As filed with the Securities and Exchange Commission
on October 3, 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 [X]
Pre-Effective Amendment [ ]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2 [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:
William H. Rheiner, Esq. and to John M. Zerr, Esq.
Ballard Spahr Andrews & Ingersoll Pilgrim Baxter & Associates, Ltd.
1735 Market Street, 51st Floor 1255 Drummers Lane, Suite 300
Philadelphia, PA 19103-7599 Wayne, PA 19087-1590
(215) 864-8600 (610) 341-9000
Approximate Date of
Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
It is proposed that this filing will become effective (check appropriate box)
|X| immediately upon filing pursuant to paragraph (b)
| | on (date) pursuant to paragraph (b)
| | 60 days after filing pursuant to paragraph (a)(1)
| | on (date) pursuant to paragraph (a)(1)
| | 75 days after filing pursuant to paragraph (a)(2)
| | on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
| | this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Calculation of Registration Fee under the Securities Act of 1933:
Registrant continues its election to register an indefinite number of
securities under the Securities Act of 1933 pursuant to Investment
Company Act Rule 24f-2.
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PBHG INSURANCE SERIES FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 404 (c))
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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
5A. Management's Discussion of Not Applicable
Fund Performance
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 OCTOBER 3, 1997
PBHG Insurance Series Fund, Inc. (the "Fund") is an open-end management
investment company authorized to issue multiple series of shares, each
representing a 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 SEC maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information, material incorporated
by reference and other information regarding the Fund and other registrants
that file electronically with the SEC. 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 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., a wholly-owned
subsidiary of the Adviser, 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, a
wholly-owned subsidiary of the Adviser, 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 Investments Distribution Co. 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.
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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>
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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.
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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, a diversified 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, a diversified 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, a diversified 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, a diversified 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, a diversified 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, a non-diversified 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. Except for the Select 20 Portfolio, 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.
With respect to the Select 20 Portfolio only, purchase securities of any
issuer (except securities issued or guaranteed by the United States, its
agencies and 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 securities of such issuer. This restriction applies to 50%
of the Select 20 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. The Select 20 Portfolio does not yet have its own performance.
The Large Cap Growth and Technology & Communications Portfolios do not have
performance records of historical significance. However, the Large Cap Growth,
Technology & Communications and Select 20 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 performance data for the Large Cap Growth and Technology
and Communications Portfolios. Also 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 PBHG Large Cap Growth and PBHG Technology & Communications Fund
and the aggregate total return since inception for the PBHG Large Cap 20 Fund.
LARGE CAP GROWTH PORTFOLIO
1 Year Since Inception
------- ----------------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Large Cap Growth Fund 19.38% 32.50%
The Large Cap Growth Portfolio has been in operation since May 1, 1997. The
aggregate total return for the period May 1, 1997 through September 30, 1997 was
19.60%.
TECHNOLOGY & COMMUNICATIONS PORTFOLIO
1 Year Since Inception
------- ---------------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Technology &
Communications Fund 34.69% 49.64%
The Technology & Communications Portfolio has been in operation since May 1,
1997. The aggregate total return for the period May 1, 1997 through September
30, 1997 was 22.90%.
SELECT 20 PORTFOLIO
Since Inception
---------------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Large Cap 20 Fund 29.14%
Results shown are through the period ended September 30, 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:
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%
(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.
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 has been in operation since May 1, 1997. The aggregate
total return for the period from May 1, 1997 through September 30, 1997 was
14.40%. 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* -1.81% 18.01% 11.82%
S&P 500 Stock Index 40.33% 20.75% 14.76%
</TABLE>
Results shown are through the period ended September 30, 1997. 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. The Sub-Adviser is
a wholly-owned subsidiary of the Adviser. 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 Investments Distribution Co. (the "Distributor"), One Freedom Valley Road,
Oaks, Pennsylvania 19456, 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
Ballard Spahr Andrews & Ingersoll 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 October 3, 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
October 3, 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,
except for the Select 20 Portfolio for which the restriction applies to 50%
of its 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 One
Freedom Valley Road, Oaks, Pennsylvania 19456. 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 Investments Distribution Co. (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.
___________________
* 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
</TABLE>
* 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.
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 Consent of Counsel
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.
** Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A (File No. 333-19497) as filed electronically with the
Commission on April 8, 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 Investments Distribution, Co., 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.
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-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 3rd day of October, 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 Post-
Effective Amendment No. 1 to the Registration Statement has been signed below
by the following persons on the 3rd day of October, 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 10/3/97
- - ------------------------ 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
Exhibit Sequentially
Number Description Numbered Pages
EX-99.B10 Consent of Counsel (Ballard Spahr Andrews & Ingersoll)
EX-99.B11 Consent of Independent Accountants
CONSENT OF COUNSEL
PBHG Insurance Series Fund, Inc.
We hereby consent to the use of our name and to the reference to our firm
under the caption "General Information - Counsel and Independent Accountants"
in the Prospectus for PBHG Insurance Series Fund, Inc. (the "Company"), which
is included in Post-Effective Amendment No. 1 to the Registration Statement
under the Securities Act of 1933 (No. 333-19497) and Amendment No. 2 to the
Registration Statement under the Investment Company Act of 1940 (No.
811-08009) on Form N-1A of the Company.
/s/ Ballard Spahr Andrews & Ingersoll
-------------------------------------
Philadelphia, Pennsylvania
October 3, 1997
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 Post-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
October 3, 1997
