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants, whose approval shall not be unreasonably
withheld. In the event that the Distributor elects to assume the defense of any
suit and retain counsel, the defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them. If the Distributor does not
elect to assume the defense of any suit, it will reimburse the indemnified
defendants in the suit for the reasonable fees and expenses of any counsel
retained by them.
The Distributor agrees to notify the Company promptly of the commencement
of any litigation or proceedings against it in connection with the issue and
sale of any of the Company's Shares.
10. TERM AND TERMINATION.
(a) This Agreement shall become effective as of the date hereof.
Unless sooner terminated as herein provided, this Agreement shall remain in full
force and effect for two (2) years from the effective date and thereafter for
successive periods of one year, but only so long as each such continuance is
specifically approved at least annually (i) either by vote of a majority of the
Board of Directors of the Company or by vote of a majority of the outstanding
voting securities of the company, and (ii) by vote of a majority of the
Directors of the Company who are not interested persons of the Company and who
have no direct or indirect financial interest in the operation of the Service
Plan or in this Agreement or any other agreement related to the Service Plan
(the "Rule 12b-1 Directors"), cast in person at a meeting called for the purpose
of voting on such approval.
(b) This Agreement may be terminated at any time, without the payment
of any penalty, by the Board of Directors of the Company or a majority of the
Rule 12b-1 Directors, by vote of a majority of the outstanding voting securities
of the Company, or by the Distributor, on not less than ninety (90) days'
written notice to the other party or upon such shorter notice as may be mutually
agreed upon.
(c) This Agreement shall automatically terminate in the event of
its assignment.
(d) The indemnification provisions contained in Sections 8 and 9 of
this Agreement shall remain in full force and effect regardless of any
termination of this Agreement.
11. AMENDMENT. No provisions of this Agreement may be changed, waived,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge, or
termination is sought. If the Company should at any time deem it necessary or
advisable in the best interests of the Company that any amendment of this
Agreement be made in order to comply with the recommendations or requirements of
the SEC or other governmental authority or to obtain any advantage under state
or federal tax laws and notifies Distributor of the form of such amendment, and
the reasons therefor, and if Distributor should decline to assent to such
amendment, the Company may terminate this Agreement forthwith. If Distributor
should at any time request that a change be made in the Company's Articles of
Incorporation or By-Laws or in its methods of doing business, in order to comply
with any requirements of Federal law or regulations of the SEC, or of a national
securities association of which Distributor is or may be a member relating to
the sale of Shares, and the Fund should not make such necessary change within a
reasonable time, Distributor may terminate this Agreement forthwith.
12. INDEPENDENT CONTRACTOR. Distributor shall be an independent contractor
and neither Distributor nor any of its officers, directors, employees, or
representatives is or shall be an employee of the Company in the performance of
Distributor's duties hereunder. Distributor shall be responsible for its own
conduct and the employment, control, and conduct of its agents and employees and
for injury to such agents or employees or to others through its agents or
employees. Distributor assumes full responsibility for its agents and employees
under applicable statutes and agrees to pay all employee taxes thereunder.
13. DEFINITION OF CERTAIN TERMS. For purposes of this Agreement the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the 1940 Act and the rules and regulations thereunder, subject,
however, to such exemptions as may be granted to either the Distributor or the
Company by the SEC, or such interpretative positions as may be taken by the SEC
or its staff under the 1940 Act.
14. NOTICE. Any notice under this Agreement shall be deemed to be
sufficient if it is given in writing, addressed and delivered, or mailed
postpaid (a) if to the Distributor, to SEI Financial Services Company, 680
East Swedesford Road, Wayne, Pennsylvania 19087-1658; and (b) if to the
Company, to Pilgrim Baxter & Associates, Ltd., 1255 Drummers Lane, Suite 300,
Wayne, Pennsylvania 19087-1590, Attention: Michael Harrington.
15. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of
the provisions hereof or otherwise affect construction or effect.
16. INTERPRETATION. Nothing herein contained shall be deemed to require the
Company or the Distributor to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Board of Directors of its responsibility for and control of the conduct of the
affairs of the Company.
17. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Pennsylvania and the applicable provisions of the
1940 Act. To the extent that the applicable laws of the Commonwealth of
Pennsylvania or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
18. MULTIPLE ORIGINALS. This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the Company and Distributor have each duly executed
this Agreement, as of the day and year above written.
ATTEST: PBHG INSURANCE SERIES FUND, INC.
____________________________ By:_____________________________________
Title:______________________ Title:__________________________________
ATTEST: SEI FINANCIAL SERVICES COMPANY
____________________________ By:_____________________________________
Title:______________________ Title:__________________________________
SCHEDULE A
PBHG INSURANCE SERIES FUND, INC.
PBHG Insurance Series Fund, Inc. consists of the following Funds:
PBHG Growth II Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
Date: _________, 1997
SCHEDULE B
The Distributor is currently registered as a broker-dealer or exempt from
registration in all fifty states and Puerto Rico.
FORM OF
CUSTODIAN AGREEMENT
This Agreement, dated as of the ____ day of __________, 1997 by and between
PBHG Insurance Series Fund, Inc. ("Fund"), a corporation operating as an
open-end management investment company and duly organized under the laws of the
State of Maryland, and CoreStates Bank N.A.;
WITNESSETH
WHEREAS, the Fund desires to deposit cash and securities of certain of its
series ("Portfolios"), which Portfolios shall be set forth in Schedule A hereto
attached, with CoreStates Bank N.A. as custodian; and
WHEREAS, CoreStates Bank N.A. is qualified and authorized to act as
custodian for the cash and securities of an open-end management investment
company and is willing to act in such capacity upon the terms and conditions
herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
SECTION 1. The terms as defined in this Section wherever used in this Agreement,
or in any amendment or supplement hereto, shall have meanings herein specified
unless the context otherwise requires.
CUSTODIAN: The term Custodian shall mean CoreStates Bank N.A. in its capacity
as Custodian under this Agreement.
PROPER INSTRUCTIONS: For purposes of this Agreement the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals), telephone or telegraphic
instructions from a person or persons authorized from time to time by the
Directors of the Fund to give the particular class of instructions. Telephone or
telegraphic instructions shall be confirmed in writing by such person or persons
as said Board of Directors shall have from time to time authorized to give the
particular class of instructions in question. The Custodian may act upon
telephone or telegraphic instructions without awaiting receipt of written
confirmation, and shall not be liable for the Fund's or its investment adviser's
failure to confirm such instructions in writing.
SHAREHOLDERS: The term Shareholders shall mean the registered owners from time
to time of the Shares of the Fund in accordance with the registry records
maintained by the Fund or agents on its behalf.
SHARES: The term Shares of the Fund shall mean the shares of the Fund.
SECTION 2. The Fund shall from time to time file with the Custodian a certified
copy of each resolution of its Board of Directors authorizing the person or
persons to give Proper Instructions (as defined in Section 1) and specifying the
class of instructions that may be given by each person to the Custodian under
this Agreement, together with certified signatures of such persons authorized to
sign, which shall constitute conclusive evidence of the authority of the
officers and signatories designated therein to act, and shall be considered in
full force and effect with the Custodian fully protected in acting in reliance
thereon until it receives written notice to the contrary; provided, however,
that if the certifying officer is authorized to give Proper Instructions, the
certification shall be also signed by a second officer of the Fund.
SECTION 3. The Fund hereby appoints the Custodian as custodian of cash and
securities of the Portfolios from time to time on deposit hereunder, to be held
by the Custodian and applied as provided in this Agreement. The Custodian hereby
accepts such appointment subject to the terms and conditions hereinafter
provided. Such cash and securities shall, however, be segregated from the assets
of others and shall be and remain the sole property of the company and the
Custodian shall have only the bare custody thereof.
The Custodian may perform some or all of its duties hereunder through a
subcustodian.
The Custodian may deposit the Fund's portfolio securities with a U.S. securities
depository or in U.S. Federal book-entry systems pursuant to rules and
regulations of the Securities and Exchange Commission.
SECTION 4. The Fund will make an initial deposit of cash to be held and applied
by the Custodian hereunder. Thereafter the Fund will cause to be deposited with
the Custodian hereunder the applicable net asset value of Shares sold from time
to time whether representing initial issue, other stock or reinvestments of
dividends and/or distributions payable to Shareholders.
SECTION 5. The Custodian is hereby authorized and directed to disburse cash from
time to time upon receipt of and in accordance with Proper Instructions.
SECTION 6. The Custodian's compensation shall be as set forth in Schedule B
hereto attached, and the Custodian will charge fees for specific transactions as
set forth in Schedule C hereto attached, or as shall be set forth in amendments
to such Schedules approved by the Fund and the Custodian.
SECTION 7. In connection with its functions under this Agreement, the Custodian
shall:
(a) render to the Fund a daily report of all monies received or paid on
behalf of the Fund.
(b) create, maintain and retain all records relating to its activities and
obligations under this Agreement in such manner as will meet the obligations of
the Fund with respect to said Custodian's activities in accordance with
generally accepted accounting principles. All records maintained by the
Custodian in connection with the performance of its duties under this Agreement
will remain the property of the Fund and in the event of termination of this
Agreement will be relinquished to the Fund.
SECTION 8. No liability of any kind shall be attached to or incurred by the
Custodian by reason of its custody of the assets held by it from time to time
under this Agreement, or otherwise by reason of its position as Custodian
hereunder except only for its own negligence, bad faith, or willful misconduct
in the performance of its duties as specifically set forth in the Agreement.
Without limiting the generality of the foregoing sentence, the Custodian:
(a) may rely upon the advice of counsel, who may be counsel for the Fund or
for the Custodian, and upon statements of accountants, brokers and other persons
believed by it in good faith to be expert in the matters upon which they are
consulted; and for any action taken or suffered in good faith based upon such
advice or statements the Custodian shall not be liable to anyone;
(b) shall not be liable for anything done or suffered to be done in good
faith in accordance with any request or advice of, or based upon information
furnished by, the Fund or its authorized officers or agents;
(c) is authorized to accept a certificate of the Secretary or Assistant
Secretary of the Fund, or Proper Instructions, to the effect that a resolution
in the form submitted has been duly adopted by its Board of Directors or by the
Shareholders, as conclusive evidence that such resolution has been duly adopted
and is in full force and effect; and
(d) may rely and shall be protected in acting upon any signature, written
(including telegraph or other mechanical) instructions, request, letter of
transmittal, certificate, opinion of counsel, statement, instrument, report,
notice, consent, order, or other paper or document reasonably believed by it to
be genuine and to have been signed, forwarded or presented by the purchaser,
Fund or other proper party or parties.
SECTION 9. The Fund, its successors and assignees hereby indemnify and hold
harmless the Custodian, its successors and assignees, of and from any and all
liability whatsoever arising out of or in connection with the Custodian's
status, acts, or omissions under this Agreement, except only for liability
arising out of the Custodian's own negligence, bad faith, or willful misconduct
in the performance of its duties specifically set forth in this Agreement.
Without limiting the generality of the foregoing, the Fund, its successors and
assignees do hereby fully indemnify and hold harmless the Custodian its
successors and assignees from any and all loss, liability, claims, demand,
actions, suits and expenses of any nature as the same may arise from the failure
of the Fund to comply with any law, rule, regulation or order of the United
States, any state or any other jurisdiction, governmental authority, body, or
board relating to the sale, registration, qualification of units of beneficial
interest in the Fund, or from the failure of the Fund to perform any duty or
obligation under this Agreement.
Upon written request of the Custodian, the Fund shall assume the entire defense
of any claim subject to the foregoing indemnity, or the joint defense with the
Custodian of such claim, as the Custodian shall request. The indemnities and
defense provisions of this Section 9 shall indefinitely survive termination of
this Agreement.
SECTION 10. This Agreement may be amended from time to time without notice to or
any approval of the Shareholders by a supplemental agreement executed by the
Fund and the Custodian and amending and supplementing this Agreement in the
manner mutually agreed.
SECTION 11. Either the Fund or the Custodian may give one hundred twenty (120)
days' written notice to the other of the termination of this Agreement, such
termination to take effect at the time specified in the notice. In case such
notice of termination is given either by the Fund or by the Custodian, the
Directors of the Fund shall, by resolution duly adopted, promptly appoint a
Successor Custodian which Successor Custodian shall be a bank, trust company, or
a bank and trust company in good standing, with legal capacity to accept custody
of the cash and securities of a mutual fund.
Upon receipt of written notice from the company of the appointment of such
successor and upon receipt of Proper Instructions, the Custodian shall deliver
such cash and securities as it may then be holding hereunder directly and only
to the Successor Custodian. Unless or until a Successor Custodian has been
appointed as above provided, the Custodian then acting shall continue to act as
Custodian under this Agreement.
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, powers, obligations and custody of its predecessor
Custodian. The Custodian ceasing to act shall nevertheless, upon request of the
company and the Successor Custodian and upon payment of its charges and
disbursements, execute an instrument in form approved by its counsel
transferring to the Successor Custodian all the predecessor Custodian's rights,
duties, obligations and custody.
In case the Custodian shall consolidate with or merge into any other
corporation, the corporation remaining after or resulting from such
consolidation or merger shall ipso facto without the execution or filing of any
papers or other documents, succeed to and be substituted for the Custodian with
like effect as though originally named as such.
SECTION 12. This Agreement shall take effect when assets of the Fund are first
delivered to the Custodian.
SECTION 13. This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.
SECTION 14. A copy of the Amended Articles of Incorporation of the Fund are on
file with the Secretary of State of Maryland, and notice is hereby given that
this instrument is executed on behalf of the Directors of the Fund as Directors
and not individually and that the obligations of this instrument are not binding
upon any of the Directors, officers or Shareholders of the Fund individually,
but binding only upon the assets and property of the Fund.
SECTION 15. The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the Investment Fund Act of 1940, with particular
attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable
Federal and state tax laws and any other law or administrative rules or
procedures which may be applicable to the Fund.
Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian and such
regulations as to the conduct of such monitors as may be reasonably imposed by
the Custodian after prior consultation with an officer of the Fund, the books
and records of the Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at any reasonable times by officers of,
attorneys for, and auditors employed by, the Fund.
SECTION 16. Nothing contained in this Agreement is intended to or shall require
the Custodian in any capacity hereunder to perform any functions or duties on
any holiday or other day of special observance on which the Custodian is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day the Custodian is open.
SECTION 17. This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assignees; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of its Board of Directors.
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement to be
signed by their respective officers as of the day and year first above written.
PBHG INSURANCE SERIES FUND, INC.
By: __________________________________________
Attest: ______________________________________
CORESTATES BANK N.A.
By: __________________________________________
Attest: ______________________________________
SCHEDULE A
PORTFOLIOS OF PBHG INSURANCE SERIES FUND, INC.
This Custodian Agreement is by and between CoreStates Bank N.A. and the
Fund, on behalf of the following Portfolios:
PBHG Growth II Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
Date: _________, 1997
SCHEDULE B
FEE SCHEDULE
1.00 BASIS POINTS ON THE FIRST $2.5 BILLION
.75 BASIS POINTS ON THE NEXT $2.5 BILLION
.50 BASIS POINTS ON THE NEXT $4 BILLION
.40 BASIS POINTS ON THE REMAINDER
Transactions billed separately by Portfolio at the now current rates. Asset
level charges billed as one invoice covering all Portfolios custodied at
CoreStates Bank N.A. Pilgrim Baxter Fund Services will allocate charges back to
individual Portfolios. Transaction charges are subject to change.
SCHEDULE C
CUSTODY SERVICES
TRANSACTION FEES
$ 4.00 Per trade and maturity clearing through Depository Trust Company.
$10.00 Per trade and maturity clearing book-entry through Federal Reserve.
$15.00 Per trade and maturity for assets requiring physical settlement.
$10.00 Per trade and maturity clearing through Participants Trust Company.
$ 4.00 Paydowns on Mortgage Backed securities.
$ 5.50 Fed wire charge on Repo Collateral in/out.
$ 5.50/7.50 Other cash wire transfers in/out.
$ 5.50 Dividend Re-Investment.
$ 2.50 Fed charge for sale/return of Collateral.
FORM OF
TRANSFER AGENCY AGREEMENT
Agreement made as of the ____ day of _____________, 1997 between the PBHG
Insurance Series Fund, Inc. ("Fund"), on behalf of itself and its series
("Portfolios"), a Maryland corporation, and DST Systems, Inc. ("DST") a
Delaware corporation (hereinafter referred to as the "Transfer Agent").
WITNESSETH:
That for and in consideration of the mutual promises hereinafter set forth,
the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have
the following meanings:
1. "Approved Institution" shall mean an entity so named in a
Certificate. From time to time the Fund may amend a previously delivered
Certificate by delivering to the Transfer Agent a Certificate naming an
additional entity or deleting any entity named in a previously delivered
Certificate.
2. The "Board of Directors" shall mean the Board of Directors of the
Fund.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Transfer Agent by the Fund which is signed by any Officer, as hereinafter
defined, and actually received by the Transfer Agent.
4. "Custodian(s)" shall mean the financial institution(s) appointed as
custodian(s) under the terms and conditions of the Custody Agreement(s)
between the financial institution(s) and the Fund, or its successor(s).
5. "Fund Business Day" shall be deemed to be each day on which the New
York Stock Exchange, Inc. is open for trading.
6. "Officer" shall be deemed to be the Fund's President, any Vice
President of the Fund, the Fund's Secretary, the Fund's Treasurer, the Fund's
Controller, any Assistant Controller of the Fund, any Assistant Treasurer of
the Fund and any Assistant Secretary of the Fund, and any other person duly
authorized by the Board of Directors of the Fund to execute any Certificate,
instruction, notice or other instrument on behalf of the Fund and named in the
Certificate annexed hereto as Appendix A, as such Certificate may be amended
from time to time, and any person reasonably believed by the Transfer Agent to
be such a person.
