As filed with the Securities and Exchange Commission
on January 9, 1997
Registration Nos. 33_
811_8009
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N_1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre_Effective Amendment No. [ ]
Post_Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
(Check appropriate box or boxes.)
PBHG INSURANCE SERIES FUND, INC.
_________________________________________________
(Exact name of registrant as specified in charter)
1255 Drummers Lane
Suite 300
Wayne, Pennsylvania 19087-1590
________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 341-9000
Harold J. Baxter
1255 Drummers Lane
Suite 300
Wayne, Pennsylvania 19087-1590
(Name and Address of Agent For Service)
Copies to:
Raymond A. O'Hara III, Esq. and to John M. Zerr, Esq.
Blazzard, Grodd & Hasenauer, P.C. Pilgrim Baxter & Associates, Ltd.
P.O. Box 5108 1255 Drummers Lane, Suite 300
Westport, CT 06881 Wayne, PA 19087-1590
(203) 226-7866 (610) 341-9000
Approximate Date of
Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Calculation of Registration Fee under the Securities Act of 1933:
Registrant is registering an indefinite number of securities under
the Securities Act of 1933 pursuant to Investment Company Act Rule 24f_2.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
PBHG INSURANCE SERIES FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 404 (c))
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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
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
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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.
1255 DRUMMERS LANE, SUITE 300
WAYNE, PENNSYLVANIA 19087-1590
PROSPECTUS DATED MAY 1, 1997
PBHG Insurance Series Fund, Inc. (the "Fund") is an open-end diversified
management investment company authorized to issue multiple series of shares,
each representing a diversified portfolio of investments (individually, a
"Portfolio" and collectively, the "Portfolios"). The Fund currently has
authorized six series.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. The Fund's shares are
offered only to (a) insurance companies ("Participating Insurance Companies")
to fund benefits under their variable annuity contracts ("VA Contracts") and
variable life insurance policies ("VLI Policies") and (b) tax-qualified
pension and retirement plans ("Qualified Plans"), including
participant-directed Qualified Plans which elect to make the Portfolios
available as investment options for Qualified Plan Participants.
Please read this Prospectus carefully and retain it for future reference. This
Prospectus should be read in conjunction with the prospectuses issued by the
Participating Insurance Companies for the VA Contracts and VLI Policies that
accompany this Prospectus or with the Qualified Plan documents or other
informational materials supplied by Qualified Plan sponsors. Additional
information about the Fund and the Portfolios is contained in a Statement of
Additional Information which has been filed with the Securities and Exchange
Commission (the "SEC") and is available to investors without charge by calling
the Fund at 1-800-433-0051. 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 1
EXPENSE SUMMARY 3
INVESTMENT OBJECTIVES AND POLICIES 4
GENERAL INVESTMENT POLICIES AND STRATEGIES 8
RISK FACTORS 10
INVESTMENT LIMITATIONS 11
PURCHASES AND REDEMPTIONS 12
NET ASSET VALUE 13
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS 13
PERFORMANCE ADVERTISING 13
GENERAL INFORMATION 17
GLOSSARY OF PERMITTED INVESTMENTS 21
SUMMARY
THE FUND
The Fund is an open-end diversified management investment company which
currently offers shares of six Portfolios as follows: the PBHG Growth II
Portfolio (the "Growth II Portfolio"), PBHG Large Cap Growth Portfolio (the
"Large Cap Growth Portfolio"), PBHG Small Cap Value Portfolio (the "Small Cap
Value Portfolio"), PBHG Large Cap Value Portfolio (the "Large Cap Value
Portfolio"), PBHG Technology & Communications Portfolio (the "Technology &
Communications Portfolio") and PBHG Select 20 Portfolio (the "Select 20
Portfolio"). Each of the Portfolios has distinct investment objectives and
policies. See "Investment Objectives and Policies." Additional Portfolios may
be added to the Fund in the future. This Prospectus will be supplemented or
amended to reflect the addition of any new Portfolios.
This summary, which provides basic information about the Portfolios and the
Fund, is qualified in its entirety by reference to the more detailed
information provided elsewhere in this Prospectus and in the Statement of
Additional Information.
WHAT ARE THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS? The Growth II Portfolio
seeks capital appreciation. The Large Cap Growth and Technology &
Communications Portfolios each seek long-term growth of capital. The Small Cap
Value Portfolio seeks to achieve above-average total return over a market
cycle of three to five years. The Large Cap Value Portfolio seeks long-term
growth of capital and income. Current income is a secondary objective. The
Select 20 Portfolio seeks long-term capital appreciation. There can be no
assurance that a Portfolio will achieve its investment objective. Each
Portfolio will invest primarily in a variety of equity securities in
accordance with its particular investment program and policies. The Growth II
Portfolio invests primarily in equity securities of small and medium
capitalization companies believed by Pilgrim Baxter & Associates, Ltd. (the
"Adviser") to have an outlook for strong earnings growth and the potential for
significant capital appreciation. The Large Cap Growth Portfolio invests
primarily in equity securities of larger capitalization companies that are
perceived by the Adviser to have a strong potential for capital appreciation.
The Small Cap Value Portfolio invests primarily in a diversified portfolio of
equity securities with market capitalizations in the range of companies
represented in the Russell 2000 Index which are deemed by the Adviser and
Newbolds 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. See "Investment Objectives and Policies" and "Glossary of Permitted
Investments."
WHO IS THE ADVISER? Pilgrim Baxter & Associates, Ltd. serves as the
investment adviser to each Portfolio. Newbold's Asset Management, Inc. serves
as the investment sub-adviser to the Small Cap Value and Large Cap Value
Portfolios. See "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."