7. "Out-of-Pocket Expenses" means amounts reasonably necessary and
actually incurred by Transfer Agent in the provision of Transfer Agent
services or pursuant to this Agreement for the following purpose: postage (and
first class mail insurance in connection with mailing share certificates),
envelopes, check forms, continuous forms, forms for reports and statement,
stationery, and other similar items, telephone and telegraph charges incurred
in answering inquiries from dealers or shareholders, microfilm used to record
transactions in shareholder accounts and computer tapes used for permanent
storage of records and cost of insertion of materials in mailing envelopes by
outside firms. Transfer Agent may, at its option, arrange to have various
service providers submit invoices directly to the Fund for payment of
out-of-pocket expenses reimbursable hereunder; and such other expenses paid or
incurred by Transfer Agent at the request of the Fund. Any charges associated
with special or exception processing shall also be considered Out-of-Pocket
Expenses.
8. "Prospectus(es)" shall mean the last Fund prospectus(es) with
respect to a Portfolio and any supplements actually received by the Transfer
Agent from the Fund with respect to which the Fund has indicated a
registration statement under the Federal Securities Act of 1933 has become
effective, including the Statement(s) of Additional Information, incorporated
by reference therein.
9. "Shares" shall mean all or any part of each class or series of the
shares of common stock of the Fund or Portfolio listed in the Certificate as
to which the Transfer Agent acts as transfer agent hereunder, as may be
amended from time to time, which are authorized and/or issued by the Fund.
10. "Transfer Agent" shall mean DST, as transfer agent and dividend
disbursing agent under the terms and conditions of this Agreement, its
successor(s) or assign(s).
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. The Fund hereby constitutes and appoints the Transfer Agent as
transfer agent of all the Shares of the Fund and as dividend disbursing agent
during the period of this Agreement.
2. The Transfer Agent hereby accepts appointment as transfer agent and
dividend disbursing agent and agrees to perform duties thereof as hereinafter
set forth.
3. In connection with such appointment, the Fund upon the request of
the Transfer Agent, shall deliver the following documents to the Transfer
Agent:
(i) A copy of the Articles of Incorporation of the Fund and all
amendments thereto certified by the Secretary of the Fund;
(ii) A copy of the By-Laws of the Fund certified by the Secretary
of the Fund;
(iii) A copy of a resolution of the Board of Directors of the Fund
certified by the Secretary of the Fund appointing the Transfer Agent and
authorizing the execution of this Transfer Agency Agreement;
(iv) A Certificate signed by the Secretary of the Fund specifying:
The number of authorized Shares, if any, the number of such authorized Shares
issued, the number of such authorized Shares issued and currently outstanding;
the names and specimen signatures of the Officers of the Fund; and the name
and address of the legal counsel for the Fund;
(v) In the event the Fund issues shares, specimen share
certificate for each or series class of Shares in the form approved by the
Board of Directors of the Fund (and in a format compatible with the Transfer
Agent's system), together with a Certificate signed by the Secretary of the
Fund as to such approval;
(vi) Copies of the Fund's Registration Statement, as amended to
date, and the most recently filed Post-Effective Amendment thereto, filed by
the Fund with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, and under the Investment Company Act of 1940, as amended,
together with any applications filed in connection therewith; and
(vii) Opinion of counsel for the Fund with respect to the validity
of the authorized and outstanding Shares, whether such Shares are fully paid
and non-assessable and the status of such Shares under the Securities Act of
1933, as amended, and any other applicable federal law or regulation (I.E., if
subject to registration, that they have been registered and that the
Registration Statement has become effective or, if exempt, the specific
grounds therefor.)
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Fund shall deliver to the Transfer Agent the following documents
on or before the effective date of any increase or decrease in the total
number of Shares authorized to be issued:
(a) A certified copy of the amendment to the Articles of
Incorporation giving effect to such increase or decrease;
(b) In the case of an increase, an opinion of counsel for the Fund
with respect to the validity of the Shares of the Fund and the status of such
Shares under the Securities Act of 1933, as amended, and any other applicable
federal law or regulation (i.e., if subject to registration, that they have
been registered and that the Registration Statement has become effective or,
if exempt, the specific grounds therefor); and
(c) In the case of an increase, if the appointment of the Transfer
Agent was theretofore expressly limited, a certified copy of a resolution of
the Board of Directors of the Fund increasing the authority of the Transfer
Agent.
2. Prior to the issuance of any additional Shares of the Fund pursuant
to stock dividends or stock splits, etc., and prior to any reduction in the
number of shares outstanding, the Fund shall deliver the following documents
to the Transfer Agent:
(a) A certified copy of the resolution(s) adopted by the Board of
Directors and/or the shareholders of the Fund authorizing such issuance of
additional Shares of the Fund or such reduction, as the case may be, and
(b) An opinion of counsel for the Fund with respect to the validity
of the Shares of the Fund and the status of such Shares under the Securities
Act of 1933, as amended, and any other applicable federal law or regulation
(i.e., if subject to registration, that they have been registered and that the
Registration Statement has become effective, or, if exempt, the specific
grounds therefor).
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization or other
capital adjustment requiring a change in the form of Share certificates, the
Transfer Agent will issue Share certificates in the new form in exchange for,
or upon transfer of, outstanding Share certificates in the old form, upon
receiving:
(a) A Certificate authorizing the issuance of the Share
certificates in the new form;
(b) A certified copy of any amendment to the Articles of
Incorporation with respect to the change;
(c) Specimen Share certificates for each class of Shares in the new
form approved by the Board of Directors of the Fund, with a Certificate signed
by the Secretary of the Fund as to such approval; and
(d) An opinion of counsel for the Fund with respect to the validity
of the Shares in the new form and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable federal law or
regulation (i.e., if subject to registration, that the Shares have been
registered and that the Registration Statement has become effective or, if
exempt, the specific grounds therefor).
2. The Fund at its expense shall furnish the Transfer Agent with a
sufficient supply of blank Share certificates in the new form and from time to
time will replenish such supply upon the request of the Transfer Agent. Such
blank Share certificates shall be compatible with the Transfer Agent's system
and shall be properly signed by facsimile or otherwise by Officers of the Fund
authorized by law or by the By-Laws to sign Share certificates and, if
required shall bear the corporate Seal or facsimile thereof. The Fund agrees
to indemnify and exonerate, save and hold the Transfer Agent harmless, from
and against any and all claims or demands that may be asserted against the
Transfer Agent with respect to the genuineness of any Share certificate
supplied to the Transfer Agent pursuant to this section.
ARTICLE V
ISSUANCE, REDEMPTION AND TRANSFER OF SHARES
1. (a) The Transfer Agent acknowledges that it has received a copy of
the Fund's prospectus(es) and statement(s) of additional information, which
prospectus(es) and statement(s) of additional information described how sales
and redemption of shares of the Fund shall be made, and the Transfer Agent
agrees to accept purchase orders and redemption requests with respect to the
Fund shares on each Fund Business Day in accordance with such prospectus(es)
and statement(s) of additional information; provided, however, that the
Transfer Agent shall only accept purchase orders from states in which the
shares of the Fund are registered. The Fund shall provide the Transfer Agent
with a listing of the states in which the shares of the Fund are registered on
a periodic basis. The Fund agrees to provide the Transfer Agent with
sufficient advance notice to enable the Transfer Agent to effect any changes
in the procedures set forth in the prospectus(es) and statement(s) of
additional information regarding such purchase and redemption procedure;
provided, however, that in no event will such advance notice be less than 30
days.
(b) The Transfer Agent shall also accept with respect to each Fund
Business Day, at such times as are agreed upon from time to time by the
Transfer Agent and the Fund, a computer tape or electronic data transmission
consistent in all respects with the Transfer Agent's tape layout package, as
amended from time to time, which is believed by the Transfer Agent to be
furnished by or on behalf of any Approved Institution. The Transfer Agent
shall not be liable for any losses or damages to the Fund or its shareholders
in the event that a computer tape or electronic data transmission from an
Approved Institution is unable to be processed for any reason beyond the
control of the Transfer Agent, or if any of the information on such tape or
transmission is found to be incorrect.
2. On each Fund Business Day the Transfer Agent shall, as of the time
at which the Fund computes the net asset value of the Fund, issue to and
redeem from the accounts specified in a purchase order, redemption request, or
computer tape, which in accordance with the Prospectus(es) is effective on
such Fund Business Day, the appropriate number of full and fractional Shares
based on the net asset value per Share of such Fund specified in an advice
received on such Fund Business Day from the Fund. Notwithstanding the
foregoing, if a redemption specified in a computer tape is for a dollar value
of Shares in excess of the dollar value of uncertificated Shares in the
specified account, the Transfer Agent shall not effect such redemption in
whole or in part and shall within twenty-four hours orally advise the Approved
Institution which supplied such tape of the discrepancy.
3. In connection with a reinvestment of a dividend or distribution of
shares of the Fund, the Transfer Agent shall as of each Fund Business Day, as
specified in a Certificate or resolution described in paragraph 1 of
succeeding Article VI, issue Shares of the Fund based on the net asset value
per Share of such Fund specified in an advice received form the Fund on such
Fund Business Day.
4. On each Fund Business Day the Transfer Agent shall supply the Fund
with a statement specifying with respect to the immediately preceding Fund
Business Day: the total number of Shares of the Fund (including fractional
Shares) issued and outstanding at the opening of business on such day; the
total number of Shares of the Fund sold on such day, pursuant to preceding
paragraph 2 of this Article; the total number of Shares of the Fund redeemed
from Shareholders by the Transfer Agent on such day; the total number of
Shares of the Fund, if any, sold on such day pursuant to preceding paragraph 3
of this Article, and the total number of Shares of the Fund issued and
outstanding.
5. In connection with each purchase and each redemption of Shares, the
Transfer Agent shall send such statements as are prescribed by the Federal
Securities laws applicable to transfer agents and Section 8-408 of the Uniform
Commercial Code as enacted in the Commonwealth of Massachusetts or as
described in the Prospectus(es). If the Prospectus(es) indicates that
certificates for Shares are available and if specifically requested in writing
by any shareholder, or if otherwise required hereunder, the Transfer Agent
will countersign, issue and mail to such shareholder at the address set forth
in the records of the Transfer Agent a Share certificate for any full Share
requested.
6. As of each Fund Business Day the Transfer Agent shall furnish the
Fund with an advice setting forth the number of dollar amount of Shares to be
redeemed on such Fund Business Day in accordance with paragraph 2 of this
Article.
7. Upon receipt of a proper redemption request and moneys paid to it by
the Custodian(s) in connection with a redemption of Shares, the Transfer Agent
shall cancel the redeemed Shares and after making appropriate deduction for
any withholding of taxes required of it by applicable law (a) in the case of a
redemption of Shares pursuant to a redemption described in preceding paragraph
1(a) of this Article, make payment in accordance with the Fund's redemption
and payment procedures described in the Prospectus(es), and (b) in the case of
a redemption of Shares pursuant to a computer tape described in preceding
paragraph 1(b) of this Article, make payment by directing a federal funds wire
order to the account previously designated by the Approved Institution
specified in said computer tape.
8. The Transfer Agent shall not be required to issue any Shares after
it has received from an Officer of the Fund or from an appropriate federal or
state authority written notification that the sale of Shares has been
suspended or discontinued, and the Transfer Agent shall be entitled to rely
upon such written notification.
9. Upon the issuance of any Shares in accordance with this Agreement
the Transfer Agent shall not be responsible for the payment of any original
issue or other taxes required to be paid by the Fund in connection with such
issuance of any Shares.
10. The Transfer Agent shall accept a computer tape consistent with the
Transfer Agent's tape layout package, as amended from time to time, which is
reasonably believed by the Transfer Agent to be furnished by or on behalf of
any Approved Institution and is represented to be instructions with respect to
the transfer of Shares from one account of such Approved Institution to
another such account, and shall effect the transfers specified in said
computer tape. The Transfer Agent shall not be liable for any losses to the
Fund or its shareholders in the event that a computer tape or electronic data
transmission from an Approved Institution is unable to be processed for any
reason beyond the control of the Transfer Agent, or if any of the information
on such tape or transmission is found to be incorrect.
11. (a) Except as otherwise proved in sub-paragraph (b) of this
paragraph and in paragraph 13 of this Article, Shares will be transferred or
redeemed upon presentation to the Transfer Agent of Share certificates or
instructions properly endorsed for transfer or redemption, accompanied by such
documents as the Transfer Agent deems necessary to evidence the authority of
the person making such transfer or redemption, and bearing satisfactory
evidence of the payment of stock transfer taxes. In the case of small estates
where no administration is contemplated, the Transfer Agent may, when
furnished with an appropriate surety bond, and without further approval of the
Fund, transfer or redeem Shares registered in the name of a decedent where the
current market value of the Shares being transferred does not exceed such
amount as may from time to time be prescribed by various states. The Transfer
Agent reserves the right to refuse to transfer or redeem Shares until it is
satisfied that the endorsement on the stock certificate or instructions is
valid and genuine, and for that purpose it will require, unless otherwise
instructed by an authorized officer of the Fund, a guarantee of signature by
an "Eligible Guarantor Institution" as that term is defined by SEC Rule
17Ad-15. The Transfer Agent also reserves the right to refuse to transfer or
redeem Shares until it is satisfied that the requested transfer or redemption
is legally authorized, and its shall incur no liability for the refusal, in
good faith, to make transfers or redemptions which the Transfer Agent, in its
judgment, deems improper or unauthorized, or until it is satisfied that there
is no basis to any claims adverse to such transfer or redemption. The
Transfer Agent may, in effecting transfers and redemptions of Shares, rely
upon those provisions of the Uniform Act for the Simplification of Fiduciary
Security Transfers or the Uniform Commercial Code, as the same may be amended
from time to time, applicable to the transfer of securities, and the Fund
shall indemnify the Transfer Agent for any act done or omitted by it in good
faith in reliance upon such laws. In no event will the Fund indemnify the
Transfer Agent for any act done by it as a result of willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties.
(b) Notwithstanding the foregoing or any other provision contained
in this Agreement to the contrary, the Transfer Agent shall be fully protected
by the Fund in not requiring any instruments, documents, assurances,
endorsements or guarantees, including, without limitation, any signature
guarantees, in connection with a redemption, or transfer, of Shares whenever
the Transfer Agent reasonably believes that requiring the same would be
inconsistent with the transfer and redemption procedures as described in the
Prospectus(es).
12. Notwithstanding any provision contained in this Agreement to the
contrary, the Transfer Agent shall not be required or expected to require, as
a condition to any transfer of any Shares pursuant to paragraph 11 of this
Article or any redemption of any Shares pursuant to a computer tape described
in this Agreement, any documents, including, without limitation, any documents
of the kind described in sub-paragraph (a) of paragraph 12 of this Article, to
evidence the authority of the person requesting the transfer or redemption
and/or the payment of any stock transfer taxes, and shall be fully protected
in acting in accordance with the applicable provisions of this Article.
13. (a) As used in this Agreement, the terms "computer tape" and
"computer tape believed by the Transfer Agent to be furnished by an Approved
Institution," shall include any tapes generated by the Transfer Agent to
reflect information believed by the Transfer Agent to have been inputted by an
Approved Institution, via a remote terminal or other similar link, into a data
processing, storage, or collection system, or similar system (the "System"),
located on the Transfer Agent's premises. For purposes of paragraph 1 of this
Article, such a computer tape shall be deemed to have been furnished at such
times as are agreed upon from time to time by the Transfer Agent and Fund only
if the information reflected thereon was inputted into the System at such
times as are agreed upon form time to time by the Transfer Agent and the Fund.
(b) Nothing contained in this Agreement shall constitute any
agreement or representation by the Transfer Agent to permit, or to agree to
permit, any Approved Institution to input information into a System.
(c) The Transfer Agent reserves the right to approve, in advance,
any Approved Institution, such approval not to be unreasonably withheld. The
Transfer Agent also reserves the right to terminate any and all automated data
communications, at its discretion, upon a reasonable attempt to notify the
Fund when in the opinion of the Transfer Agent continuation of such
communications would jeopardize the accuracy and/or integrity of the Fund's
records on the System.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. The Fund shall furnish to the Transfer Agent a copy of a resolution
of its Board of Directors, certified by the Secretary or any Assistant
Secretary, either (i) setting forth the date of the declaration of a dividend
or distribution, the date of accrual or payment, as the case may be, thereof,
the record date as of which Shareholders entitle to payment, or accrual, as
the case may be, shall be determined, the amount per Share of such dividend or
distribution, the payment date on which all previously accrued and unpaid
dividends are to be paid, and the total amount, if any, payable to the
Transfer Agent on such payment date, or (ii) authorizing the declaration of
dividends and distributions on a daily or other periodic basis and authorizing
the Transfer Agent to rely on a Certificate setting forth the information
described in subsection (i) of this paragraph.
2. Upon the mail date specified in such Certificate or resolution, as
the case may be, the Fund shall, in the case of a cash dividend or
distribution, cause the Custodian(s) to deposit in an account in the name of
the Transfer Agent on behalf of the Fund an amount of cash, if any sufficient
for the Transfer Agent to make the payment, as of the mail date, specified in
such Certificate or resolution, as the case may be, to the shareholders who
were of record on the record date. The Transfer Agent will, upon receipt of
any such cash, make payment of such cash dividends or distributions to the
shareholders of record as of the record date by: (i) mailing a check, payable
to the registered shareholder, to the address of record or dividend mailing
address, or (ii) wiring such amounts to the accounts previously designated by
an Approved Institution, as the case may be. The Transfer Agent shall not be
liable for any improper payments made in good faith and without negligence, in
accordance with a Certificate or resolution described in the preceding
paragraph. If the Transfer Agent shall not receive from the Custodian(s)
sufficient cash to make payments of any cash dividend or distribution to all
shareholders of the Fund as of the record date, the Transfer Agent shall, upon
notifying the Fund, withhold payment to all shareholders of record as of the
record date until sufficient cash is provided to the Transfer Agent.
3. It is understood that the Transfer Agent shall in no way be
responsible for the determination of the rate or form of dividends or capital
gain distributions due to the shareholders. It is expressly agreed and
understood that the Transfer Agent is not liable for any loss as a result of
processing a distribution based on information provided in the Certificate
that is incorrect. The Fund agrees to pay the Transfer Agent for any and all
costs, both direct and out-of-pocket expenses, incurred in such corrective
work as necessary to remedy such error.