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 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
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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 and, with respect to the Small Cap Value and Large Cap Value
Portfolios, the Sub-Adviser, have voluntarily agreed to waive or limit their
Advisory and Sub-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. Such
waiver of Advisory and Sub-Advisory Fees and possible assumptions of Other
Expenses by the Adviser and Sub-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%; .85%
and 1.28%; .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 ------ ------
Large Cap Growth Portfolio $ 11.21 $ 34.30
Small Cap Value Portfolio $ 12.23 $ 37.39
Large Cap Value Portfolio $ 10.20 $ 31.22
Technology & Communications Portfolio $ 12.23 $ 37.39
Select 20 Portfolio $ 12.23 $ 37.39
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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" and "The Administrator."
INVESTMENT OBJECTIVES AND POLICIES
GROWTH II PORTFOLIO
The Growth II Portfolio seeks capital appreciation. The Portfolio will
normally be as fully invested as practicable in common stocks and securities
convertible into common stocks, but also may invest up to 5% of its assets in
warrants and rights to purchase common stocks. In the opinion of the Adviser,
there may be times when the shareholders' interests are best served and the
investment objective is more likely to be achieved by having varying amounts
of the Portfolio's assets invested in convertible securities. Under normal
market conditions, the Portfolio will invest at least 65% of its total assets
in common stocks and convertible securities of small and medium sized growth
companies (market capitalization or annual revenues up to $4 billion). The
average market capitalizations of holdings in the Portfolio may, however,
fluctuate over time as a result of market valuation levels and the
availability of specific investment opportunities. In addition, the Portfolio
may continue to hold securities of companies whose market capitalizations or
annual revenues grow above $4 billion subsequent to purchase, if the company
continues to satisfy the other investment policies of the Portfolio.
The Portfolio will seek to achieve its objective by investing in companies
believed by the Adviser to have an outlook for strong earnings growth and the
potential for significant capital appreciation. Securities will be sold when
the Adviser believes that anticipated appreciation is no longer probable,
alternative investments offer superior appreciation prospects, or the risk of
a decline in market price is too great. Because of its policy with respect to
the sales of investments, the Portfolio may from time to time realize
short-term gains or losses. The Portfolio will likely have somewhat greater
volatility than the stock market in general, as measured by the S&P 500 Index.
Because the investment techniques employed by the Adviser are responsive to
near-term earnings trends of the companies whose securities are owned by the
Portfolio, portfolio turnover can be expected to be fairly high.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market.
The Portfolio may invest up to 15% of its total assets in securities of
foreign issuers (including American Depositary Receipts ("ADRs")), and may
invest up to 15% of its net assets in illiquid securities. This limitation
does not include any Rule 144A security that has been determined to be liquid
pursuant to procedures established by the Board. See "Glossary of Permitted
Investments."
LARGE CAP GROWTH PORTFOLIO
The Large Cap Growth Portfolio seeks long-term growth of capital. The
Portfolio will normally be substantially invested in equity securities
(including ADRs and foreign securities). The equity securities in which the
Portfolio will invest are common stocks, warrants and rights to purchase
common stocks, and debt securities and preferred stock convertible into common
stocks. Normally, the Portfolio will purchase exchange-traded and
over-the-counter equity securities, including foreign securities traded in the
United States. The Portfolio may invest in convertible debt securities rated
investment grade by a nationally recognized statistical rating organization
("NRSRO") (i.e., within one of the four highest rating categories).
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks of large capitalization companies that, in the
Adviser's opinion, have an outlook for strong growth in earnings and potential
for capital appreciation. Such companies have market capitalizations in excess
of $1 billion. The Adviser also will consider the diversity of industries in
choosing investments for the Portfolio.
While it has no present intention to do so, the Portfolio reserves the right
to invest up to 10% of its net assets in restricted securities and securities
of foreign issuers traded outside the United States and Canada and, for
hedging purposes only, to purchase and sell options on stocks and stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities, but will not invest more than 5% of its net assets in restricted
securities that the Adviser determines are illiquid based on guidelines
approved by the Board of Directors of the Fund. See "Glossary of Permitted
Investments."
SMALL CAP VALUE PORTFOLIO
The Small Cap Value Portfolio seeks to achieve above-average total return over
a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks with equity
capitalizations in the range of companies represented in the Russell 2000
Index which are deemed by the Adviser to be relatively undervalued based on
certain proprietary measures of value. The Portfolio will typically exhibit
lower price/earnings and price/book value ratios than the Russell 2000.
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 value and capital
appreciation potential: the relationship of a company's potential earnings
power to its current stock price; low price/earnings ratio; 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 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 asset in securities of foreign issuers, including ADRs, and may also
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 or defensive purposes, 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
"Glossary of Permitted Investments" in this Prospectus for a fuller
description of the Portfolio's securities and their risks.
LARGE CAP VALUE PORTFOLIO
The Large Cap Value Portfolio seeks long-term growth of capital and income.
Current income is a secondary objective. Under normal market conditions, the
Portfolio will invest at least 65% of its total assets in a diversified
portfolio of equity securities (i.e., common stocks, preferred stocks, rights,
warrants and securities convertible into or exchangeable for common stocks) of
large capitalization companies which, in the opinion of the Adviser and
Sub-Adviser, are undervalued or overlooked by the market. Such large companies
have market capitalizations in excess of $1 billion at the time of purchase.
In selecting investments for the Portfolio, the Adviser and Sub-Adviser
emphasize fundamental investment value and consider the following factors,
among others, in identifying and analyzing a security's fundamental value: the
relationship of a company's potential earning power to the current market
price of its stock; continuing dividend income and the potential for
increasing dividend growth; a strong balance sheet with low financial
leverage; low price/earnings ratio relative to either that company's
historical results or the current ratios for other similar companies; and
potential for favorable business developments. The Portfolio may invest in
equity securities of companies that are considered to be financially sound and
attractive investments based on their long-term operating history, but which
may be experiencing temporary earnings declines due to adverse economic
conditions that may be company or industry specific or due to unfavorable
publicity. The Portfolio may invest in such companies when the Adviser and
Sub-Adviser believe that those companies will react positively to changing
economic conditions or that such companies have taken or are expected to take
actions designed to return their earnings to historical levels or otherwise
increase the market price of their securities.
The equity securities in which the Portfolio invests normally will be traded
in the United States or Canada on a registered securities exchange or
established over-the-counter market. The Portfolio may invest up to 15% of its
total assets in securities of foreign issuers, including ADRs, and may also
invest up to 15% of its net assets in restricted or illiquid securities. The
Portfolio may use high-quality money market investments or short-term bonds to
reduce downside volatility during uncertain or declining market conditions.
For temporary or defensive purposes, the Portfolio may invest in money market
securities or short-term bonds without limitation. The Portfolio may purchase
securities on a when-issued or delayed delivery basis.
The utilization of a valuation approach may result in investment selections
that may be out-of-favor or counter to those of other investors. However, such
an approach may also produce significant capital appreciation. See "Glossary
of Permitted Investments" in this Prospectus for a fuller description of the
Portfolio's securities and their risks.
TECHNOLOGY & COMMUNICATIONS PORTFOLIO
The Technology & Communications Portfolio seeks long-term growth of capital.
Current income is incidental to the Portfolio's objective. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in
common stocks of companies which rely extensively on technology or
communications in their product development or operations, or which are
expected to benefit from technological advances and improvements, and that may
be experiencing exceptional growth in sales and earnings driven by technology-
or communication-related products and services.
Such technology and communications companies may be in many different
industries or fields, including computer software and hardware, electronic
components and systems, network and cable broadcasting, telecommunications,
mobile communications, satellite communications, defense and aerospace,
transportation systems, data storage and retrieval, biotechnology and medical,
and environmental. As a result of this focus, the Portfolio offers investors
the significant growth potential of companies that may be responsible for
breakthrough products or technologies or that are positioned to take advantage
of cutting-edge developments.
The Portfolio will normally be fully invested in common stocks (including
ADRs) of such technology and communications companies, but also may invest in
warrants and rights to purchase common stocks and debt securities and
preferred stocks convertible into common stocks. Stock selections will not be
based on company size, but rather on an assessment of a company's fundamental
prospects. As a result, the Portfolio's stock holdings can range from small
companies developing new technologies or pursuing scientific breakthroughs to
large, blue chip firms with established track records in developing and
marketing such scientific advances.
Normally, the Portfolio will purchase securities traded in the U.S. or Canada
on registered exchanges or in the over-the-counter market. The Portfolio may
also invest, in the aggregate, up to 10% of its net assets in restricted
securities and securities of foreign issuers traded outside the U.S. and
Canada and, for hedging purposes, may purchase and sell options on stocks or
stock indices. The Portfolio also may invest up to 15% of its net assets in
illiquid securities.
SELECT 20 PORTFOLIO
The Select 20 Portfolio seeks long-term growth of capital. The Portfolio will
normally be substantially invested in equity securities (including ADRs and
foreign equity securities). The equity securities in which the Portfolio will
invest are common stocks, warrants and rights to purchase common stocks, and
debt securities and preferred stock that are convertible into common stocks.
The Portfolio may invest in convertible debt securities rated investment grade
by an NRSRO (i.e., within one of the four higher rating categories). The
Adviser will consider the diversity of industries in choosing investments for
the Portfolio.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities of a limited number (i.e., no more than 20
stocks) of large capitalization companies that,in the Adviser's opinion, have
a strong earnings growth outlook and potential for capital appreciation. Such
large companies have market capitalization in excess of $1 billion. Because
the Portfolio focuses on equity securities of a small number of companies, the
impact of a change in value of a single stock holding may be magnified.
While it has no present intention to do so, the Portfolio reserves the right
to invest up to 10% of its net assets in restricted securities and securities
of foreign issuers traded outside the United States and Canada and, for
hedging purposes only, to purchase and sell options on stocks or stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities, but will not invest more than 5% of its net assets in restricted
securities that the Adviser determines are illiquid based on guidelines
approved by the Board of Directors of the Fund. See "Glossary of Permitted
Investments."
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 Small Cap Value and Large Cap Value
Portfolios 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 Select 20 and
Technology & Communications Portfolios will not exceed 300%.
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 those fluctuations. The Growth II and Small Cap Value Portfolios invest
extensively in 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 intends 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 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.
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 may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if, as a result, more than 5%
of the total assets of the Portfolio would be invested in the securities of
such issuer. This restriction applies to 75% of each Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total
assets of a Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities. For purposes of this
limitation, (i) utility companies will be divided according to their services,
for example, gas distribution, gas transmission, electric and telephone will
each be considered a separate industry, and (ii) financial service companies
will be classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry. For purposes of this limitation, supranational
organizations are deemed to be issuers conducting their principal business
activities in the same industry.
3. Borrow money except for temporary or for emergency purposes and then
only in an amount not exceeding 10% of the value of each Portfolio's total
assets. 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 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 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).
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
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 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.