4. It is understood that the Transfer Agent shall file such appropriate
information returns concerning the payment of dividend and capital gain
distributions with the proper federal, state and local authorities as are
required by law to be filed by the Fund but shall in no way be responsible for
the collection or withholding of taxes due on such dividends or distributions
due t shareholders, except and only to the extent, required by applicable law.
ARTICLE VII
CONCERNING THE FUND
1. The Fund represents to the Transfer Agent that:
(a) It is a corporation duly organized and existing under the laws
of the State of Maryland.
(b) It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(d) It is an investment company registered under the Investment
Company Act of 1940, as amended.
(e) A registration statement under the Securities Act of 1933, as
amended, with respect to the Shares is effective. The Fund shall notify the
Transfer Agent if such registration statement or any state securities
registrations have been terminated or a stop order has been entered with
respect to the Shares.
2. Each copy of the Articles of Incorporation of the Fund and copies of
all amendments thereto shall be certified by the Secretary of State (or other
appropriate official) of the state of organization, and if such Articles of
Incorporation and/or amendments are required by law also to be filed with a
county or other officer or official body, a certificate of such filing shall
be filed with a certified copy submitted to the Transfer Agent. Each copy of
the By-Laws and copies of all amendments thereto, and copies of resolutions of
the Board of Directors of the Fund, shall be certified by the Secretary of the
Fund under seal.
3. The Fund shall promptly deliver to the Transfer Agent written notice
of any change in the officers authorized to sign Share certificates,
notifications or requests, together with a specimen signature of each new
officer. In the event any officer who shall have signed manually or whose
facsimile signature shall have been affixed to blank Share certificates shall
die, resign or be removed prior to issuance of such Share certificates, the
Transfer Agent may issue such Share certificates of the Fund notwithstanding
such death, resignation or removal, and the Fund shall promptly deliver to the
Transfer Agent such approval, adoption or ratification as may be required by
law.
4. It shall be the sole responsibility of the Fund to deliver to the
Transfer Agent the Fund's currently effective Prospectus(es) and, for purposes
of this Agreement, the Transfer Agent shall not be deemed to have notice of
any information contained in such Prospectus(es) until a reasonable time after
it is actually received by the Transfer Agent.
ARTICLE VIII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent represents and warrants to the Fund that:
(a) It is a corporation duly organized and existing under the laws
of the State of Delaware.
(b) It is empowered under applicable law and by its Charter and
By-laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(d) It is duly registered as a transfer agent under Section 17A of
the Securities Exchange Act of 1934, as amended.
2. The Transfer Agent shall not be liable and shall be indemnified in
acting upon any computer tape, writing or document reasonably believed by it
to be genuine and to have been signed or made by an Officer of the Fund or
person designated by the Fund and shall not be held to have any notice of any
change of authority of any person until receipt of written notice thereof from
the Fund or such person. It shall also be protected in processing Share
certificates which bear the proper countersignature of the Transfer Agent and
which it reasonably believes to bear the proper manual or facsimile signature
of the Officers of the Fund.
3. The Transfer Agent upon notice to the Fund may establish such
additional procedures, rules and regulations governing the transfer or
registration of Share certificates as it may deem advisable and consistent
with such rules and regulations generally adopted by mutual fund transfer
agents.
4. The Transfer Agent shall keep such records as are specified in
Schedule II hereto in the form and manner, and for such period, as it may been
advisable and is agreeable to the Fund but not inconsistent with the rules and
regulations of appropriate government authorities, in particular Rules 31a-2
and 31a-3 under the Investment Company Act of 1940, as amended. The Transfer
Agent acknowledges that such records are the property of the Fund. The
Transfer Agent may deliver to the Fund from time to time at its discretion,
for safekeeping or disposition by the Fund in accordance with law, such
records, papers, documents accumulated in the execution of its duties as such
Transfer Agent, as the Transfer Agent may deem expedient, other than those
which the Transfer Agent is itself required to maintain pursuant to applicable
laws and regulations. The Fund shall assume all responsibility for any
failure thereafter to produce any record, paper, canceled Share certificate,
or other document so returned, if and when required. The records specified in
Schedule II hereto maintained by the Transfer Agent pursuant to this paragraph
4, which have not been previously delivered to the Fund pursuant to the
foregoing provisions of this paragraph 4, shall be considered to be the
property of the Fund, shall be made available upon request for inspection by
the officers, employees, and auditors of the Fund, and records shall be
delivered to the Fund upon request and in any event upon the date of
termination of this Agreement, as specified in Article IX of this Agreement,
in the form and manner kept by the Transfer Agent on such date of termination
or such earlier date as may be requested by the Fund.
5. The Transfer Agent shall not be liable for any loss or damage,
including counsel fees, resulting from its actions or omissions to act or
otherwise, except for any loss or damage arising out of its bad faith,
negligence, willful misfeasance, gross negligence or reckless disregard of its
duties under this agreement.
6. (a) The Fund shall indemnify and exonerate, save and hold harmless
the Transfer Agent from and against any and all claims (whether with or
without basis in fact or law), demands, expenses (including reasonable
attorney's fees) and liabilities of any and every nature which the Transfer
Agent may sustain or incur or which may be asserted against the Transfer Agent
by any person by reason of or as a result of any action taken or omitted to be
taken by any prior transfer agent of the Fund or as a result of any action
taken or omitted to be taken by the Transfer Agent in good faith and without
negligence or willful misconduct or in reliance upon (i) any provision of this
Agreement; (ii) the Prospectus(es); (iii) any instruction or order including,
without limitation, any computer tape reasonably believed by the Transfer
Agent to have been received from an Approved Institution; (iv) any instrument,
order or Share certificate reasonably believed by it to be genuine and to be
signed, countersigned or executed by any duly authorized Officer of the Fund;
(v) any Certificate or other instructions of an Officer; or (vi) any opinion
of legal counsel for the Fund or the Transfer Agent. The Fund shall indemnify
and exonerate, save and hold the Transfer Agent harmless from and against any
and all claims (whether with or without basis in fact or law), demands,
expenses (including reasonable attorney's fees) and liabilities of any and
every nature which the Transfer Agent may sustain or incur or which may be
asserted against the Transfer Agent by any person by reason of or as a result
of any action taken or omitted to be taken by the Transfer Agent in good faith
in connection with its appointment or in reliance upon any law, act,
regulation or any interpretation of the same even though such law, act or
regulation may thereafter have been altered, changed, amended or repealed.
(b) The Transfer Agent shall not settle any claim, demand, expense
or liability to which it may seek indemnity pursuant to paragraph 6(a) above
(each, an "Indemnifiable Claim") without the express written consent of an
Officer of the Fund. The Transfer Agent shall notify the Fund within 15 days
of receipt of notification of an Indemnifiable Claim, provided that the
failure by the Transfer Agent to furnish such notification shall not impair
its right to seek indemnification from the Fund unless the Fund is unable to
adequately defend the Indemnifiable Claim as a result of such failure, and
further provided, that if as a result of the Transfer Agent's failure to
provide the Fund with timely notice of the institution of litigation a
judgment by default is entered, prior to seeking indemnification from the Fund
the Transfer Agent, at its own cost and expense, shall open such judgment.
The Fund shall have the right to defend any Indemnifiable Claim at its own
expense, provided that such defense shall be conducted by counsel selected by
the Fund and reasonably acceptable to the Transfer Agent. The Transfer Agent
may join in such defense at its own expense, but to the extent that it shall
so desire the Fund shall direct such defense. The Fund shall not settle any
Indemnifiable Claim without the express written consent of the Transfer Agent
if the Transfer Agent determined that such settlement would have an adverse
effect on the Transfer Agent beyond the scope of this Agreement. In such
event, each of the Fund and the Transfer Agent shall be responsible for their
own defense at their own cost and expense, and such claim shall not be deemed
an Indemnifiable Claim hereunder. If the Fund shall fail or refuse to defend
an Indemnifiable Claim, the Transfer Agent may provide its own defense at the
cost and expense of the Fund. Anything in this Agreement to the contrary
notwithstanding, the Fund shall not indemnify the Transfer Agent against any
liability or expense arising out of the Transfer Agent's willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties and
obligations under this Agreement. The Transfer Agent shall indemnify and hold
the Fund harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to any action or failure or omission to act by the Transfer Agent
as a result of the Transfer Agent's lack of good faith, negligence or willful
misconduct.
7. The Transfer Agent shall not be liable to the fund with respect to
any redemption draft on which the signature of the drawer is forged and which
the fund's Custodian(s) or Cash Management bank has advised the Transfer Agent
to honor the redemption; nor shall Transfer Agent be liable for any material
alteration or absence or forgery of any endorsement, it being understood that
the Transfer Agent's sole responsibility with respect to inspecting redemption
drafts is to use reasonable care to verify the drawer's signature against
signatures on file.
8. There shall be excluded from the consideration of whether the
Transfer Agent has been negligent or has breached this Agreement, any period
of time, and only such period of time, during which the Transfer Agent's
performance is materially affected, by reason of circumstances beyond its
control (collectively, "Causes"), including, without limitation (except as
provided below), (a) mechanical breakdowns of equipment (including any
alternative power supply and operating systems software), flood or
catastrophe, acts of God, failures of transportation, communication or power
supply, strikes, lockouts, work stoppages or other similar circumstances.
9. At any time the Transfer Agent may apply to an Officer of the Fund
for written instructions with respect to any matter arising in connection with
the Transfer Agent's duties and obligations under this Agreement, and the
Transfer Agent shall not be liable for any action taken or permitted by it in
good faith in accordance with such written instructions. Such application by
the Transfer Agent for written instructions from an Officer of the Fund may
set forth in writing any action proposed to be taken or omitted by the
Transfer Agent with respect to its duties or obligations under this Agreement
and the date on and/or after which such action shall be taken. The Transfer
Agent shall not be liable for any action taken or omitted in accordance with a
proposal included in any such application on or after the date specified
therein unless, prior to taking or omitting any such action, the Transfer
Agent has received written instructions in response to such application
specifying the action to be taken or omitted. The Transfer Agent may consult
counsel of the Fund, or upon notice to the Fund, its own counsel, at the
expense of the Fund and shall be fully protected with respect to anything done
or omitted by it in good faith in accordance with the advice or opinion of
counsel to the fund or its own counsel.
10. The Transfer Agent may issue new Share certificates in place of
certificates represented to have been lost, stolen, or destroyed upon
receiving written instructions from the shareholder accompanied by proof of an
indemnity or surety bond issued by a recognized insurance institution
specified by the Fund or the Transfer Agent. If the Transfer Agent receives
written notification from the shareholder or broker dealer that the
certificate issued was never received, and such notification is made within 30
days of the date of issuance, the Transfer Agent may reissue the certificate
without requiring a surety bond. The Transfer Agent may also reissue
certificates which are represented as lost, stolen, or destroyed without
requiring a surety bond provided that the notification is in writing and
accompanied by an indemnification signed on behalf of a member firm of the New
York Stock Exchange and signed by an officer of said firm with the signature
guaranteed. Notwithstanding the foregoing, the Transfer Agent will reissue a
certificate upon written authorization from an Officer of the Fund.
11. In case of any requests or demands for the inspection of the
shareholder records of the Fund, the Transfer Agent will endeavor to notify
the Fund promptly and to secure instructions from an Officer as to such
inspection. The Transfer Agent reserves the right, however, to exhibit the
shareholder records to any person whenever it receives an opinion from its
counsel that there is a reasonable likelihood that the Transfer Agent will be
held liable for the failure to exhibit the shareholder records to such person;
provided, however, that in connection with any such disclosure the Transfer
Agent shall promptly notify the Fund that such disclosure has been made or is
to be made.
12. At the request of an Officer of the Fund the Transfer Agent will
address and mail such appropriate notices to shareholders as the Fund may
direct.
13. Notwithstanding any of the foregoing provisions of this Agreement,
the Transfer Agent shall be under no duty or obligation to inquire into, and
shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefor, or the authority of the
Approved Institution or of the Fund, as the case may be, to request such sale
or issuance;
(b) The legality of a transfer of Shares, or of a redemption of any
Shares, the property of the amount to be paid therefor, or the authority of
the Approved Institution or of the Fund, as the case may be, to request such
transfer or redemption;
(c) The legality of the declaration of any dividend by the Fund, or
the legality of the issue of any Shares in payment of any stock dividend; or
(d) The legality of any recapitalization or readjustment of Shares.
14. The Transfer Agent shall be entitled to receive and the Fund hereby
agrees to pay to the Transfer Agent for its performance hereunder, including
its performance of the duties and functions set forth in Schedule I hereto,
(i) its reasonable out-of-pocket expenses (including reasonable legal expenses
and attorney's fees) incurred in connection with its performance hereunder and
(ii) such compensation as may be agreed upon in writing from time to time by
the Transfer Agent and the Fund.
15. The Transfer Agent shall have not duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set
forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Transfer Agent.
16. Purchase and Prices of Services.
(a) The fund will compensate the Transfer Agent for, and Transfer
Agent will provide, beginning on the execution date of this Agreement and
continuing until the termination of this Agreement as provided hereinafter,
the Services set forth in Schedule I.
(b) The current unit prices for the Services are set forth in
Schedule III (the "Schedule III Fee Schedule"). Once in each calendar year,
the Transfer Agent may elect to raise the Schedule III Fees upon ninety (90)
days prior notice to the Fund. Notwithstanding the annual right to raise the
Schedule III Fees, the Transfer Agent may increase prices due to changes in
legal or regulatory requirements. Any increases in prices or one-time charges
due to changes in the legal or regulatory requirements will be subject to the
approval of the Fund, which approval shall not be unreasonably withheld.
17. Billing and Payment.
(a) The Transfer Agent shall bill the Fund as follows: (i) monthly
in arrears for Accounts maintained and in arrears for any Out-of-Pocket
Expenses incurred by the Transfer Agent, provided, however, that with respect
to Out-of-Pocket Expenses the Transfer Agent shall provide the Fund monthly
with an amount to be advanced to the Transfer Agent for estimated postage
expenses for the following month. Documentation to support reconciliation of
actual postal charges will be provided to the Fund monthly. The Transfer
Agent may from time to time request the Fund to make additional advances when
appropriate.
(b) The Fund shall pay the Transfer Agent in immediately available
funds at United Missouri Bank in Kansas City, Missouri within thirty (30) days
of the date of the bill.
ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement by giving to
the other party a notice in writing specifying the date of such termination,
which shall be not less than 60 days after the date of receipt of such notice.
In the event such notice is given by the Fund, it shall be accomplished by a
copy of a resolution of the Board of Directors of the Fund, certified by the
Secretary or any Assistant Secretary, electing to terminate this Agreement and
designating the successor transfer agent or transfer agents. In the event
such notice is given by the Transfer Agent, the Fund shall on or before the
termination date, deliver to the Transfer Agent a copy of a resolution of its
Board of Directors certified by the Secretary or any Assistant Secretary
designating a successor transfer agent or transfer agents. In the absence of
such designation by the Fund, the Fund shall upon the date specified in the
notice of termination of this Agreement and delivery of the records maintained
hereunder, be deemed to be its own transfer agent and the Transfer Agent shall
thereby be relieved of all duties and responsibilities pursuant to this
Agreement.
In the event this Agreement is terminated as provided herein, the
Transfer Agent, upon the written request of the Fund, shall deliver the
records of the Fund on electromagnetic media to the Fund or its successor
transfer agent. The Fund shall be responsible to the Transfer Agent for the
reasonable costs and expenses associated with the preparation and delivery of
such media.
ARTICLE X
MISCELLANEOUS
1. The Fund agrees that prior to effecting any change in the
Prospectus(es) which would increase or alter the duties and obligations of the
Transfer Agent hereunder, it shall advise the Transfer Agent of such proposed
change at least 30 days prior to the intended date of the same, and shall
proceed with such change only if it shall have received the written consent of
the Transfer Agent thereto, which shall not be unreasonably withheld.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if
addressed to the Fund and mailed or delivered to it at its office at the
address first above written, or at such other place as the Fund may from time
to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Transfer Agent shall be sufficiently given
if addressed to the Transfer Agent and mailed or delivered to the Senior Vice
President at 1055 Broadway, 7th Floor, Kansas City, MO 64105, or at such other
place as the Transfer Agent may from time to time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the formality of this
Agreement.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns. This Agreement shall not
be assignable by either party without the written consent of the other party,
except that the Transfer Agent may assign this Agreement to a corporate
affiliate with advance written notice to the Fund.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois.
7. This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original; but such counterparts shall,
together, constitute only one instrument.
8. The provisions of this Agreement are intended to benefit only the
Transfer Agent and the Fund, and no rights shall be granted to any other
person by virtue of this Agreement.
9. (a) The Transfer Agent will endeavor to assist in resolving
shareholder inquiries and errors relating to the period during which prior
transfer agents acted as such for the Fund. Any such inquiries or errors
which cannot be expediently resolved by the Transfer Agent will be referred to
the Fund.
(b) The Transfer Agent shall only be responsible for the
safekeeping and maintenance of transfer agency records, canceled certificates
and correspondence of the fund created or produced prior to the time of
conversion which are under its control and acknowledged in a writing to the
fund to be in its possession. Any expenses or liabilities incurred by the
Transfer Agent as a result of shareholder inquiries, regulatory compliance or
audits related to such records and not caused as a result of Transfer Agent's
bad faith, willful malfeasance or negligence shall be the responsibility of
the Fund as provided in Article VIII herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officer, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as the day and year
first above written.
DST SYSTEMS, INC. PBHG INSURANCE SERIES, FUND, INC.
By:________________________________ By:________________________________
(Signature) (Signature)
________________________________ ________________________________
(Name) (Name)
________________________________ ________________________________
(Title) (Title)
________________________________ ________________________________
(Date Signed) (Date Signed)
SCHEDULE I
DESCRIPTION OF SERVICES
In consideration of the fees to be paid in such manner and at such times
as Fund and Transfer Agent will provide the services set forth below:
Examine and Process New Accounts, Subsequent Payments, Liquidations,
Exchanges, Telephone Transactions, Check Redemptions, Automatic Withdrawals,
Certificate Issuance, Wire Order Trades, Dividends, Dividend Statement, Dealer
Statement.