Each Portfolio may periodically compare its performance to that of other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals,
broad groups of comparable mutual funds, unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs and other investment alternatives. Each
Portfolio may quote services such as Morningstar, Inc., a service that ranks
mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. Each Portfolio may use long-term performance of
these capital markets to demonstrate general long-term risk versus reward
scenarios and could include the value of a hypothetical investment in any of
the capital markets. Each Portfolio may also quote financial and business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques.
Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data
and cannot be calculated precisely.
PUBLIC FUND PERFORMANCE
The Large Cap Growth, Technology & Communications and Select 20 Portfolios are
newly organized and do not yet have their own performance records. However,
the Portfolios have the same investment objectives and follow substantially
the same investment strategies as three series of a mutual fund ("public
fund") whose shares are currently sold to the public and managed by the
Adviser.
Set forth below is the historical performance of each of the corresponding
series of the public fund. Investors should not consider the performance data
of the series of the public fund as an indication of the future performance of
the Portfolios. The performance figures shown below reflect the deduction of
the historical fees and expenses paid by the corresponding series of the
public fund, and NOT THOSE TO BE PAID BY THE PORTFOLIOS. The figures also do
not reflect the deduction of any insurance fees or charges which are imposed
by the Participating Insurance Company in connection with its sale of the VA
Contracts and VLI Policies. Investors should refer to the separate account
prospectuses describing the VA Contracts and VLI Policies for information
pertaining to these insurance fees and charges. The insurance separate
account fees will have a detrimental effect on the performance of the
Portfolios. The results shown reflect the reinvestment of dividends and
distributions, and were calculated in the same manner that will be used by the
Portfolios to calculate their own performance.
The following tables show average annualized total returns for the time
periods shown for the series of the public fund.
<TABLE>
<CAPTION>
<S> <C> <C>
LARGE CAP GROWTH PORTFOLIO
1 Year Since Inception
------- ----------------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Large Cap Growth Fund 28.19% 42.12%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TECHNOLOGY & COMMUNICATIONS PORTFOLIO
1 Year Since Inception
------- ----------------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Technology &
Communications Fund 66.20% 66.20%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SELECT 20 PORTFOLIO
Since Inception
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Large Cap 20 Fund ____%
</TABLE>
Results shown are through the period ended September 30, 1996 for each public
fund series shown except for the PBHG Large Cap 20 Fund. 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
________________ co-manages the investment program of the Small Cap Value
Portfolio. (See General Information - The Portfolio Managers.) ___________
has had more than __ years of experience as a security analyst/portfolio
manager. Prior to assuming his current position with the Sub-Adviser,
__________ managed the _________ Fund from ____ through ____. The cumulative
total return for the _________ Fund from _______ through ________ was ___%.
At _________, 1996, that Fund had $_______ in net assets. _________ had full
discretionary authority over the selection of investments for that Fund.
Average annual total returns for the one-, five- and ten-year periods ended
______ were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 Year 5 Years 10 Years
------- -------- ---------
[NAME OF FUND*] ____% ____% ____%
<FN>
* Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.
</TABLE>
Historical performance is not indicative of future performance. The
___________ Fund 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 reflecting market
conditions, as well as changes in company-specific fundamentals of portfolio
securities.
PRIVATE ACCOUNT PERFORMANCE
Growth II Portfolio is newly organized and does not yet have its own
performance record. However, the Growth II Portfolio has an investment
objective, policies and strategies which are substantially similar to those
employed by the Adviser with respect to certain Private Accounts.
Thus, the performance information derived from these Private Accounts may be
relevant to an investor. The performance of the Growth II Portfolio will vary
from the Private Account composite information because the Growth II Portfolio
will be actively managed and its investments will vary from time to time and
will not be identical to the past portfolio investments of the Private
Accounts. Moreover, the Private Accounts are not registered under the
Investment Company Act of 1940 (1940 Act) and therefore are not subject to
certain investment restrictions that are imposed by the 1940 Act, which, if
imposed, could have adversely affected the Private Accounts' performance.
The chart below shows hypothetical performance information derived from
historical composite performance of the Private Accounts included in the
Pilgrim Baxter & Associates, Ltd. Mid-Cap Growth Composite. The hypothetical
performance figures shown for the Growth II Portfolio represent the actual
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 actual 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 hypothetical 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.
HYPOTHETICAL HISTORICAL GROWTH II PORTFOLIO PERFORMANCE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 Year 5 Years 10 Years
------- --------
Pilgrim Baxter & Associates, Ltd.
Mid-Cap Growth Composite* ____% ____% ____%
S&P 500 Stock Index ____% ____% ____%
</TABLE>
Results shown are through the period ended September 30, 1996. The inception
date is January 1, 1983 for the Pilgrim Baxter & Associates, Ltd. Mid-Cap
Growth Composite.
GENERAL INFORMATION
THE FUND
The Fund, an open-end management investment company, was incorporated in
Maryland in 1997. All consideration received by the Fund for shares of any
Portfolio and all assets of such Portfolio belong to that Portfolio and are
subject to liabilities related thereto. The Fund reserves the right to create
and issue shares of additional series.
Each Portfolio of the Fund pays its respective expenses relating to its
operation, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the shares of the
Portfolio under federal securities laws, pricing and insurance expenses and
pays additional expenses including litigation and other extraordinary
expenses, brokerage costs, interest charges, taxes and organization expenses.
THE ADVISER
Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been
in business since 1982. The Adviser is a wholly-owned subsidiary of 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 $13.5 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 0.85% of each of the Growth II, Small
Cap Value, Technology & Communications and Select 20 Portfolios' average daily
net assets, 0.75% of the Large Cap Growth Portfolio's average daily net assets
and 0.65% of the Large Cap Value Portfolio's average daily net assets. The
advisory fees paid by each Portfolio are higher than those paid by most
investment companies, although the Adviser believes the fees to be comparable
to those paid by investment companies with similar investment objectives and
policies.
THE SUB_ADVISER (SMALL CAP VALUE AND LARGE CAP VALUE PORTFOLIOS)
Newbold's Asset Management, Inc., 950 Haverford Road, Bryn Mawr, Pennsylvania,
is a registered investment adviser that was formed in 1940. As with the
Adviser, the Sub_Adviser is a wholly-owned subsidiary of UAM. The Sub_Adviser
currently has discretionary management authority with respect to approximately
$6 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 the annual rate equal to [__]% of each
Portfolio's average daily net assets.
EXPENSE LIMITATION AGREEMENTS
In the interest of limiting expenses of the Portfolios, the Adviser (and, with
respect to the Small Cap Value and Large Cap Value Portfolios, the
Sub_Adviser) have entered into voluntary expense limitation agreements with
the Fund ("Expense Limitation Agreements"), with respect to each Portfolio,
pursuant to which the Adviser and Sub_Adviser have agreed to waive or limit
their 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 and
Sub-Adviser may be discontinued at any time after such date. Reimbursement
by the Portfolios of the advisory fees (and, with respect to the Small Cap
Value and Large Cap Value Portfolios, the sub_advisory fees) waived or
limited and other expenses paid by the Adviser and Sub_Adviser pursuant to
the Expense Limitation Agreements 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 co-managed by James H. Farrell, CFA and
_____________. 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. The Large Cap Value Portfolio will
be managed by Mr. Farrell.
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), a wholly-owned subsidiary of the
Adviser, 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), 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.__% of
the average daily net assets of each Portfolio with respect to $___ billion of
the total average daily net assets of the Fund, and a fee at the annual rate
of 0.__% of the average daily net assets of each Portfolio with respect to the
total average daily net assets of the Fund in excess of $___ billion.
THE TRANSFER AGENT AND SUB-TRANSFER AGENT
DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent, dividend disbursing agent and shareholder servicing agent
for the Fund under a transfer agent agreement with the Fund.
From time to time, the Fund may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
Qualified Plans. These services may include, among other things,
sub-accounting services, answering inquiries relating to the Fund, delivering,
on behalf of the Fund, proxy statements, annual reports, updated Prospectuses,
other communications regarding the Fund, and related services as the Fund or
the beneficial owners may reasonably request.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), 680 East Swedesford Road,
Wayne, Pennsylvania 19087-1658, a wholly-owned subsidiary of SEI, provides the
Fund with distribution services.
DIRECTORS OF THE FUND
The management and affairs of the Fund are supervised by the Board of
Directors under the laws of the State of Maryland. The Directors have approved
contracts 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 PUBLIC ACCOUNTANTS
________________ serves as counsel to the Fund. __________ serves as the
independent public accountants of the Fund.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101, serves as the custodian ("Custodian") for
the Fund. The Custodian holds cash, securities and other assets of the Fund as
required by 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 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.
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 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 or an exemption from
registration. A Portfolio may invest in restricted securities that the 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
Advisers 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 Securities Act of 1933.
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
issues of 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").
Variable and Floating Rate Instruments __ Certain of the obligations purchased
by a Portfolio may carry variable or floating rates of interest, may involve a
conditional or unconditional demand feature and may include variable amount
master demand notes. Such instruments bear interest at rates which are not
fixed, but which vary with changes in specified market rates or indices, such
as a Federal Reserve composite index. The interest rates on these securities
may be reset daily, weekly, quarterly or some other reset period, and may have
a floor or ceiling on interest rate changes. There is a risk that the current
interest rate on such obligations may not accurately reflect existing market
interest rates. A demand instrument with a demand notice exceeding seven days
may be considered illiquid if there is no secondary market for such
securities.
Warrants __ Instruments giving holders the right, but not the obligation, to
buy shares of a company at a given price during a specified period.
When_Issued and Delayed_Delivery Securities __ When_issued and
delayed_delivery securities are securities subject to settlement on a future
date. For fixed income securities, the interest rate realized on when_issued
or delayed_delivery securities is fixed as of the purchase date and no
interest accrues to a Portfolio before settlement. These securities are
subject to market fluctuation due to changes in market interest rates and will
have the effect of leveraging a Portfolio's assets. The Portfolios are
permitted to invest in forward commitments or when_issued securities where
such purchases are for investment and not for leveraging purposes. One or more
segregated accounts will be established with the Custodian, and the Portfolios
will maintain liquid assets in such accounts in an amount at least equal in
value to each Portfolio's commitments to purchase when_issued securities.
Fund:
PBHG INSURANCE SERIES FUND, INC.
Portfolios:
PBHG GROWTH II PORTFOLIO
PBHG LARGE CAP GROWTH PORTFOLIO
PBHG SMALL CAP VALUE PORTFOLIO
PBHG LARGE CAP VALUE PORTFOLIO
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
PBHG SELECT 20 PORTFOLIO
Investment Adviser:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus. It is intended
to provide additional information regarding the activities and operations of
the PBHG Insurance Series Fund, Inc. (the "Fund") and the PBHG Growth II
Portfolio, PBHG Large Cap Growth Portfolio, PBHG Small Cap Value Portfolio,
PBHG Large Cap Value Portfolio, PBHG Technology & Communications Portfolio and
the PBHG Select 20 Portfolio (the "Portfolios"). It should be read in
conjunction with the Prospectus dated May 1, 1997. The Prospectus may be
obtained without charge by calling 1-800-433-0051.