DAILY ACTIVITY
Maintain the following shareholder information in such a manner as the
Transfer Agent shall determine:
Name and Address, including zip Code
Balance of Uncertificated Shares
Balance of Certificated Shares
Certificate number, number of shares, issuance date of each certificate
outstanding and cancellation date for each certificate date for each
certificate no longer outstanding, if issued
Balance of dollar available for redemption
Dividend code (daily accrual, monthly reinvest, monthly cash or quarterly
cash)
Type of account code
Establishment date indicating the date an account was opened, carrying
forward pre-conversion data as available
Original establishment date for accounts opened by exchange
W-9 withholding status and periodic reporting
State of residence code
Social Security or taxpayer identification number, and indication of
certification
Historical transactions on the account for the most recent 18 months, or
other period as mutually agreed to from time-to-time
Indication as to whether phone transactions can be accepted for this
account. Beneficial owner code, i.e., male, female, joint tenant, etc.
An alternate or "secondary" account number issued by a dealer (or bank,
etc.) to a customer for use, inquiry and transaction input by "remote
accessors"
FUNCTIONS
Answer investor and dealer telephone and/or written inquiries, except
those concerning Fund policy, or requests for investment advice which will be
referred to the Fund, or those which the Fund chooses to answer
Deposit Fund share certificates into accounts upon receipt of
instructions from the investor or other authorized person, if issued
Examine and process transfers of shares insuring that all transfer
requirements and legal documents have been supplied
Process and confirm address changes
Process standard account record changes as required, i.e., Dividend
Codes, etc.
Microfilm source documents for transactions, such as account applications
and correspondence
Perform backup withholding for those accounts which federal government
regulations indicate is necessary
Perform withholdings on liquidations, if applicable, for employee benefit
plans. Prepare and mail 5498s and 1099R's
Solicit missing taxpayer identification numbers
Provide remote access inquiry to Fund records via Fund supplied hardware
(Fund responsible for connection line and monthly fee)
REPORTS PROVIDED
Daily Journals Reflecting all shares and dollar
activity for the previous day
Blue Sky Report Supply information monthly for Fund's
preparation of Blue Sky Reporting
N-SAR Report Supply monthly correspondence, redemption
and liquidation information for use in
fund's N-SAR Report
Additionally, monthly average daily balance reports will be provided at
the Fund's request to the Fund at no charge.
Prepare and mail copies of summary statements to dealers and investment
advisers
Generate and mail confirmation statements for financial transactions
DIVIDEND ACTIVITY
Reinvest or pay in cash including reinvesting in other funds within the
fund group serviced by the Transfer Agent as described in each Fund
prospectus(es)
Distribute capital gains simultaneously with income dividends
DEALER SERVICES
Prepare and mail confirmation statements to dealers daily
Prepare and mail copies of statements to dealers, same frequency as
investor statements
ANNUAL MEETINGS
Assist Fund in obtaining a qualified service to: address and mail
proxies and related material, tabulate returned proxies and supply daily
reports when sufficient proxies have been received
Prepare certified list of stockholders, hard copy or microform
PERIODIC ACTIVITIES
Mail transaction confirmation statements daily to investors
Address and mail four (4) periodic financial reports (material must be
adaptable to Transfer Agent's mechanical equipment as reasonably specified by
the Transfer Agent)
Mail periodic statements to investors
Compute, prepare and furnish all necessary reports to Governmental
authorities: Forms 1099R, 1099DIV, 1099B, 1042 and 1042S
Enclose various marketing material as designated by the Fund in statement
mailings, i.e., monthly and quarterly statements (material must be adaptable
to mechanical equipment as reasonably specified by the Transfer Agent)
SCHEDULE II
RECORDS MAINTAINED BY TRANSFER AGENT
- Account applications
- Canceled certificates plus stock powers and supporting documents
- Checks including check registers, reconciliation records, any
adjustment records and tax withholding documentation
- Indemnity bonds for replacement of lost or missing stock certificates
and checks
- Liquidation, redemption, withdrawal and transfer requests including
stock powers, signature guarantees and any supporting documentation
SCHEDULE III
FEE SCHEDULE
PBHG Insurance Series Fund, Inc.
PERIOD* ANNUAL FEE
0-3 months $20,000
4-6 months $22,500
7-12 months $25,000
* Commencing upon the effectiveness of this agreement.
FORM OF
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") made as of the ___ day of
________, 1997 by and between PBHG Insurance Series Fund, Inc., a Maryland
corporation (the "Fund"), and PBHG Fund Services, a Pennsylvania business
trust (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end management
investment company of the series type and registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Administrator to provide
administrative services to the Fund and each of its several series (the
"Portfolios"), which are identified in Schedule A hereto, in the manner and on
the terms and conditions hereinafter set forth; and
WHEREAS, the Fund and the Administrator propose to engage a
sub-administrator (the "Sub-Administrator") to provide certain administrative
services to the Fund and the Portfolios, subject to the approval of the Fund's
Board of Directors;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, do hereby agree as follows:
1. DUTIES AND RESPONSIBILITIES OF THE ADMINISTRATOR.
The Administrator shall oversee the administration of the Fund's and each
Portfolio's business and affairs as set forth herein and shall provide certain
services required for effective administration of the Fund and the Portfolios.
In connection therewith, the Administrator shall:
1.1. OFFICE AND OTHER FACILITIES. Furnish, without cost to the Fund, or
provide and pay the cost of, such office facilities, furnishings, and office
equipment as are necessary for the performance of the Administrator's duties
to the Fund under this Agreement.
1.2. PERSONNEL. Provide, without additional remuneration from or other
cost to the Fund, the services of individuals competent to perform all of the
Administrator's obligations under this Agreement.
1.3. AGENTS. Assist the Fund in selecting, coordinating the activities
of, supervising and acting as liaison with any other person or agent engaged
by the Fund, including the Fund's depository agent or custodian, consultants,
transfer agent, sub-transfer agents, intermediaries with respect to mutual
fund alliance programs, dividend disbursing agent, Sub-Administrator,
independent accountants, and independent legal counsel. The Administrator
shall also monitor the functions of such persons and agents, including without
limitation the compliance of the Fund and the Fund's custodians with Rule
17f-5 under the 1940 Act, if appropriate.
1.4. DIRECTORS AND OFFICERS. Authorize and permit the Administrator's
directors, officers, and employees that may be elected or appointed as
directors or officers of the Fund to serve in such capacities, without
remuneration from or additional cost to the Fund.
1.5. BOOKS AND RECORDS. Maintain customary records, on behalf of the
Fund, in connection with the performance of the Administrator's duties under
this Agreement. The Administrator also will monitor and oversee the
performance of the agents specified in Section 1.3. above, to ensure that all
financial, accounting, corporate, and other records required to be maintained
and preserved by the Fund or on its behalf will be maintained in accordance
with applicable laws and regulations.
1.6. COST OVERSIGHT. Monitor and review activities and procedures of
the Fund and its agents identified in Section 1.3. above, in order to identify
and seek to obtain possible service improvements and cost reductions. In
connection therewith, the Administrator shall, on a quarterly basis, prepare
and submit to the Fund a pro forma budget or similar document concerning the
estimated costs of providing the services to the Fund and shall monitor and
periodically report to the Fund's Board of Directors information and analysis
about the actual expenses incurred in providing such services.
1.7. FUND ACCOUNTING AND COMPLIANCE POLICIES AND PROCEDURES. Assist in
developing, reviewing, maintaining, and monitoring the effectiveness of Fund
accounting and compliance policies and procedures, including portfolio
valuation procedures, expense allocation procedures, and personal trading
procedures, and the Fund's Code of Ethics. The Administrator also will assist
and coordinate participation by the Fund and its agents in any audit by its
outside auditors or any examination by federal or state regulatory authorities
or any self-regulatory organization. The Administrator also will oversee and
coordinate the activities of Fund accountants, outside counsel, and other
experts in these audits or examinations.
1.8. FUND SYSTEMS. Assist in developing, implementing, and monitoring
the Fund's use of automated systems for the purchase, sale, redemption and
transfer of Fund shares and the payment of Rule 12b-1 service fees to
broker-dealers and others that provide personal services, distribution support
services, and/or account maintenance services to shareholders, and for
recording and tracking such transactions and/or payments. The Administrator
also will assist in developing, implementing, and monitoring the Fund's use of
automated communications systems with brokers, dealers, custodians, and other
service providers, including without limitation trade clearance systems.
1.9. REPORTS TO THE FUND. Furnish to or place at the disposal of the
Fund such information, reports, evaluations, analysis, and opinions relating
to its administrative functions and the administrative functions performed by
the Sub-Administrator, as the Fund may, at any time or from time to time,
reasonably request or as the Administrator may deem helpful to the Fund. The
Administrator also will assist in the preparation of agendas and other
materials for meetings of the Fund's Board of Directors and will attend such
meetings.
1.10. REPORTS AND FILINGS. Provide appropriate assistance in the
development and/or preparation of all reports and communications by the Fund
to Fund shareholders and all reports and filings necessary to maintain the
registrations and qualifications of the Fund's shares under federal securities
law.
1.11. SHAREHOLDER INQUIRIES. Respond to all inquiries from Fund
shareholders or otherwise answer communications from Fund shareholders if such
inquiries or communications are directed to the Administrator. If any such
inquiry or communication would be more properly answered by one of the agents
listed in Section 1.3. above, the Administrator will coordinate, as needed,
the provision of their response.
2. ALLOCATION OF EXPENSES.
2.1. EXPENSES PAID BY THE ADMINISTRATOR.
2.1.1. IN GENERAL. The Administrator shall bear all of its own
expenses in connection with the performance of its duties under this
Agreement.
2.1.2. SALARIES AND FEES OF DIRECTORS AND OFFICERS. The
Administrator shall pay all salaries, expenses, and fees, if any, of the
directors, officers, and employees of the Administrator who are directors,
officers, or employees of the Fund.
2.1.3. WAIVER OR ASSUMPTION AND REIMBURSEMENT OF FUND EXPENSES BY
THE ADMINISTRATOR. The waiver or assumption and reimbursement by the
Administrator of any expense of the Fund that the Administrator is not
required by this Agreement to waive, or assume or reimburse, shall not
obligate the Administrator to waive, assume, or reimburse the same or any
similar expense of the Fund on any subsequent occasion, unless so required
pursuant to a separate agreement between the Fund and the Administrator.
2.2. EXPENSES PAID BY THE FUND. The Fund shall bear all expenses of its
organization, operation, and business not specifically waived, assumed, or
agreed to be paid by the Administrator as provided in this Agreement or any
other agreement between the Fund and the Administrator, and as described in
the Fund's then-current Prospectuses and Statements of Additional Information.
3. FEES.
3.1. COMPENSATION RATE. As compensation for all services rendered,
facilities provided, and expenses paid and any expense waived or assumed and
reimbursed by the Administrator, the Fund shall pay the Administrator a fee
per Portfolio at the annual rate of .15% of the average daily net assets of
each Portfolio.
3.2. METHOD OF COMPUTATION. The Administrator's fee shall accrue on
each calendar day and the sum of the daily fee accruals shall be paid monthly
to the Administrator by the fifth (5th) business day of the next calendar
month. The daily fee accruals shall be computed by multiplying the fraction
of one (1) over the number of calendar days in the year by the applicable
annual rates described in Section 3.1. above, and multiplying this product by
the net assets of the Portfolios, as determined in accordance with the current
Prospectuses of the Fund, as of the close of business on the last preceding
business day on which the Fund was open for business.
3.3. PRORATION OF FEE. If this Agreement becomes effective or
terminates before the end of any month, the fee for the period from the
effective date to the end of such month or from the beginning of such month to
the date of termination, as the case may be, shall be prorated according to
the proportion which such period bears to the full month in which such
effectiveness or termination occurs.
4. ADMINISTRATOR'S USE OF THE SERVICES OF OTHERS.
The Administrator may at its own cost employ, retain, or otherwise avail
itself of the services or facilities of other persons or organizations for the
purpose of providing the Administrator or the Fund with such information,
advice, or assistance as the Administrator may deem necessary, appropriate, or
convenient for the discharge of its obligations hereunder or otherwise helpful
to the Administrator, including consulting, monitoring, and evaluation
services concerning the Fund and the Portfolios.
5. OWNERSHIP AND CONFIDENTIALITY OF RECORDS.
All records required to be maintained and preserved by the Fund, pursuant
to rules or regulations of the Securities and Exchange Commission under
Section 31(a) of the 1940 Act, and maintained and preserved by the
Administrator on behalf of the Fund, are the property of the Fund and shall be
surrendered by the Administrator promptly on request by the Fund. The
Administrator shall not disclose or use any record or information obtained
pursuant to this Agreement in any manner whatsoever except as expressly
authorized by this Agreement and applicable law. The Administrator shall keep
confidential any information obtained in connection with its duties hereunder
and shall disclose such information only if the Fund has authorized such
disclosure or if such disclosure is expressly required by applicable law or
federal or state regulatory authorities.
6. REPORTS TO THE ADMINISTRATOR.
The Fund shall furnish or otherwise make available to the Administrator
such Prospectuses, Statements of Additional Information, financial statements,
proxy statements, reports, and other information relating to the business and
affairs of the Fund, as the Administrator may, at any time or from time to
time, reasonably require in order to discharge its obligations under this
Agreement.
7. SERVICES TO OTHER CLIENTS.
Nothing herein contained shall limit the freedom of the Administrator or
any affiliated person of the Administrator to render corporate administrative
services to other investment companies or to engage in other business
activities; however, so long as this Agreement or any extension, renewal, or
amendment hereof shall remain in effect or until the Administrator shall
otherwise consent, the Administrator shall be the only administrator to the
Fund.
8. LIMITATION OF LIABILITY OF THE ADMINISTRATOR AND INDEMNIFICATION BY THE
FUND.
8.1. LIMITATION OF LIABILITY.
8.1.1. Neither the Administrator nor any of its directors,
officers, employees or agents performing services for the Fund, at the
direction or request of the Administrator in connection with the
Administrator's discharge of its obligations undertaken or reasonably assumed
with respect to this Agreement, shall be liable for any act or omission in the
course of or in connection with the Administrator's services hereunder,
including any error of judgment or mistake of law or for any loss suffered by
the Fund, in connection with the matters to which this Agreement relates;
provided, that nothing herein contained shall be construed to protect the
Administrator or any such person against any liability to the Fund or its
shareholders to which the Administrator or such person would otherwise be
subject by reason of willful misfeasance, bad faith, or negligence in the
performance of its or their duties on behalf of the Fund.
8.1.2. The Administrator's directors, officers, employees and
agents performing services for the Fund shall be covered by errors and
omissions and directors and officers liability insurance, as appropriate,
under a policy maintained by the Administrator or an affiliate of the
Administrator.
8.1.3. The Administrator may apply to the Board of Directors of
the Fund at any time for instructions and may consult counsel for the Fund or
its own counsel and with accountants and other experts with respect to any
matter arising in connection with the Administrator's duties, and the
Administrator shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instruction or with the
opinion of such counsel, accountants, or other experts.
8.1.4. The Administrator shall at all times have the right to
mitigate or cure any and all losses, damages, costs, charges, fees,
disbursements, payments and liabilities to the Fund and its shareholders.
8.2. INDEMNIFICATION BY THE FUND.
8.2.1 As long as the Administrator acts in good faith and with due
diligence and without negligence, the Fund shall indemnify the Administrator
and hold it harmless from and against any and all actions, suits, and claims,
whether groundless or otherwise, and from and against any and all losses,
damages (excluding consequential, punitive or other indirect damages), costs,
charges, reasonable counsel fees and disbursements, payments, expenses, and
liabilities (including reasonable investigation expenses) arising directly or
indirectly out of the administrative services or any other service rendered to
the Fund hereunder. The indemnity and defense provisions set forth herein
shall indefinitely survive the termination of this Agreement.
8.2.2. The rights hereunder shall include the right to reasonable
advances of defense expenses in the event of any pending or threatened
litigation with respect to which indemnification hereunder may ultimately be
merited. In order that the indemnification provision contained herein shall
apply, however, it is understood that if in any case the Fund may be asked to
indemnify or hold the Administrator harmless, the Board of Directors of the
Fund shall be fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the Administrator
will use all reasonable care to identify and notify the Board of Directors of
the Fund promptly concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification against the Fund,
but failure to do so in good faith shall not affect the rights hereunder.
8.2.3. The Administrator shall secure and maintain a fidelity
bond, or be covered by an affiliate's blanket fidelity bond, in at least the
amount required by Rule 17g-1 under the 1940 Act for joint insurance bonds of
investment companies.
9. INDEMNIFICATION BY THE ADMINISTRATOR.
9.1. The Administrator shall indemnify the Fund, its officers and
directors and hold them harmless from and against any and all actions, suits,
and claims, whether groundless or otherwise, and from and against any and all
losses, damages (excluding consequential, punitive or other indirect damages),
costs, charges, reasonable counsel fees and disbursements, payments, expenses,
and liabilities (including reasonable investigation expenses) arising directly
or indirectly out of the administrative services or any other service rendered
to the Fund hereunder and arising or based upon the willful misfeasance, bad
faith, or negligence of the Administrator, its directors, officers, employees,
and agents in the performance of its or their duties on behalf of the Fund.
The indemnity and defense provisions set forth herein shall indefinitely
survive the termination of this Agreement.
9.2. The rights hereunder shall include the right to reasonable advances
of defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In
order that the indemnification provision contained herein shall apply,
however, it is understood that if in any case the Administrator may be asked
to indemnify or hold the Fund, its officers, and directors harmless, the
Administrator shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood that the
Fund will use all reasonable care to identify and notify the Administrator
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Administrator,
but failure to do so in good faith shall not affect the rights hereunder.