TABLE OF CONTENTS
THE FUND 1
DESCRIPTION OF PERMITTED INVESTMENTS 1
INVESTMENT LIMITATIONS 5
THE ADVISER 7
THE SUB-ADVISER 8
THE ADMINISTRATOR AND SUB-ADMINISTRATOR 8
THE DISTRIBUTOR 9
DIRECTORS AND OFFICERS OF THE FUND 9
PERFORMANCE INFORMATION 10
PURCHASE AND REDEMPTION OF SHARES 11
DETERMINATION OF NET ASSET VALUE 11
TAXES 11
PORTFOLIO TRANSACTIONS 13
DESCRIPTION OF SHARES 15
INFORMATION ABOUT THE TECHNOLOGY & COMMUNICATIONS PORTFOLIO 15
FINANCIAL STATEMENTS 15
May 1, 1997
THE FUND
This Statement of Additional Information relates to all Portfolios of the
Fund. Each share of each Portfolio represents an equal proportionate interest
in that Portfolio. See "Description of Shares." No investment in shares of a
Portfolio should be made without first reading the Prospectus. Capitalized
terms not defined herein are defined in the Prospectus. Pilgrim Baxter &
Associates, Ltd. ("Adviser") serves as the investment adviser to each
Portfolio. Newbold's Asset Management, Inc. ("Sub-Adviser") serves as the
investment sub-adviser to the Small Cap Value and Large Cap Value Portfolios.
The Adviser and the Sub-Adviser are collectively referred to herein as the
"Advisers."
DESCRIPTION OF PERMITTED INVESTMENTS
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (e.g., a Portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or primary securities
dealer as recognized by the Federal Reserve Bank of New York) at an agreed
upon price (including principal and interest) on an agreed upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the underlying
security. A repurchase agreement involves the obligation of the seller to pay
the agreed upon price, which obligation is in effect secured by the value of
the underlying security.
Repurchase agreements are considered to be loans by a Portfolio for purposes
of its investment limitations. The repurchase agreements entered into by a
Portfolio will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement (the
Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by a Portfolio, the Fund's custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults,
a Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of the sale, including accrued interest, are less
than the resale price provided in the agreement including interest. In
addition, even though the Bankruptcy Code provides protection for most
repurchase agreements, if the seller should be involved in bankruptcy or
insolvency proceedings, a Portfolio may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the
Portfolio is treated as an unsecured creditor of the seller and is required to
return the underlying security to the seller's estate.
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 Portfolios may trade put and call options on stocks and stock indices to
a limited extent, as the Advisers determine is appropriate in seeking a
Portfolio's investment objective, and except as restricted by each Portfolio's
investment limitations as set forth below. See "Investment Limitations."
The initial purchase (sale) of an option contract is an "opening transaction."
In order to close out an option position, the Portfolio may enter into a
"closing transaction," which is a sale (purchase) of an option contract on the
same security with the same exercise price and expiration date as the option
contract originally opened.
A put option gives the purchaser (the Portfolio) the right to sell, and
imposes on the writer the obligation to buy, the underlying security at the
exercise price during the option period. The advantage to the Portfolio of
buying the protective put is that if the price of the stock falls during the
option period, the Portfolio may exercise the put and receive the higher
exercise price for the stock. However, if the security rises in value, the
Portfolio will have paid a premium for the put, which will expire unexercised.
A call option gives the purchaser (the Portfolio) the right to buy, and
imposes on the writer the obligation to sell, the underlying security at the
exercise price during the option period. A Portfolio may buy fiduciary calls
on stocks that it is trying to buy. The advantage to the Portfolio of buying
the fiduciary call is that if the price of stock rises during the option
period, the Portfolio may exercise the call and buy the stock for the lower
exercise price. If the security falls in value, however, the Portfolio will
have paid a premium for the call which will expire worthless, but the
Portfolio will be able to buy the stock at a lower price.
As discussed above, a call gives the purchaser the right to buy and imposes on
the writer (the Portfolio) the obligation to sell, the underlying security at
the exercise price during the option period. The advantage to the Portfolio of
writing covered call options is that the Portfolio receives a premium, which
is additional income. However, if the security rises in value, the Portfolio
may not fully participate in the market appreciation. During the option
period, a covered call option writer may be assigned an exercise notice by the
broker-dealer through whom such call option was sold requiring the writer to
deliver the underlying security against payment of the exercise price. The
Portfolio's obligation as the writer of a covered call is terminated upon the
expiration of the option period or at such earlier time in which the writer
effects a closing purchase transaction. As noted above, a closing purchase
transaction is one in which the Portfolio, when obligated as a writer of an
option, terminates its obligation by purchasing an option of the same series
as the option previously written. A closing purchase transaction cannot be
effected with respect to an option once the option writer has received an
exercise notice for such option.
The market value of an option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the pricing volatility of the underlying
security and the time remaining until the expiration date.
Although the Portfolios will engage in option transactions only as hedging
transactions and not for speculative purposes, there are risks associated with
such investments including the following: (i) the success of a hedging
strategy may depend on the ability of the Adviser or Sub-Adviser to predict
movements in the prices of the individual securities, fluctuations in markets
and movements in interest rates; (ii) there may be imperfect correlation
between the movement in prices of securities held by the Portfolio; (iii)
there may not be a liquid secondary market for options; and (iv) while the
Portfolio will receive a premium when it writes covered call options, it may
not participate fully in a rise in the market value of the underlying
security.
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 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 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 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 maybe 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 total assets. 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, in aggregate amounts not to exceed 10% of total
assets taken at current value of the time of the occurrence of such pledge,
mortgage or hypothecation.
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 permitted borrowing 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 and oil, gas or mineral leases.
12. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if, as a result, more than 5%
of the total assets of the Portfolio would be invested in the securities of
such issuer. This restriction applies to 75% of each Portfolio's total assets.
13. Purchase any securities which would cause 25% or more of the total
assets of a Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities. For purposes of this
limitation, (i) utility companies will be divided according to their services,
for example, gas distribution, gas transmission, electric and telephone will
each be considered a separate industry, and (ii) financial service companies
will be classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry. For purposes of this limitation, supranational
organizations are deemed to be issuers conducting their principal business
activities in the same industry.
NON_FUNDAMENTAL POLICIES
In addition to the foregoing, and the policies set forth in the Portfolios'
Prospectus, each Portfolio has adopted additional investment restrictions
which may be amended by the Board of Directors without a vote of shareholders.
Each Portfolio may not:
1. Invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of its net assets. This limitation does not include any Rule
144A restricted security that has been determined by, or pursuant to
procedures established by, the Board, based on trading markets for such
security, to be liquid.
2. Purchase or sell puts, calls, straddles, spreads, and any combination
thereof, except to the extent permitted by the 1940 Act or the rules and
regulations thereunder.
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 Prospectuses 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 and, with respect to the Small Cap Value and Large Cap Value
Portfolios, the Sub-Adviser, have agreed to waive or limit their Advisory and
Sub-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 investment 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 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
_________, 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 series of the Fund, including each Portfolio. 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 _________________
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______________ pursuant to which the Sub_Administrator assists
the Administrator in connection with the administration of the business and
affairs of the Fund. The Sub_Administrator is a wholly_owned subsidiary of SEI
Financial Management Company ("SEI Financial"), which is a wholly_owned
subsidiary of SEI Corporation ("SEI"). The Sub_Administrator was organized as
a Delaware business trust, and has its principal business offices at 680 East
Swedesford Road, Wayne, Pennsylvania 19087_1658. Under the Sub_Administrative
Agreement, the Sub_Administrator is entitled to a fee from the Administrator,
which is calculated daily and paid monthly, (i) at an annual rate of ____% of
the average daily net assets of each series of the Fund, including the
Portfolios, with respect to the first $____ billion of the total average daily
net assets of the Fund; and (ii) at the annual rate of ____% of average daily
net assets of each series of the Fund, including the Portfolios, with respect
to the total average daily net assets of the Fund in excess of $____ 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
_______________ and shall thereafter continue in effect for successive periods
of one year, unless terminated by either party upon not less than ninety (90)
days' prior written notice to the other party.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly_owned subsidiary
of SEI, and the Fund are parties to a distribution agreement (the
"Distribution Agreement") dated _______________ 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.
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.
________________
* 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 Director of the Fund who is not an "interested person" of the Fund
receives an annual fee of $________ and an additional fee of $___________ for
each Directors' meeting attended and is reimbursed for expenses incurred in
connection with attending Directors' meeting.
As each Portfolio's initial shareholder, ________________________ 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
[To be filed by amendment]
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
To be filed by amendment.
(b) Exhibits:
1 Articles of Incorporation
2 By_Laws (to be filed by amendment)
3 Not Applicable
4 Not Applicable
5(a) Form of Investment Advisory Agreement between the
Registrant and Pilgrim Baxter & Associates, Ltd.
(to be filed by amendment)
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. (to be filed by amendment)
6 Form of Distribution Agreement between the Registrant
and SEI Financial Services Company (to be filed by
amendment)
7 Not Applicable
8 Form of Custodian Agreement between the Registrant and
CoreStates Bank, N.A. (to be filed by amendment)
9(a) Form of Transfer Agency Agreement between the Registrant
and DST Systems, Inc. (to be filed by amendment)
9(b) Form of Administrative Services Agreement between the
Registrant and PBHG Fund Services (to be filed by
amendment)
9(c) Form of Sub_Administrative Services Agreement between the
Registrant and SEI Fund Resources (to be filed by
amendment)
9(d)(1) Form of Expense Limitation Agreement between the
Registrant and Pilgrim Baxter & Associates, Ltd.
(to be filed by amendment)
9(d)(2) Form of Expense Limitation Agreement between the
Registrant, on behalf of the Small Cap Value and Large Cap
Value Portfolios and Newbold's Asset Management, Inc. (to
be filed by amendment)
10 Opinion of Counsel (to be filed by amendment)
11 Consent of Independent Public Accountants
(to be filed by amendment)
12 Not Applicable
13 Letter from ___________________ to the Registrant with
respect to the initial capitalization of the Registrant
(to be filed by amendment)
14 Not Applicable
15 Not Applicable
16 Schedule for computation of Performance Data
(to be filed by amendment)
17 Not Applicable
18 Not Applicable
24 Not Applicable
27 Not Applicable
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
None
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 nor such further indemnification
arrangement 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 Trustees
Chief Investment Officer
Brian F. Bereznak PBHG Fund Services President
Chief Operating Officer
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_Advisers:
<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
Corp. Directors
Timothy M. Havens None None
Chairman
James Farrell Farrell Seiwell, Inc. President
Chief Investment Officer
David W. Jennings Pilgrim Baxter & Director of Client
President & Chief Associates, Ltd. Service
Operating Officer
Eric C. Schneider Pilgrim Baxter & Chief Financial Officer
Chief Financial Officer Associates, Ltd.
John M. Zerr Pilgrim Baxter & General Counsel
General Counsel Associates, Ltd.
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing the
securities of the Registrant also acts as a principal underwriter, distributor
or investment adviser.