10. FORCE MAJEURE.
In the event the Administrator is unable to perform its obligations or
duties under the terms of this Agreement because of any act of God, strike,
riot, act of war, equipment failure, power failure or damage or other causes
reasonably beyond its control, the Administrator shall not be liable for any
and all losses, damages, costs, charges, counsel fees, payments, expenses or
liability to any other party (whether or not a party to this Agreement)
resulting from such failure to perform its obligations or duties under this
Agreement or otherwise from such causes. This provision, however, shall in no
way excuse the Administrator from being liable to the Fund for any and all
losses, damages, costs, charges, counsel fees, payments and expenses incurred
by the Fund due to the non-performance or delay in performance by the
Administrator of its duties and obligation under this Agreement if such
non-performance or delay in performance could have been reasonably been
prevented by the Administrator through back-up systems and other procedures
commonly employed by other administrators in the mutual fund industry,
provided that the Administrator shall have the right, at all times, to
mitigate or cure any losses, including by making adjustments or corrections to
any current or former shareholder accounts.
11. RETENTION OF SUB-ADMINISTRATOR.
The Administrator may retain a Sub-Administrator to perform corporate
administrative services to the Fund. The retention of a Sub-Administrator
shall be at the cost and expense of the Administrator. The Administrator
shall pay and shall be solely responsible for the payment of the fees of the
Sub-Administrator for the performance of its services for the Fund.
12. TERM OF AGREEMENT.
The term of this Agreement shall begin on the day and year first written
above, and unless sooner terminated as hereinafter provided, shall continue in
effect for an initial period that will expire on December 31, 1998.
Thereafter, this Agreement shall continue in effect from year to year, subject
to the termination provisions and all other terms and conditions hereof. The
Administrator shall furnish to the Fund, promptly upon its request, such
information as may be reasonably necessary to evaluate the terms of this
Agreement or any extension, renewal, or amendment thereof.
The assignment (as that term is defined in Section 2(a)(4) of the 1940
Act and rules thereunder) of this Agreement or any rights or obligations
thereunder shall be prohibited by either party without the written consent of
the other party. This Agreement shall inure to the benefit of and be binding
upon the parties and their respected permitted successors and assigns.
13. TERMINATION OF AGREEMENT.
This Agreement may be terminated by any of the parties hereto, without
the payment of any penalty:
(a) for a material breach of this Agreement, upon thirty (30) days
prior written notice to the other parties; provided, that this Agreement shall
not terminate if such material breach is cured within such thirty (30) day
period.
(b) following the initial term of this Agreement, for any reason
upon ninety (90) days' prior written notice to the other parties; provided,
that in the case of termination by the Fund such action shall have been
authorized by resolution of the Board of Directors of the Fund or by a vote of
a majority of the outstanding voting securities of the Fund or, in the case of
termination with respect to a particular Portfolio, by a resolution of the
Board of Directors of the Fund or by a vote of a majority of the outstanding
voting securities of such Portfolio. In the case of termination by the
Administrator, such termination shall not be effective until the Fund and the
Administrator shall have contracted with one or more persons to serve as
successor Administrator(s) for the Fund and such person(s) shall have assumed
such position.
14. AMENDMENT AND ASSIGNMENT OF AGREEMENT.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto; provided, that no material amendment shall be effective unless
authorized by resolution of the Board of Directors of the Fund or by a
majority of the outstanding voting securities of the Fund or, in the case of
an amendment to this Agreement with respect to a particular Portfolio, by a
resolution of the Board of Directors of the Fund or a vote of a majority of
the outstanding voting securities of such Portfolio.
15. MISCELLANEOUS.
15.1. NOTICES. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, (i) if to the
Administrator, to Pilgrim Baxter Fund Services, 1255 Drummers Lane Suite 300,
Wayne, PA 19087, Attention: Brian Bereznak, and (ii) if to the Fund, to The
PBHG Funds, Inc., 1255 Drummers Lane Suite 300, Wayne, PA 19087, Attention:
Michael Harrington.
15.2. CAPTIONS. The captions contained in this Agreement are included
for convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
15.3. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles of Incorporation
or By-Laws, or any applicable statutory or regulatory requirement to which it
is subject or by which it is bound, or to relieve or deprive the Board of
Directors of its responsibility for and control of the conduct of the affairs
of the Fund.
15.4. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from
a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by
the United States courts or, in the absence of any controlling decision of any
such court by rules, regulations, or orders of the Securities and Exchange
Commission validly issued pursuant to the 1940 Act. In addition, where the
effect of a requirement of the 1940 Act reflected in any provision of this
Agreement is relaxed by a rule, regulation, or order of the Securities and
Exchange Commission, whether of special or of general application, such
provision shall be deemed to incorporate the effect of such rule, regulation,
or order.
15.5. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule, or otherwise, the remainder
of this Agreement shall not be affected thereby.
15.6. GOVERNING LAW. Except insofar as the 1940 Act or other federal
laws and regulations may be controlling, this Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: PBHG INSURANCE SERIES FUND, INC.
___________________________ By:_______________________________________
Title:_____________________ Title:____________________________________
ATTEST: PBHG FUND SERVICES
___________________________ By:_______________________________________
Title:_____________________ Title:____________________________________
SCHEDULE A
PBHG INSURANCE SERIES FUND, INC.
The PBHG Insurance Series Fund, Inc. consists of the following Portfolios:
PBHG Growth II Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
Date: _________, 1997
FORM OF
SUB-ADMINISTRATIVE SERVICES AGREEMENT
SUB-ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") made as of the ___
day of ________, 1997, by and among PBHG Insurance Series Fund, Inc., a
Maryland corporation (the "Fund"), PBHG Fund Services, a Pennsylvania business
trust (the "Administrator"), and SEI Fund Resources, a Delaware business trust
(the "Sub-Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end management
investment company of the series type and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator and the Fund have entered into an
Administrative Services Agreement (the "Administrative Services Agreement")
pursuant to which the Administrator will provide administrative services to
the Fund and each of its several series (the "Portfolios"), which are
identified in Schedule A to the Administrative Services Agreement; and
WHEREAS, the Fund and the Administrator desire to retain the
Sub-Administrator to provide certain administrative services to the Fund, and
each of its series (the "Portfolios"), and the Administrator in the manner and
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. DUTIES AND RESPONSIBILITIES OF THE SUB-ADMINISTRATOR.
The Sub-Administrator shall assist the Administrator in connection with
the Administrator's duties and responsibilities to the Fund specified in the
Administrative Services Agreement. In addition, the Sub-Administrator shall
perform or supervise the performance by others of all administrative services
in connection with the operations of the Portfolios, other than those
administrative services to be provided by the Administrator pursuant to the
Administrative Services Agreement. The administrative services to be provided
by the Sub-Administrator pursuant to this Agreement shall include general
administrative services, regulatory reporting services, fund accounting
services, and such services as set forth herein. The duties of the
Sub-Administrator shall be confined to those expressly set forth herein and no
implied duties are assumed by or may be asserted against the Sub-Administrator
hereunder. Without limiting the generality of the foregoing, the
Sub-Administrator shall provide the services described below:
1.1. GENERAL ADMINISTRATIVE SERVICES.
1.1.1. OFFICE AND OTHER FACILITIES. Furnish, without cost to the
Fund or the Administrator, or provide and pay the cost of, such office
facilities, furnishings, and office equipment as are necessary for the
performance of the Sub-Administrator's duties to the Fund under this
Agreement.
1.1.2. PERSONNEL. Provide, without additional remuneration from or
other cost to the Fund or the Administrator, the services of individuals
competent to perform all of the Sub-Administrator's duties under this
Agreement.
1.1.3. BOOKS AND RECORDS. Maintain customary records, on behalf of
the Fund, in connection with the performance of the Sub-Administrator's duties
under this Agreement. In connection with this, the Sub-Administrator shall
monitor and oversee the performance of its agents and the Fund's independent
auditors with respect to all financial, accounting, corporate, and other
records required to be maintained and preserved by the Fund or on its behalf
so that such records will be maintained in accordance with the provisions of
rules and regulations of the Securities and Exchange Commission ("SEC") under
Section 31(a) of the 1940 Act.
1.1.4. REPORTS TO THE FUND. Assist the Administrator in furnishing
to or placing at the disposal of the Fund such information, reports,
evaluations, analysis, and opinions relating to its duties as the Fund may at
any time or from time to time reasonably request, or as the Administrator may
reasonably deem helpful to the Fund. The Sub-Administrator also shall assist
the Administrator in the preparation of all necessary agendas and related
meeting materials for meetings of the Board of Directors.
1.1.5. SHAREHOLDER INQUIRIES. Respond to all inquiries from Fund
shareholders or otherwise answer communications from Fund shareholders if such
inquiries or communications are directed to the Sub-Administrator. If any
such inquiry or communication would be more properly answered by one of its
agents or those agents of the Fund listed in Section 1 above, the
Sub-Administrator will refer the inquiry to the Administrator to direct to the
appropriate party for response.
1.1.6. AUTOMATED FUND SYSTEMS. Assist in implementing and
monitoring the Fund's use of automated systems for: (i) the purchase, sale,
redemption and transfer of Fund shares; (ii) the payment of Rule 12b-1 service
fees to broker-dealers and others that provide personal services, distribution
support services, and/or account maintenance services to shareholders; and
(iii) the recording and tracking of such transactions and/or payments. The
Sub-Administrator also shall assist in developing, implementing, and
monitoring the Fund's use of automated communications systems with brokers,
dealers, custodians, and other service providers, including without limitation
trade clearance systems.
1.2. FUND ACCOUNTING. The Sub-Administrator shall on a continuing basis
perform the fund accounting services and other functions described below.
1.2.1. FINANCIAL STATEMENTS. Maintain the Fund's general ledger,
including expense accruals and payments, and prepare the Fund's and each
Portfolio's annual and semi-annual financial statements. On a monthly basis,
with respect to each Portfolio, the Sub-Administrator shall prepare and
provide to the Administrator and the Fund monthly reports as mutually agreed
to by the parties (in U.S. dollars) which may include the following items:
schedule of investments; statement of assets and liabilities; statement of
operations; statement of changes in net assets; cash statement; and schedule
of capital gains and losses.
1.2.2. OVERSIGHT. Assist in developing, reviewing, maintaining,
and monitoring the effectiveness of Fund accounting policies and procedures,
in light of industry standards and the "Audits of Investment Companies" of the
American Institute of Certified Public Accountants and, in this regard, devote
particular attention to areas where accounting standards may change or
develop. In this capacity, the Sub-Administrator shall assist in the
resolution of recommendations made by the Fund's independent auditors to
improve internal controls and shall implement such recommendations as required
by the Board.
1.2.3. PORTFOLIO VALUATION AND ACCOUNTING. Conduct, or monitor and
oversee, portfolio valuation procedures, including without limitation
procedures for the calculation of expenses and the control of disbursements of
each Portfolio. The Sub-Administrator shall calculate, or monitor and oversee
the calculation of, the daily net asset value ("NAV") of each Portfolio in
accordance with the procedures described in the Fund's then-current
registration statement and such other procedures as may be established by the
Fund's Board of Directors. The Sub-Administrator, on a daily basis, shall
provide by electronic transmission or other mutually agreed upon means, such
NAV information to: (i) the investment adviser and sub-adviser for each
Portfolio; (ii) the NASD for reporting to newspapers and other news media; and
(iii) all sub-transfer agents that have entered into agreements with the Fund.
In connection with this responsibility, the Sub-Administrator shall determine
or oversee the determination of the value of each Portfolio's assets, and
shall review and monitor pricing methodologies relating to such valuation,
procedures, including: (i) oversight of any third-party pricing services used
by them; (ii) establishment and maintenance of appropriate "back up" pricing
service arrangements so that the NAV for each Portfolio will be provided to
each required party specified above; (iii) assistance in the review and
verification of daily securities price changes in excess of percentages
specified by the Sub-Administrator (and promptly reported to the
Administrator); (iv) review for "stale" prices; and (v) assistance in
determining the resolution of any NAV calculation errors. Notwithstanding the
foregoing, the Sub-Administrator shall bear no responsibility for incorrect
prices provided by a third party pricing service, provided the
Sub-Administrator fulfills its obligation as described above.
The Sub-Administrator shall also prepare annual Fund and/or Portfolio
expense budgets and the determination of related daily accruals. In addition,
the Sub-Administrator shall: determine the Fund's and each Portfolio's net
income both in terms of U.S. dollars and, if appropriate, foreign currencies;
calculate capital gains and losses and, if appropriate, foreign exchange gains
and losses; control all disbursements from the Fund and authorize such
disbursements upon written instructions, which may be continuing instructions,
from the Administrator or such other persons authorized by the Fund's Board of
Directors; calculate various contractual expenses for budget and accrual
purposes; reconcile cash and investment balances of each Portfolio with the
Fund's custodian and provide each Portfolio's investment adviser or, if
applicable, sub-adviser with the beginning cash balance available for
investment purposes in both U.S. dollars and, if appropriate, foreign
currency; and maintain historical tax lots for each security and foreign
currency. The Sub-Administrator shall also for each Portfolio: monitor timely
income collection and tax reclaims; monitor daily expense accruals and the
related calculation of investment advisory fee waivers and/or expense
reimbursements (if any) and notify the Administrator of any proposed
adjustments thereto; and assist in developing and reviewing daily accounting
reports for the Portfolios.
1.2.4. PERFORMANCE DATA. Calculate performance data of each
Portfolio for dissemination to information services covering the investment
company industry, including, as appropriate, each Portfolio's average annual
total return, cumulative total return, expense ratio, and portfolio turnover
rate. In connection with this function, the Sub-Administrator shall, as
reasonably requested by the Fund's Board of Directors, develop fund
performance and other databases to facilitate internal and external reporting
and shall monitor the calculation of financial information.
1.2.5. FUND OPERATIONS. Participate, as reasonably requested, in
the development of policies and procedures, including operational, accounting,
reporting, and monitoring procedures, to effectuate securities and other
transactions on behalf of the Fund and the Portfolios, including, stated
objectives as appropriate, securities lending programs, the establishment and
use of lines of credit on behalf of the Fund and/or inter-Portfolio lending
capabilities, and the establishment and use of inter-Portfolio securities
trading capabilities. In connection with the foregoing, the Sub-Administrator
shall, upon reasonable request, assist in the preparation of any application
for exemptive or no-action relief, if required.
1.2.6. CASH BALANCES. Participate, as reasonably requested, in the
development of policies and procedures, including operational, accounting,
reporting, and monitoring procedures, regarding the management of the
Portfolios' cash balances, including procedures regarding the use of "sweep"
transactions and repurchase agreements, the temporary reinvestment of credits
to cash balances, and the processing of dividends and other disbursements to
the Portfolios. In connection with the foregoing, the Sub-Administrator shall
assist in the preparation of any application for exemptive or no-action
relief, if required. The Sub-Administrator shall also provide the cash
availability throughout each day, as required by each Portfolio's investment
adviser or, if applicable, sub-adviser.
1.3. OVERSIGHT OF AGENTS AND SERVICE PROVIDERS.
1.3.1. IN GENERAL. Assist the Administrator and Fund counsel in
the preparation, negotiation, and administration of contracts on behalf of the
Fund with third-party service providers, such as the Fund's distributor,
custodian, transfer agent, sub-transfer agents, and intermediaries with
respect to mutual fund alliance programs. At the reasonable request of the
Fund or the Administrator, the Sub-Administrator shall assist in the
preparation of reports to the Fund on the performance and service quality of
these service providers, as more fully described in Section 1.3.2. below. The
Sub-Administrator shall review the performance of each Portfolio's custodian
or custodians regarding the timely recording of cash receipts and
disbursements and position reconciliation and shall periodically report to the
Administrator its findings in that regard, as mutually agreed to by the
parties. The Sub-Administrator shall also monitor and review compliance as
documented and reported by each Portfolio's custodian or custodians with Rule
17f-5 under the 1940 Act, as applicable. The Sub-Administrator shall have no
responsibility for supervising the performance of investment adviser or
sub-adviser for each Portfolio.
1.3.2. SERVICE QUALITY STANDARDS. Assist the Administrator in
establishing service quality standards and developing and implementing
procedures for monitoring and benchmarking the performance of third-party
service providers, such as those specified in Section 1.3.1. above, against
industry standards. Upon reasonable request, the Sub-Administrator shall
provide the Administrator and the Fund's Board of Directors with periodic
reports concerning the results of monitoring of the performance and service
quality of these service quality of these service providers.
1.4. OVERSIGHT OF TRANSFER AGENT AND DIVIDEND DISBURSING AGENT.
1.4.1. POLICIES AND PROCEDURES. Assist the Administrator in the
development of policies and procedures concerning the transfer agent's
processing of shareholder transactions, including policies and procedures
concerning inactive or dormant accounts and compliance with related
escheatment requirements, telephone exchanges and redemptions, effectuation of
transactions through the use of facsimile transmissions, name and address
changes, and the receipt and maintenance of appropriate legal documentation.
The Sub-Administrator also shall participate in the establishment of policies
and procedures for ensuring that shareholder redemption requests are timely
honored, even in periods of significant or unusual market activity. The
Sub-Administrator also shall assist in the development of controls over, and
policies and procedures governing, the Fund's cash remittance processing, and
the processing of dividend and distribution payments, check writing, wire
redemptions and other disbursements.
1.4.2. COMPLIANCE WITH SERVICE QUALITY STANDARDS. Assist the
Administrator in establishing service quality standards and developing and
implementing procedures for monitoring and benchmarking the transfer agent's
performance against industry standards in areas such as: compliance with
initial and subsequent investment minimums; accuracy of the establishment of
new accounts, including the establishment of shareholder privileges and
dividend reinvestment options; accuracy of transaction processing, including
monetary and non-monetary transactions; timeliness of problem resolution and
correspondence, including review of shareholder complaints; compliance with
document completion and retention requirements; timeliness and accuracy of
confirmations and periodic shareholder statements; and quality of telephonic
communications with shareholders, including a review of abandon rates,
response times, and average talk time. The Sub-Administrator also shall
review and participate in determinations concerning the resolution of "as of"
transactions in accordance with the Fund's policies as approved by the
Administrator and the Board of Directors of the Fund.
1.4.3. OVERSIGHT OF SHAREHOLDER TRANSACTIONS. Assist the Fund, as
requested, in developing and implementing procedures with respect to omnibus
accounts, in order to ensure that such accounts are properly serviced and that
Fund expenses are allocated appropriately.
1.4.4. TRANSFER AGENT EXPENSES. Assist the Administrator, as
requested, in reviewing the level and allocation of transfer agent
out-of-pocket expenses charged to the Fund with respect to whether particular
expenses are appropriately charged to the Fund and appropriately allocated
among the Portfolios.
1.5. REPORTS, FILINGS, AND COMMUNICATIONS.
1.5.1. REPORTS AND FILINGS. Assist in the development,
preparation, and filing of all reports and communications by the Fund to Fund
shareholders and all reports and filings necessary to maintain the
registrations and qualifications of the Fund's shares under federal and state
"Blue Sky" securities laws, including registration statements, prospectuses,
statements of additional information, proxy statements, semi-annual reports
for the Fund on Form N-SAR, all sales reports, and all required notices
pursuant to Rule 24f-2 of the 1940 Act. The Sub-Administrator also shall
assist with and coordinate the layout and printing of publicly disseminated
prospectuses and the Fund's semi-annual and annual reports to shareholders.
1.5.2. STATE BLUE SKY FILINGS. Prepare all reports, applications,
and documents (including reports regarding the sale and redemption of the
Fund's shares as may be required in order to comply with state Blue Sky
securities laws) as may be necessary or desirable to: (i) register and
maintain the registration of the Fund's shares with state securities
authorities; and (ii) monitor the sale of the Fund's shares for compliance
with state Blue Sky securities laws. The Sub-Administrator shall file with
the appropriate state securities authorities all registration statements and
reports for the Fund and the Fund's shares, and all amendments thereto and
other filings as may be necessary or convenient to register the Fund and the
Fund's shares and keep such registration effective with state security
authorities so as to enable the Fund to make a continuous offering of its
shares in all 50 states and the District of Columbia.
1.5.3. SHAREHOLDER COMMUNICATIONS. Coordinate mailing Fund
prospectuses, notices, proxy statements, proxies and other reports to Fund
shareholders, and supervise and facilitate the solicitation of proxies
solicited by the Fund for all shareholder meetings, including tabulation
process for shareholder meetings.
1.5.4. TAX RETURNS. Coordinate and supervise the preparation and
filing of all required tax returns for the Fund and monitor the accuracy of
all tax reports sent to shareholders of the Fund.
1.6. LEGAL AND AUDIT SERVICES.
1.6.1. INDEPENDENT AUDITS. Assist in the coordination of the Fund
audit process and provide, upon request, account analysis, fiscal year
summaries, and other audit-related schedules. In connection with this
responsibility, the Sub-Administrator shall take all actions to assure that
necessary information is made available to the Fund's independent auditor for
the expression of their opinion, as such may be required by the Fund from time
to time. The Sub-Administrator also shall assist and participate in the
resolution of issues raised in the audit process.
1.6.2. 1940 ACT. The Sub-Administrator shall obtain and keep in
effect, at the Fund's expense, fidelity bonds and directors and
officers/errors and omissions insurance policies for the Fund in accordance
with the requirements of Rules 17g-1 and 17d-1(d)(7) under the 1940 Act, as
such bonds and policies are approved by the Fund's Board of Directors. The
Sub-Administrator also shall develop and maintain fund manager "handbooks" to
facilitate compliance by portfolio managers with respect to investment
restrictions. In addition, the Sub-Administrator shall assist the Fund's
Administrator in monitoring the Fund's compliance with provisions of the 1940
Act and the rules and regulations thereunder as well as compliance with each
Portfolio's investment objectives, program, policies and restrictions. In
connection with this responsibility, the Sub-Administrator shall promptly
advise the Fund and the Administrator as to any compliance problems or issues
detected.
1.6.3. TAX COMPLIANCE. Monitor compliance with the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations thereunder, applicable to regulated investment companies,
including: portfolio diversification requirements and minimum distribution
requirements; review of expense allocations to individual classes to ensure
compliance with applicable IRS pronouncements regarding preferential
dividends; wash sales; short-short income; qualifying income; asset
diversification; and investments in Passive Foreign Investment Companies. In
connection with this responsibility, the Sub-Administrator shall monitor and
advise the Fund and the Portfolios as to their status as "regulated investment
companies" under the Code.
1.6.4. REGULATORY EXAMINATIONS. Assist in the Fund's participation
in regulatory examinations, including examinations by the SEC, the National
Association of Securities Dealers, Inc., and/or state securities regulators.
In connection therewith, the Sub-Administrator, on behalf of the Fund, shall
provide such information as the regulator may reasonably request, and shall
assist and participate in the resolution of any issues raised in connection
with such examinations.
1.7. DISASTER RECOVERY. Employ, monitor and oversee disaster recovery
and related back-up procedures and facilities commonly utilized by others in
the mutual fund industry. In this regard, the Sub-Administrator shall enter
into and maintain in effect with appropriate parties, at no additional expense
to the Fund, one or more agreements making appropriate and reasonable
provision for emergency use of electronic data processing equipment and other
equipment and/or facilities necessary for the performance of its duties and
obligations under this Agreement in the event of emergency conditions or
equipment failures.
2. EXPENSES.
2.1. EXPENSES PAID BY THE SUB-ADMINISTRATOR.
2.1.1. IN GENERAL. The Sub-Administrator shall bear all of its
expenses in connection with the performance of its duties under this
Agreement, except documented out-of-pocket expenses or expenses associated
with telephone support relating to shareholder services.
2.1.2. WAIVER OR ASSUMPTION AND REIMBURSEMENT OF FUND EXPENSES BY
THE SUB-ADMINISTRATOR. The waiver or assumption and reimbursement by the
Sub-Administrator of any expense of the Fund that the Sub-Administrator is not
required by this Agreement to waive, or assume or reimburse, shall not
obligate the Sub-Administrator to waive, assume, or reimburse the same or any
similar expense of the Fund on any subsequent occasion, unless so required
pursuant to a separate agreement between the Fund and the Sub-Administrator.
2.2. EXPENSES PAID BY THE FUND. The Fund shall bear all expenses of its
organization, operation, and business not specifically waived, assumed, or
agreed to be paid by the Administrator or the Sub-Administrator, as provided
in this Agreement, the Administrative Services Agreement or any other
agreement between the Fund and the Administrator or the Sub-Administrator, and
as described in the Fund's then-current Prospectuses and Statements of
Additional Information.
3. FEES.
3.1. COMPENSATION RATE. As compensation for all services rendered,
facilities provided, and expenses paid and any expense waived or assumed and
reimbursed by the Sub-Administrator, the Administrator shall pay the
Sub-Administrator a fee per Portfolio: (i) at the annual rate of .07% of the
average daily assets of each Portfolio with respect to $2.5 billion of the
total average daily net assets of the Fund; and (ii) at the annual rate of
.025% of the average daily net assets of each Portfolios with respect to the
total average daily net assets of the Fund in excess of $2.5 billion.
3.2. METHOD OF COMPUTATION. The Sub-Administrator's fee shall accrue on
each calendar day and the sum of the daily fee accruals shall be paid monthly
to the Sub-Administrator by the fifth (5th) business day of the next calendar
month. The daily fee accruals shall be computed by multiplying the fraction
of one (1) over the number of calendar days in the year by the applicable
annual rates described in Section 3.1. above, and multiplying this product by
the net assets of the Portfolios, as determined in accordance with the current
Prospectuses of the Fund, as of the close of business on the last preceding
business day on which the Fund was open for business.
3.3. PRORATION OF FEE. If this Agreement becomes effective or terminates
before the end of any month, the fee for the period from the effective date to
the end of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such effectiveness or
termination occurs.
3.4. RESPONSIBILITY FOR PAYMENT. The Sub-Administrator shall not be
entitled to receive any payment for the performance of its services hereunder
from the Fund and shall look solely and exclusively to the Administrator for
payment of all fees for such services.
4. SUB-ADMINISTRATOR'S USE OF THE SERVICES OF OTHERS.
The Sub-Administrator may at its own cost employ, retain, or otherwise
avail itself of the services and facilities of other persons or organizations
for the purpose of providing the Sub-Administrator, the Administrator, or the
Fund with such information or assistance as the Sub-Administrator may deem
necessary, appropriate, or convenient for the discharge of its duties
hereunder or otherwise helpful to the Administrator.
5. OWNERSHIP AND CONFIDENTIALITY OF RECORDS.
All records required to be maintained and preserved by the Fund, pursuant
to rules or regulations of the SEC under Section 31(a) of the 1940 Act and
maintained and preserved by the Sub-Administrator on behalf of the Fund, are
the property of the Fund and shall be surrendered by the Sub-Administrator
promptly on request by the Fund. The Sub-Administrator shall not disclose or
use any record or information obtained pursuant to this Agreement in any
manner whatsoever except as expressly authorized by this Agreement and
applicable law. The Sub-Administrator shall keep confidential any information
obtained in connection with its duties and shall disclose such information
only if the Fund has authorized such disclosure or if such disclosure is
expressly required by applicable law or federal or state regulatory
authorities.
6. REPORTS TO THE SUB-ADMINISTRATOR.
The Fund and/or the Administrator shall furnish or otherwise make
available to the Sub-Administrator such Prospectuses, Statements of Additional
Information, financial statements, proxy statements, reports, and other
information relating to the business and affairs of the Fund as the
Sub-Administrator may, at any time or from time to time, require in order to
discharge its duties under this Agreement.
7. SERVICES TO OTHER CLIENTS.
Nothing herein contained shall limit the freedom of the Sub-Administrator
or any affiliated person of the Sub-Administrator to render similar corporate
administrative services to other investment companies, or to engage in other
business activities.
8. LIMITATION OF LIABILITY OF THE SUB-ADMINISTRATOR AND INDEMNIFICATION BY
THE FUND AND THE ADMINISTRATOR.
8.1. LIMITATION OF LIABILITY OF THE SUB-ADMINISTRATOR.
8.1.1. Neither the Sub-Administrator nor any of its directors,
officers, employees, or agents performing services for the Fund and the
Administrator at the direction or request of the Sub-Administrator in
connection with the Sub-Administrator's discharge of its duties undertaken or
assumed with respect to this Agreement, shall be liable for any act or
omission in the course of or in connection with the Sub-Administrator's
services hereunder, including any error of judgment or mistake of law or for
any loss suffered by the Fund or the Administrator in connection with the
matters to which this Agreement relates; provided, that nothing herein
contained shall be construed to protect the Sub-Administrator or any such
persons against any liability to the Fund or its shareholders or the
Administrator to which the Sub-Administrator or such persons would otherwise
be subject by reason of willful misfeasance, bad faith, or negligence in the
performance of its or their duties on behalf of the Fund or the Administrator
or for failure by the Sub-Administrator or any such persons to exercise due
care in rendering other services to the Fund or the Administrator. The
limitation and liability provisions set forth herein shall indefinitely
survive the termination of this Agreement.
8.1.2. The Sub-Administrator may apply to the Board of Directors of
the Fund or to the Administrator at any time for instructions and may consult
counsel for the Fund or the Administrator or the Sub-Administrator's own
counsel and with accountants and other experts with respect to any matter
arising in connection with the Sub-Administrator's duties, and the
Sub-Administrator shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instructions or with the
opinion of such counsel, accountants, or other experts.
8.1.3. The Sub-Administrator shall at all times have the right to
mitigate or cure any and all losses, damages, costs, charges, fees,
disbursements, payments, expenses and liabilities to the Fund, its
shareholders or the Administrator.
8.2. INDEMNIFICATION BY THE FUND AND THE ADMINISTRATOR.
8.2.1. As long as the Sub-Administrator acts in good faith and with
due diligence and without negligence, the Fund and the Administrator shall
indemnify the Sub-Administrator, its directors, officers, employees, and
agents and hold them harmless from and against any and all actions, suits, and
claims, whether groundless or otherwise, and from and against any and all
losses, damages (excluding consequential, punitive or other indirect damages),
costs, charges, reasonable counsel fees and disbursements, payments, expenses,
and liabilities (including reasonable investigation expenses) arising directly
or indirectly out of the administrative services or any other service rendered
to the Fund or the Administrator hereunder. The indemnity and defense
provisions set forth herein shall indefinitely survive the termination of this
Agreement.
8.2.2. The rights hereunder shall include the right to reasonable
advances of defense expenses in the event of any pending or threatened
litigation with respect to which indemnification hereunder may ultimately be
merited. In order that the indemnification provision contained herein shall
apply, however, it is understood that if in any case the Fund or the
Administrator may be asked for indemnification under Section 8.2.1., the Board
of Directors of the Fund or the Administrator shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it is
further understood that the Sub-Administrator will use all reasonable care to
identify and notify the Board of Directors of the Fund or the Administrator
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Fund or the
Administrator, but failure to do so in good faith shall not affect the rights
hereunder. The rights hereunder shall be limited, during each term of this
Agreement, to no more than six (6) months of fees of the Sub-Administrator (as
computed in accordance with Section 3.1 of this Agreement) either (i) payable
to the Sub-Administrator in accordance with Section 3 hereof or (ii) if the
Agreement has been terminated, those fees paid to the Sub-Administrator for
the six (6) month period prior to termination.
9. INDEMNIFICATION BY THE SUB-ADMINISTRATOR.
9.1. The Sub-Administrator shall indemnify the Fund, the Administrator,
and their directors, officers, employees, and agents and hold them harmless
from and against any and all actions, suits, and claims, whether groundless or
otherwise, and from and against any and all losses, damages (excluding
consequential, punitive or other indirect damages), costs, charges, reasonable
counsel fees and disbursements, payments, expenses, and liabilities (including
reasonable investigation expenses) arising directly or indirectly out of the
administrative services or any other service rendered to the Fund and the
Administrator hereunder and arising or based upon the willful misfeasance or
bad faith of the Sub-Administrator, its directors, officers, employees, and
agents in the performance of its or their duties on behalf of the Fund and the
Administrator. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
9.2. The rights hereunder shall include the right to reasonable advances
of defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In
order that the indemnification provision contained herein shall apply,
however, it is understood that if in any case the Sub-Administrator may be
asked for indemnification under Section 9.1, the Sub-Administrator shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Fund and the Administrator
will use all reasonable care to identify and notify the Sub-Administrator
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the
Sub-Administrator, but failure to do so in good faith shall not affect the
rights hereunder. The rights hereunder shall be limited, during each term of
this Agreement, to no more than six (6) months of fees to the
Sub-Administrator (as computed in accordance with Section 3.1 of this
Agreement) either (i) payable to the Sub-Administrator in accordance with
Section 3 hereof or (ii) if the Agreement has been terminated, those fees paid
to the Sub-Administrator for the six (6) month period prior to termination.
10. FORCE MAJEURE.
In the event the Sub-Administrator is unable to perform its obligations
or duties under the terms of this Agreement because of any act of God, strike,
riot, act of war, equipment failure, power failure or damage or other causes
reasonably beyond its control, the Sub-Administrator shall not be liable for
any loss, damage, cost, charge, counsel fee, payment, expense or liability to
any other party (whether or not a party to this Agreement) resulting from such
failure to perform its obligations or duties under this Agreement or otherwise
from such causes. This provision, however, shall in no way excuse the
Sub-Administrator from being liable to the Administrator or the Fund for any
and all losses, damages, costs, charges, counsel fees, payments and expenses
incurred by the Administrator or the Fund due to the non-performance or delay
in performance by the Sub-Administrator of its duties and obligation under
this Agreement if such non-performance or delay in performance could have been
reasonably been prevented by the Sub-Administrator through back-up systems and
other procedures commonly employed by other administrators and
sub-administrators in the mutual fund industry, provided that the
Sub-Administrator shall have the right, at all times, to mitigate or cure any
losses, including the making of adjustments or corrections to any current or
former shareholder accounts.
11. TERM OF AGREEMENT.
The term of this Agreement shall begin on the day and year first written
above, and unless sooner terminated as hereinafter provided, shall continue in
effect for an initial period that will expire on December 31, 1998.
Thereafter, this Agreement shall continue in effect from year to year, subject
to the termination provisions and all other terms and conditions hereof. The
Sub-Administrator shall furnish to the Fund or the Administrator, promptly
upon a request by the Fund or the Administrator, such information as may be
reasonably necessary to evaluate the terms of this Agreement or any extension,
renewal, or amendment thereof.
12. AMENDMENT AND ASSIGNMENT OF AGREEMENT.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto; provided, that no material amendment shall be effective unless
authorized by a resolution of the Board of Directors of the Fund or by a vote
of a majority of the outstanding voting securities of the Fund or, in the case
of an amendment to this Agreement with respect to a particular Portfolio, by a
resolution of the Board of Directors of the Fund or by a vote of a majority of
the outstanding voting securities of such Portfolio.
The assignment (as that term is defined in Section 2(a)(4) of the 1940
Act and rules thereunder) of this Agreement or any rights or obligations
thereunder shall be prohibited by either party without the written consent of
the other party. This Agreement shall inure to the benefit of and be binding
upon the parties and their respected permitted successors and assigns.
13. TERMINATION OF AGREEMENT.
This Agreement may be terminated by any of the parties hereto, without
the payment of any penalty:
(a) for a material breach of this Agreement, upon thirty (30) days
prior written notice to the breaching party; provided that the breaching party
has not cured the material breach of this Agreement during such thirty (30)
day period.
(b) following the initial term of this Agreement, for any reason
upon ninety (90) days' prior written notice to the other parties; provided,
that in the case of termination by the Fund such action shall have been
authorized by resolution of the Board of Directors of the Fund or by a vote of
a majority of the outstanding voting securities of the Fund or, in the case of
termination with respect to a particular Portfolio, by a resolution of the
Board of Directors of the Fund or by a vote of a majority of the outstanding
voting securities of such Portfolio. In the case of termination by the
Sub-Administrator, such termination shall not be effective until the Fund and
the Administrator shall have contracted with one or more persons to serve as
successor Sub-Administrator(s) for the Fund and such person(s) shall have
assumed such position.
14. MISCELLANEOUS.
14.1. NOTICES. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid: (a) if to the
Sub-Administrator, to SEI Fund Resources, 680 East Swedesford Road, Wayne, PA
19087-1658, Attention: General Counsel; (b) if to the Administrator, to
Pilgrim Baxter Fund Services, 1255 Drummers Lane, Suite 300, Wayne, PA
19087-1590, Attention: Brian Bereznak; and (c) if to the Fund, to The PBHG
Funds, Inc., 1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590, Attention:
Michael Harrington.
14.2. CAPTIONS. The captions contained in this Agreement are included
for convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
14.3. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles of Incorporation
or By-Laws, or any applicable statutory or regulatory requirement to which it
is subject or by which it is bound, or to relieve or deprive the Board of
Directors of its responsibility for and control of the conduct of the affairs
of the Fund.
14.4. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from
a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by
the United States courts or, in the absence of any controlling decision of any
such court, by rules, regulations, or orders of the SEC validly issued
pursuant to the 1940 Act. In addition, where the effect of a requirement of
the 1940 Act reflected in any provision of this Agreement is relaxed by a
rule, regulation, or order of the SEC, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation, or order.
14.5. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule, or otherwise, the remainder
of this Agreement shall not be affected thereby.
14.6. GOVERNING LAW. Except insofar as the 1940 Act or other federal
laws and regulations may be controlling, this Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: PBHG INSURANCE SERIES FUND, INC.
______________________________ By:___________________________________
Title:________________________ Title:_________________________________
ATTEST: PBHG FUND SERVICES
______________________________ By:___________________________________
Title:________________________ Title:_________________________________
ATTEST: SEI FUND RESOURCES
______________________________ By:___________________________________
Title:________________________ Title:_________________________________
SCHEDULE A
The Portfolios of the Fund that will receive services pursuant to this
Agreement are:
PBHG Growth II Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
Date: ________, 1997
FORM OF EXPENSE LIMITATION AGREEMENT
PBHG INSURANCE SERIES FUND, INC.
EXPENSE LIMITATION AGREEMENT, effective as of ______ __, 1997, by and
between Pilgrim Baxter & Associates, Ltd. (the "Adviser") and PBHG Insurance
Series Fund, Inc. (the "Fund"), on behalf of each series of the Fund set forth
in Schedule A (each a "Portfolio", and collectively, the "Portfolios").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated _____ __, 1997 (the "Articles"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
diversified management company of the series type, and each Portfolio is a
series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render
investment advisory services to each Portfolio for compensation based on the
value of the average daily net assets of each such Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of each Portfolio and its shareholders to maintain the
expenses of each Portfolio at a level below the level to which each such
Portfolio would normally be subject to during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. EXPENSE LIMITATION
1.1 APPLICABLE EXPENSE LIMIT. To the extent that the aggregate expenses of
every character incurred by a Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of such Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 OPERATING EXPENSE LIMIT. The Operating Expense Limit in any year shall
be 1.50% of the average daily net assets of each Portfolio, or such other rate
as may be agreed to in writing by the parties.
1.3 METHOD OF COMPUTATION. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
each Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month of a Portfolio exceed the
Operating Expense Limit of such Portfolio, the Adviser shall first waive or
reduce its investment management fee for such month by an amount sufficient to
reduce the annualized Portfolio Operating Expenses to an amount no higher than
the Operating Expense Limit. If the amount of the waived or reduced investment
advisory fee for any such month is insufficient to pay the Excess Amount, the
Adviser may also remit to the appropriate Portfolio or Portfolios an amount
that, together with the waived or reduced advisory fee, is sufficient to pay
such Excess Amount.
1.4 YEAR-END ADJUSTMENT. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio or
Portfolios with respect to the previous fiscal year shall equal the Excess
Amount.
2. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS.
2.1 REIMBURSEMENT. If in any year during which the total assets of a
Portfolio are greater than $75 million and in which the Advisory Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses of such
Portfolio for the fiscal year are less than the Operating Expense Limit for that
year, subject to quarterly approval by the Fund's Board of Directors as provided
in Section 2.2 below, the Adviser shall be entitled to reimbursement by such
Portfolio, in whole or in part as provided below, of the advisory fees waived or
reduced and other payments remitted by the Adviser to such Portfolio pursuant to
Section 1 hereof. The total amount of reimbursement to which the Adviser may be
entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all
investment advisory fees previously waived or reduced by the Adviser and all
other payments remitted by the Adviser to the Portfolio, pursuant to Section 1
hereof, during any of the previous two (2) fiscal years, less any reimbursement
previously paid by such Portfolio to the Adviser, pursuant to Sections 2.2 or
2.3 hereof, with respect to such waivers, reductions, and payments. The
Reimbursement Amount shall not include any additional charges or fees
whatsoever, including, e.g., interest accruable on the Reimbursement Amount.
2.2 BOARD APPROVAL. No reimbursement shall be paid to the Adviser pursuant
to this provision in any fiscal quarter, unless the Fund's Board of Directors
has determined that the payment of such reimbursement is in the best interests
of the Portfolio or Portfolios and their shareholders. The Fund's Board of
Directors shall determine quarterly in advance whether any reimbursement may be
paid to the Adviser in such quarter.
2.3 METHOD OF COMPUTATION. To determine each Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses of each Portfolio shall be annualized as of the last day of
the month. If the annualized Portfolio Operating Expenses of a Portfolio for any
month are less than the Operating Expense Limit of such Portfolio, such
Portfolio, only with the prior approval of the Board, shall pay to the Adviser
an amount sufficient to increase the annualized Portfolio Operating Expenses of
that Portfolio to an amount no greater than the Operating Expense Limit of that
Portfolio, provided that such amount paid to the Adviser will in no event exceed
the total Reimbursement Amount.
2.4 YEAR-END ADJUSTMENT. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses of a
Portfolio for the prior fiscal year (including any reimbursement payments
hereunder with respect to such fiscal year) do not exceed the Operating Expense
Limit.
3. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. MISCELLANEOUS.
4.1 CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 INTERPRETATION. Nothing herein contained shall be deemed to require
the Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolios.
4.3 DEFINITIONS. Any questions of interpretation of any term or provision
of this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Agreement or the 1940 Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: PBHG INSURANCE SERIES FUND, INC.
ON BEHALF OF EACH OF ITS SERIES
By:
_____________________________ _____________________________
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
By:
_____________________________ ______________________________
Secretary
SCHEDULE A
This Agreement relates to the following Portfolios of the Fund:
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
PBHG Small Cap Value Portfolio
PBHG Large Cap Value Portfolio
PBHG Technology & Communications Portfolio
PBHG Select 20 Portfolio
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the ___ day of ________, , by and
between PBHG INSURANCE SERIES FUND, INC. ("FUND"), a Maryland corporation,
PILGRIM BAXTER & ASSOCIATES, LTD. ("Adviser"), a Pennsylvania corporation, and
______________ ("LIFE COMPANY"), a life insurance company organized under the
laws of the State of __________.
WHEREAS, FUND is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the " 40 Act"),
as an open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series fund comprised of several
Portfolios ("Portfolios"), with those currently available being listed on
Appendix A hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts
("Separate Accounts") of such life insurance companies ("Participating
Insurance Companies"); and
WHEREAS, FUND may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, FUND will apply for an order from the SEC, granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 40 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Portfolios of the FUND to be sold to and held by Variable
Contract separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having FUND as one of the underlying funding vehicles for such
Variable Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940 and as a broker-dealer under the
Securities Exchange Act of 1934, as amended and acts as the FUND's investment
adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such shares
to LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
FUND, and ADVISER agree as follows:
Article I. SALE OF FUND SHARES
1.1 FUND agrees to make available to the Separate Accounts of LIFE
COMPANY shares of the selected Portfolios as listed on Appendix B for
investment of purchase payments of Variable Contracts allocated to the
designated Separate Accounts as provided in FUND's Registration Statement.
1.2 FUND agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of FUND which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by FUND or its
designee of the order for the shares of FUND. For purposes of this Section
1.2, LIFE COMPANY shall be the designee of FUND for receipt of such orders
from the designated Separate Account and receipt by such designee shall
constitute receipt by FUND; provided that LIFE COMPANY receives the order by
4:00 p.m. New York time and FUND receives notice from LIFE COMPANY by
telephone or facsimile (or by such other means as FUND and LIFE COMPANY may
agree in writing) of such order by 9:00 a.m. New York time on the next
following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which FUND calculates its net
asset value pursuant to the rules of the SEC.
1.3 FUND agrees to redeem on LIFE COMPANY's request, any full or
fractional shares of FUND held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by FUND or its
designee of the request for redemption, in accordance with the provisions of
this agreement and FUND's Registration Statement. For purposes of this
Section 1.3, LIFE COMPANY shall be the designee of FUND for receipt of
requests for redemption from the designated Separate Account and receipt by
such designee shall constitute receipt by FUND; provided that LIFE COMPANY
receives the request for redemption by 4:00 p.m. New York time and FUND
receives notice from LIFE COMPANY by telephone or facsimile (or by such other
means as FUND and LIFE COMPANY may agree in writing) of such request for
redemption by 9:00 a.m. New York time on the next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the shares of any Portfolio of FUND. LIFE COMPANY hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. FUND shall notify
LIFE COMPANY or its designee of the number of shares so issued as payment of
such dividends and distributions.
1.5 FUND shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use
its best efforts to make such net asset value available by 6:30 p.m. New York
time. If FUND provides LIFE COMPANY with materially incorrect share net asset
value information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of
the Separate Accounts, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct share net asset value.
Any material error in the calculation of net asset value per share, dividend
or capital gain information shall be reported promptly upon discovery to LIFE
COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar
amount of FUND shares which shall be purchased or redeemed at that day's
closing net asset value per share. The net purchase or redemption orders so
determined shall be transmitted to FUND by LIFE COMPANY by 9:00 a.m. New York
Time on the Business Day next following LIFE COMPANY's receipt of such
requests and premiums in accordance with the terms of Sections 1.2 and 1.3
hereof.
1.7 If LIFE COMPANY's order requests the purchase of FUND shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to FUND or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, FUND shall use its best
efforts to wire the redemption proceeds to LIFE COMPANY by the next Business
Day, unless doing so would require FUND to dispose of Portfolio securities or
otherwise incur additional costs. In any event, proceeds shall be wired to
LIFE COMPANY within three Business Days or such longer period permitted by the
'40 Act or the rules, orders or regulations thereunder and FUND shall notify
the person designated in writing by LIFE COMPANY as the recipient for such
notice of such delay by 3:00 p.m. New York Time the same Business Day that
LIFE COMPANY transmits the redemption order to FUND. If LIFE COMPANY's order
requests the application of redemption proceeds from the redemption of shares
to the purchase of shares of another Fund advised by ADVISER, FUND shall so
apply such proceeds the same Business Day that LIFE COMPANY transmits such
order to FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be sold
only to Participating Insurance Companies which have agreed to participate in
FUND to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h) of the Internal Revenue
Code of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of
the Portfolios of FUND will not be sold directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of or liquidate any Portfolio
of FUND if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Directors of the
FUND (the "Board"), acting in good faith and in light of its duties under
federal and any applicable state laws, deemed necessary, desirable or
appropriate and in the best interests of the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry
only. Stock certificates will not be issued to LIFE COMPANY or the Separate
Accounts. Shares ordered from Portfolio will be recorded in appropriate book
entry titles for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance
company duly organized and in good standing under the laws of
___________________ and that it has legally and validly established each
Separate Account as a segregated asset account under such laws, and that
___________________, the principal underwriter for the Variable Contracts, is
registered as a broker-dealer under the Securities Exchange Act of 1934 (the
"'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or,
prior to any issuance or sale of the Variable Contracts, will register each
Separate Account as a unit investment trust ("UIT") in accordance with the
provisions of the 40 Act and cause each Separate Account to remain so
registered to serve as a segregated asset account for the Variable Contracts,
unless an exemption from registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts
will be registered under the Securities Act of 1933 (the " 33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and further that the sale of the Variable Contracts shall comply in all
material respects with applicable state insurance law suitability
requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that
it will maintain such treatment and that it will notify FUND immediately upon
having a reasonable basis for believing that the Variable Contracts have
ceased to be so treated or that they might not be so treated in the future.
2.5 FUND represents and warrants that the Fund shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal and state laws, and FUND shall be
registered under the 40 Act prior to and at the time of any issuance or sale
of such shares. FUND, subject to Section 1.9 above, shall amend its
registration statement under the 33 Act and the 40 Act from time to time as
required in order to effect the continuous offering of its shares. FUND shall
register and qualify its shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately
diversify the Portfolio to achieve compliance.
2.7 FUND represents and warrants that each Portfolio invested in by the
Separate Account intends to elect to be treated as a "regulated investment
company" under Subchapter M of the Code, and to qualify for such treatment for
each taxable year and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 ADVISER represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal
laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 FUND shall prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of FUND.
FUND shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance
and transfer of its shares.
3.2 At least annually, FUND or its designee shall provide LIFE COMPANY,
free of charge, with as many copies of the current prospectus for the shares
of the Portfolios as LIFE COMPANY may reasonably request for distribution to
existing Variable Contract owners whose Variable Contracts are funded by such
shares. FUND or its designee shall provide LIFE COMPANY, at LIFE COMPANY's
expense, with as many copies of the current prospectus for the shares as LIFE
COMPANY may reasonably request for distribution to prospective purchasers of
Variable Contracts. If requested by LIFE COMPANY in lieu thereof, FUND or its
designee shall provide such documentation (including a "camera ready" copy of
the new prospectus as set in type or, at the request of LIFE COMPANY, as a
diskette in the form sent to the financial printer) and other assistance as is
reasonably necessary in order for the parties hereto once a year (or more
frequently if the prospectus for the shares is supplemented or amended) to
have the prospectus for the Variable Contracts and the prospectus for the FUND
shares printed together in one document. The expenses of such printing will be
apportioned between (a) LIFE COMPANY and (b) FUND in proportion to the number
of pages of the Variable Contract and FUND prospectus, taking account of other
relevant factors affecting the expense of printing, such as covers, columns,
graphs and charts; FUND to bear the cost of printing the FUND prospectus
portion of such document for distribution only to owners of existing Variable
Contracts funded by the FUND shares and LIFE COMPANY to bear the expense of
printing the portion of such documents relating to the Separate Account;
provided, however, LIFE COMPANY shall bear all printing expenses of such
combined documents where used for distribution to prospective purchasers or to
owners of existing Variable Contracts not funded by the shares. In the event
that LIFE COMPANY requests that FUND or its designee provide FUND's prospectus
in a "camera ready" or diskette format, FUND shall be responsible for
providing the prospectus in the format in which it is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (e.g. typesetting expenses), and LIFE COMPANY shall bear the expense of
adjusting or changing the format to conform with any of its prospectuses.
3.3 FUND will provide LIFE COMPANY with at least one complete copy of
all prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after
the filing of each such document with the SEC or other regulatory authority.
LIFE COMPANY will provide FUND with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to a Separate Account promptly
after the filing of each such document with the SEC or other regulatory
authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to FUND
and ADVISER, each piece of sales literature or other promotional material in
which FUND or ADVISER is named, at least fifteen (15) Business Days prior to
its intended use. No such material will be used if FUND or ADVISER objects to
its use in writing within ten (10) Business Days after receipt of such
material.
4.2 FUND and ADVISER will furnish, or will cause to be furnished, to
LIFE COMPANY, each piece of sales literature or other promotional material in
which LIFE COMPANY or its Separate Accounts are named, at least fifteen (15)
Business Days prior to its intended use. No such material will be used if
LIFE COMPANY objects to its use in writing within ten (10) Business Days after
receipt of such material.
4.3 FUND and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement
or prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission
of LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND or concerning FUND
other than the information or representations contained in a registration
statement or prospectus for FUND, as such registration statement and
prospectus may be amended or supplemented from time to time, or in sales
literature or other promotional material approved by FUND or its designee,
except with the written permission of FUND.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a
newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures or other
public media), sales literature (such as any written communication distributed
or made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts, or
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
registration statements, prospectuses, statements of additional information,
shareholder reports and proxy materials, and any other material constituting
sales literature or advertising under National Association of Securities
Dealers, Inc. ("NASD") rules, the 40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that FUND will be filing an application with
the SEC to request an order granting relief from various provisions of the '40
Act and the rules thereunder to the extent necessary to permit FUND shares to
be sold to and held by Variable Contract separate accounts of both affiliated
and unaffiliated Participating Insurance Companies and Qualified Plans. It is
anticipated that the Exemptive Order, when and if issued, shall require FUND
and each Participating Insurance Company to comply with conditions and
undertakings substantially as provided in this Section 5. If the Exemptive
Order imposes conditions materially different from those provided for in this
Section 5, the conditions and undertakings imposed by the Exemptive Order
shall govern this Agreement and the parties hereto agree to amend this
Agreement consistent with the Exemptive Order. The Fund will not enter into a
participation agreement with any other Participating Insurance Company unless
it imposes the same conditions and undertakings as are imposed on LIFE COMPANY
hereby.
5.2 The Board will monitor FUND for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of
all separate accounts investing in FUND. An irreconcilable material conflict
may arise for a variety of reasons, which may include: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling or any similar action by insurance, tax or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of FUND are being
managed; (e) a difference in voting instructions given by Variable Contract
owners; (f) a decision by a Participating Insurance Company to disregard the
voting instructions of Variable Contract owners and (g) if applicable, a
decision by a Qualified Plan to disregard the voting instructions of plan
participants.
5.3 LIFE COMPANY will report any potential or existing conflicts to the
Board. LIFE COMPANY will be responsible for assisting the Board in carrying
out its duties in this regard by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. The
responsibility includes, but is not limited to, an obligation by the LIFE
COMPANY to inform the Board whenever it has determined to disregard Variable
Contract owner voting instructions. These responsibilities of LIFE COMPANY
will be carried out with a view only to the interests of the Variable Contract
owners.
5.4 If a majority of the Board or majority of its disinterested
Directors, determines that a material irreconcilable conflict exists affecting
LIFE COMPANY, LIFE COMPANY, at its expense and to the extent reasonably
practicable (as determined by a majority of the Board's disinterested
Directors), will take any steps necessary to remedy or eliminate the
irreconcilable material conflict, including; (a) withdrawing the assets
allocable to some or all of the Separate Accounts from FUND or any Portfolio
thereof and reinvesting those assets in a different investment medium, which
may include another Portfolio of FUND, or another investment company; (b)
submitting the question as to whether such segregation should be implemented
to a vote of all affected Variable Contract owners and as appropriate,
segregating the assets of any appropriate group (i.e variable annuity or
variable life insurance Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
affected Variable Contract owners the option of making such a change; and (c)
establishing a new registered management investment company (or series
thereof) or managed separate account. If a material irreconcilable conflict
arises because of LIFE COMPANY's decision to disregard Variable Contract owner
voting instructions, and that decision represents a minority position or would
preclude a majority vote, LIFE COMPANY may be required, at the election of
FUND, to withdraw the Separate Account's investment in FUND, and no charge or
penalty will be imposed as a result of such withdrawal. The responsibility to
take such remedial action shall be carried out with a view only to the
interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict but in no event will
FUND or ADVISER (or any other investment adviser of FUND) be required to
establish a new funding medium for any Variable Contract. Further, LIFE
COMPANY shall not be required by this Section 5.4 to establish a new funding
medium for any Variable Contracts if any offer to do so has been declined by a
vote of a majority of Variable Contract owners materially and adversely
affected by the irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the
Board may fully carry out its obligations. Such reports, materials, and data
shall be submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the 40 Act
as requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. LIFE COMPANY will be
responsible for assuring that each of its Separate Accounts that participates
in FUND calculates voting privileges in a manner consistent with other
Participating Insurance Companies. LIFE COMPANY will vote shares for which it
has not received timely voting instructions, as well as shares it owns, in the
same proportion as its votes those shares for which it has received voting
instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
40 Act or the rules thereunder with respect to mixed and shared funding on
terms and conditions materially different from any exemptions granted in the
Exemptive Order, then FUND, and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule
6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent
such Rules are applicable.
Article VII. INDEMNIFICATION
7.1 INDEMNIFICATION BY LIFE COMPANY. LIFE COMPANY agrees to indemnify
and hold harmless FUND, ADVISER and each of their directors, principals,
officers, employees and agents and each person, if any, who controls FUND or
ADVISER within the meaning of Section 15 of the 33 Act (collectively, the
"Indemnified Parties" for purposes of this Article VII) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of LIFE COMPANY, which consent shall not be
unreasonably withheld) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of FUND's shares or the
Variable Contracts and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration Statement
or prospectus for the Variable Contracts or contained in the Variable
Contracts (or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in conformity
with information furnished to LIFE COMPANY by or on behalf of FUND for use in
the registration statement or prospectus for the Variable Contracts or in the
Variable Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Variable Contracts or
FUND shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of FUND not supplied by LIFE
COMPANY, or persons under its control) or wrongful conduct of LIFE COMPANY or
persons under its control, with respect to the sale or distribution of the
Variable Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus, or sales
literature of FUND or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to FUND by or on
behalf of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in this Agreement or arise
out of or result from any other material breach of this Agreement by LIFE
COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify LIFE COMPANY
of any such claim shall not relieve LIFE COMPANY from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against an Indemnified Party, LIFE COMPANY shall be entitled
to participate at its own expense in the defense of such action. LIFE COMPANY
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from LIFE COMPANY
to such party of LIFE COMPANY's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and LIFE COMPANY will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
7.4 INDEMNIFICATION BY ADVISER. ADVISER agrees to indemnify and hold
harmless LIFE COMPANY and each of its directors, officers, employees, and
agents and each person, if any, who controls LIFE COMPANY within the meaning
of Section 15 of the 33 Act (collectively, the "Indemnified Parties" for the
purposes of this Article VII) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
ADVISER which consent shall not be unreasonably withheld) or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or acquisition of
FUND's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
or prospectus or sales literature of FUND (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to ADVISER or
FUND by or on behalf of LIFE COMPANY for use in the registration statement or
prospectus for FUND or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Variable Contracts or
FUND shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts not
supplied by ADVISER or persons under its control) or wrongful conduct of FUND
or ADVISER or persons under their control, with respect to the sale or
distribution of the Variable Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity with
information furnished to LIFE COMPANY for inclusion therein by or on behalf of
FUND; or
(d) arise as a result of (i) a failure by FUND to provide
substantially the services and furnish the materials under the terms of this
Agreement; or (ii) a failure by a Portfolio(s) invested in by the Separate
Account to comply with the diversification requirements of Section 817(h) of
the Code; or (iii) a failure by a Portfolio(s) invested in by the Separate
Account to qualify as a "regulated investment company" under Subchapter M of
the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by ADVISER in this Agreement or arise out
of or result from any other material breach of this Agreement by ADVISER.
7.5 ADVISER shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to
which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
7.6 ADVISER shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified ADVISER in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify ADVISER of any such claim shall not
relieve ADVISER from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, ADVISER shall be entitled to participate at its own
expense in the defense thereof. ADVISER also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from ADVISER to such party of ADVISER's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and ADVISER will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or FUND at any time from the date
hereof upon 180 days' notice, unless a shorter time is agreed to by the
parties;
(b) At the option of LIFE COMPANY, if FUND shares are not
reasonably available to meet the requirements of the Variable Contracts as
determined by LIFE COMPANY. Prompt notice of election to terminate shall be
furnished by LIFE COMPANY, said termination to be effective ten days after
receipt of notice unless FUND makes available a sufficient number of shares
to reasonably meet the requirements of the Variable Contracts within said
ten-day period;
(c) At the option of LIFE COMPANY, upon the institution of formal
proceedings against FUND by the SEC, the NASD, or any other regulatory body,
the expected or anticipated ruling, judgment or outcome of which would, in
LIFE COMPANY's reasonable judgment, materially impair FUND's ability to meet
and perform FUND's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by LIFE COMPANY with said termination
to be effective upon receipt of notice;
(d) At the option of FUND, upon the institution of formal
proceedings against LIFE COMPANY by the SEC, the NASD, or any other regulatory
body, the expected or anticipated ruling, judgment or outcome of which would,
in FUND's reasonable judgment, materially impair LIFE COMPANY's ability to
meet and perform its obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by FUND with said termination to be
effective upon receipt of notice;
(e) In the event FUND's shares are not registered, issued or sold
in accordance with applicable state or federal law, or such law precludes the
use of such shares as the underlying investment medium of Variable Contracts
issued or to be issued by LIFE COMPANY. Termination shall be effective upon
such occurrence without notice;
(f) At the option of FUND if the Variable Contracts cease to
qualify as annuity contracts or life insurance contracts, as applicable, under
the Code, or if FUND reasonably believes that the Variable Contracts may fail
to so qualify. Termination shall be effective upon receipt of notice by LIFE
COMPANY;
(g) At the option of LIFE COMPANY, upon FUND's breach of any
material provision of this Agreement, which breach has not been cured to the
satisfaction of LIFE COMPANY within ten days after written notice of such
breach is delivered to FUND;
(h) At the option of FUND, upon LIFE COMPANY's breach of any
material provision of this Agreement, which breach has not been cured to the
satisfaction of FUND within ten days after written notice of such breach is
delivered to LIFE COMPANY;
(i) At the option of FUND, if the Variable Contracts are not
registered, issued or sold in accordance with applicable federal and/or state
law. Termination shall be effective immediately upon such occurrence without
notice;
(j) In the event this Agreement is assigned without the prior
written consent of LIFE COMPANY, FUND, and ADVISER, termination shall be
effective immediately upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to
Section 8.2 hereof, FUND at its option may elect to continue to make available
additional FUND shares, as provided below, for so long as FUND desires
pursuant to the terms and conditions of this Agreement, for all Variable
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if FUND so elects to make additional FUND shares available, the
owners of the Existing Contracts or LIFE COMPANY, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in FUND,
redeem investments in FUND and/or invest in FUND upon the payment of
additional premiums under the Existing Contracts. In the event of a
termination of this Agreement pursuant to Section 8.2 hereof, FUND and
ADVISER, as promptly as is practicable under the circumstances, shall notify
LIFE COMPANY whether FUND elects to continue to make FUND shares available
after such termination. If FUND shares continue to be made available after
such termination, the provisions of this Agreement shall remain in effect and
thereafter either FUND or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 8.3, upon sixty (60) days prior written
notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the
Separate Accounts), and LIFE COMPANY shall not prevent Variable Contract
owners from allocating payments to a Portfolio that was otherwise available
under the Variable Contracts until thirty (30) days after the LIFE COMPANY
shall have notified FUND of its intention to do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail
return receipt requested to the other party at the address of such party set
forth below or at such other address as such party may from time to time
specify in writing to the other party.
If to FUND, or ADVISER.
Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerr, Esq.
If to LIFE COMPANY:
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
It shall also be subject to the provisions of the federal securities laws and
the rules and regulations thereunder and to any orders of the SEC granting
exemptive relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Directors or officers of FUND
or any Portfolio shall be personally liable hereunder. No Portfolio shall be
liable for the liabilities of any other Portfolio. All persons dealing with
FUND or a Portfolio must look solely to the property of FUND or that
Portfolio, respectively, for enforcement of any claims against FUND or that
Portfolio. It is also understood that each of the Portfolios shall be deemed
to be entering into a separate Agreement with LIFE COMPANY so that it is as if
each of the Portfolios had signed a separate Agreement with LIFE COMPANY and
that a single document is being signed simply to facilitate the execution and
administration of the Agreement.
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
10.8 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by FUND,
ADVISER and the LIFE COMPANY.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Fund Participation Agreement as of the date and year
first above written.
PBHG INSURANCE SERIES FUND, INC.
By:_______________________________________
Name:
Title:
PILGRIM BAXTER & ASSOCIATES, LTD.
By:_______________________________________
Name:
Title:
LIFE COMPANY
By:________________________________________
Name:
Title:
APPENDIX A
PBHG INSURANCE SERIES FUND, INC. - PORTFOLIOS
PBHG Growth II
PBHG Large Cap Growth
PBHG Technology & Communications
PBHG Select 20
PBHG Small Cap Value
PBHG Large Cap Value
APPENDIX B
SEPARATE ACCOUNTS SELECTED PORTFOLIOS
PBHG INSURANCE SERIES FUND, INC.
FORM OF
ORGANIZATIONAL EXPENSE
REIMBURSEMENT AGREEMENT
This Agreement is made this ___ day of __________ 1997, by and between the
PBHG Insurance Series Fund, Inc. (the "Fund"), on behalf of each series of the
Fund set forth in Schedule A (each a "Portfolio," and collectively, the
"Portfolios"), and Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter").
WHEREAS, the Fund is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended; and
WHEREAS, there have been certain necessary organizational expenses
incurred as a part of such process, which are proper expenses of the
Portfolio, that have been and will in the future be paid by Pilgrim Baxter and
affiliated companies of Pilgrim Baxter, by reason of the fact that each
Portfolio was not capitalized when such expenses were incurred (such expenses
hereinafter referred to as "Organizational Expenses");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. Effective as of the initial public offering of shares of each
Portfolio, the Fund shall be obligated to reimburse and pay to Pilgrim Baxter,
or such affiliated companies of Pilgrim Baxter as Pilgrim Baxter may
designate, the amounts expended and to be expended by Pilgrim Baxter and its
affiliates for Organizational Expenses.
2. Such reimbursements shall be paid by the Fund promptly upon the
demand of Pilgrim Baxter. Upon demand for payment, Pilgrim Baxter shall
present copies of invoices of receipts, copies of canceled checks or other
evidence of payment of the Organizational Expenses for which it is demanding
reimbursement from the Fund.
PBHG INSURANCE SERIES FUND, INC.
By: _______________________________
Title: ______________________________
PILGRIM BAXTER & ASSOCIATES, LTD.
By: ________________________________
Title: _______________________________
SCHEDULE A
This Agreement relates to the following Portfolios of the Fund:
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
PBHG Small Cap Value Portfolio
PBHG Large Cap Value Portfolio
PBHG Technology & Communications Portfolio
PBHG Select 20 Portfolio
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 8, 1997
Board of Directors
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane
Suite 300
Wayne, PA 19087-1590
Re: Opinion of Counsel - PBHG Insurance Series Fund, Inc.
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission of a Pre-Effective Amendment to a
Registration Statement on Form N-1A with respect to PBHG Insurance Series
Fund, Inc.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
We are of the following opinions:
1. PBHG Insurance Series Fund, Inc. ("Fund") is an open-end management
investment company.
2. The Fund is created and validly existing pursuant to the Maryland
Laws.
3. All of the prescribed Fund procedures for the issuance of the shares
have been followed, and, when such shares are issued in accordance with the
Prospectus contained in the Registration Statement for such shares, all state
requirements relating to such Fund shares will have been complied with.
4. Upon the acceptance of purchase payments made by shareholders in
accordance with the Prospectus contained in the Registration Statement and
upon compliance with applicable law, such shareholders will have
legally-issued, fully paid, non-assessable shares of the Fund.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/ RAYMOND A. O'HARA III
____________________________
Raymond A. O'Hara III
KATTEN MUCHIN & ZAVIS
1025 THOMAS JEFFERSON STREET, N.W. * EAST LOBBY * SUITE 700
CHICAGO, IL TELEPHONE
IRVINE, CA (202) 625-3500
LOS ANGELES, CA TELECOPIER
NEW YORK, NY (202) 298-7570
PLEASE RESPOND TO WRITER'S DIRECT DIAL NUMBER
WASHINGTON, D.C. (202) 625-3781
April 7, 1997
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Re: Consent of Counsel
__________________
Dear Gentleman:
This consent is given in connection with the filing by the PBHG Insurance Series
Fund, Inc. (the "Fund"), a Maryland corporation, of Pre-Effective Amendment No.
1 to its Registration Statement (File No. 333-19497/811-8009) on Form N-1A (the
"Registration Statement") under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended. We consent to the use of this letter
as an exhibit to the Registration Statement and to the reference to Katten
Muchin & Zavis under the caption "Counsel and Independent Public Accountants" in
the Prospectus comprising a part of the Registration Statement.
Very truly yours,
/S/ KATTEN MUCHIN & ZAVIS
KATTEN MUCHIN & ZAVIS
A LAW PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated April 8, 1997 on our audit of
the Statement of Assets and Liabilities of PBHG Insurance Series Fund, Inc.,
comprised of the Growth II Portfolio, the Large Cap Growth Portfolio, the Small
Cap Value Portfolio, the Large Cap Value Portfolio, the Technology &
Communications Portfolio, and the Select 20 Portfolio, as of April 4, 1997 with
respect to this Pre-Effective Amendment No. 1 to the Registration Statement (No.
333-19497) under the Securities Act of 1933 on Form N-1A. We also consent to the
reference to our Firm under the heading "Counsel and Independent Accountants" in
the Prospectus and under the heading "Financial Statements" in the Statement of
Additional Information.
/s/COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 8, 1997
FORM OF STOCK SUBSCRIPTION AGREEMENT
THIS AGREEMENT by and between Pilgrim Baxter & Associates, Ltd. ("Pilgrim
Baxter") and the PBHG Insurance Series Fund, Inc. ("PBHG Insurance Fund"), a
corporation organized and existing under and by virtue of the laws of the
State of Maryland.
In consideration of the mutual promises set forth herein, the parties agree as
follows:
1. The PBHG Insurance Fund agrees to sell to Pilgrim Baxter and Pilgrim
Baxter hereby subscribes to purchase the specified number of shares of common
stock of the following six (6) series of the PBHG Insurance Fund: 1,667
shares of the PBHG Growth II Portfolio; 1,667 shares of the PBHG Large Cap
Growth Portfolio; 1,667 shares of the PBHG Small Cap Value Portfolio; 1,667
shares of the PBHG Large Cap Value Portfolio; 1,666 shares of the PBHG
Technology and Communications Portfolio; and 1,666 of the PBHG Select 20
Portfolio (together, the "Shares"), each with a par value of $.01 per Share,
at a price of ten dollars ($10.00) per each Share.
2. Pilgrim Baxter agrees to pay $100,000 for all such Shares at the time
of their issuance, which shall occur upon call of the President of the PBHG
Insurance Fund, at any time on or before the effective date of the PBHG
Insurance Fund's Registration Statement filed by the PBHG Insurance Fund on
Form N-1A with the Securities and Exchange Commission ("Registration
Statement") on January 9, 1997.
3. Pilgrim Baxter acknowledges that the Shares to be purchased hereunder
have not been, and will not be, registered under the federal securities laws
and that, therefore, the PBHG Insurance Fund is relying on certain exemptions
from such registration requirements, including exemptions dependent on the
intent of the undersigned in acquiring the Shares. Pilgrim Baxter also
understands that any resale of the Shares, or any part thereof, may be subject
to restrictions under the federal securities laws, and that Pilgrim Baxter may
be required to bear the economic risk of any investment in the Shares for an
indefinite period of time.
4. Pilgrim Baxter represents and warrants that it is acquiring the
Shares solely for its own account and solely for investment purposes and not
with a view to the resale or disposition of all or any part thereof, and that
it has no present plan or intention to sell or otherwise dispose of the Shares
or any part thereof.
5. Pilgrim Baxter agrees that it will not sell or dispose of the Shares
or any part thereof unless the Registration Statement with respect to such
Shares is then in effect under the Securities Act of 1933, as amended.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their
duly authorized representatives this 6th day of March, 1997.
PILGRIM BAXTER & ASSOCIATES, LTD.
By:__________________________________
Harold J. Baxter
Title: Chairman & Chief Executive
Officer
PBHG INSURANCE SERIES FUND, INC.
By:___________________________________
Gary Pilgrim
Title: President