Registrant's distributor, SEI Financial Services Company ("SFS"), acts as
distributor for:
<TABLE>
<CAPTION>
<S> <C>
SEI Daily Income Trust July 15, 1982
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
SEI Institutional Investments Trust June 14, 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 _
Leo J. Dolan, Jr. Senior Vice President _
Carl A. Guarino Senior Vice President _
Jerome Hickey Senior Vice President _
David G. Lee Senior Vice President _
Steven Kramer Senior Vice President _
William Madden 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, _
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 _
Robert Ludwig 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 _
Larry Hutchison Vice President _
Michael Kantor Vice President _
Samuel King ` Vice President _
Donald H. Korytowski Vice President _
Robert S. Ludwig Vice President & Team Leader _
Jack May Vice President _
W. Kelso Morrill Vice President _
Barbara A. Nugent Vice President & Assistant Secretary _
Sandra K. Orlow 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 _
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 Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087
(c) With respect to Rules 31a_1(b)(5), (6), (9) and (10) and 31a_1(f),
the required books and records are maintained at the principal offices of the
Registrant's Adviser or Sub_Adviser:
Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Newbold's Asset Management, Inc.
950 Haverford Road
Bryn Mawr, PA 19010
ITEM 31. MANAGEMENT SERVICES:
None
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940 inform the
Board of Directors of their desire to communicate with Shareholders of the
Fund, the Directors will inform such Shareholders as to the approximate number
of Shareholders of record and the approximate costs of mailing or afford said
Shareholders access to a list of Shareholders.
Registrant undertakes to call a meeting of Shareholders for the purpose of
voting upon the question of removal of a Director(s) when requested in writing
to do so by the holders of at least 10% of Registrant's outstanding shares and
in connection with such meetings to comply with the provisions of Section
16(c) of the Investment Company Act of 1940 relating to Shareholder
communications.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
Shareholders, upon request and without charge.
Registrant hereby undertakes to file a post_effective amendment,
including financial statements which need not be audited, within 4_6 months
from the later of the commencement of operations of the Registrant or the
effective date of the Registrant's 1933 Act Registration Statement.
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereto duly authorized, in the City of Wayne, and
State of Pennsylvania, on the 31st day of December, 1996.
PBHG INSURANCE SERIES FUND, INC.
_______________________________________
Registrant
By: /s/HAROLD J. BAXTER
___________________________________
Harold J. Baxter
Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons on the 31st day of
December, 1996 in the capacities indicated.
SIGNATURE AND TITLE
/s/HAROLD J. BAXTER Director
_________________________________
Harold J. Baxter
EXHIBIT LIST
Exhibit Number Description Sequentially Numbered Pages
EX-99.B1 Articles of Incorporation
ARTICLES OF INCORPORATION
OF
PBHG INSURANCE SERIES FUND, INC.
ARTICLE I
INCORPORATOR
THE UNDERSIGNED, John M. Zerr, whose address is 1255 Drummers Lane, Suite 300,
Wayne, Pennsylvania 19087-1590, being more than 18 years of age, does under
and by virtue of the general laws of the State of Maryland, act as
incorporator to form a corporation.
ARTICLE II
NAME OF CORPORATION
The name of the corporation is PBHG INSURANCE SERIES FUND, INC. (hereinafter
called the "Corporation").
ARTICLE III
PURPOSE OF CORPORATION
The purpose or purposes for which the Corporation is formed are as follows:
(1) To hold, invest and reinvest its funds, and in connection therewith,
to hold part or all of its funds in cash, and to purchase or otherwise
acquire, hold for investment or otherwise sell, assign, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize upon,
securities (which term "securities" shall for the purposes of these Articles
of Incorporation, without limitation of the generality thereof, be deemed to
include any stocks, shares, bonds, debentures, notes, mortgages or other
obligations, and any options, certificates, receipts, warrants or other
instruments representing rights to receive, purchase, sell or subscribe for
the same, or evidencing or representing any other rights or interests therein,
or in any property or assets) created or issued by any issuer (which term
"issuer" shall for the purpose of these Articles of Incorporation, without
limitation of the generality thereof, be deemed to include any persons, firms,
associations, corporations, syndicates, combinations, organizations,
governments, or subdivisions thereof), or commodities (which term
"commodities" shall for the purposes of these Articles of Incorporation,
without limitation of the generality thereof, be deemed to include any
tangible or intangible which is, or contracts relating to which are, traded on
any commodities exchange, and any contract, certificate, receipt or other
instruments representing rights to receive, purchase, sell or subscribe for
the same, or evidencing or representing any other rights or interests therein)
or put and call options relating to securities or commodities; and to exercise
as owner or holder of any securities, commodities or put and call options, all
rights, powers and privileges in respect thereof; and to do any and all acts
and things for the preservation, protection, improvement and enhancement in
value of any or all such securities, commodities or options.
(2) To borrow money and pledge assets in connection with any of the
objects or purposes of the Corporation, and to issue notes or other
obligations evidencing such borrowing, to the extent permitted by the 1940 Act
(which term, the "1940 Act," shall for the purposes of these Articles of
Incorporation mean the Investment Company Act of 1940, as from time to time
amended, and any rule, regulation or order thereunder) and by the
Corporation's fundamental investment policies under the 1940 Act.
(3) To issue and sell shares of its own capital stock in such amounts and
on such terms and conditions, or for such purposes and for such amount or kind
or consideration (including, without limitation thereto, securities) now or
hereafter permitted by the laws of Maryland and by these Articles of
Incorporation, as its Board of Directors may determine.
4) To purchase or otherwise acquire, hold, dispose of, resell, transfer,
reissue or cancel (all without the vote of consent of the stockholders of the
Corporation) shares of its capital stock, in any manner and to the extent now
or hereafter permitted by the laws of Maryland and by these Articles of
Incorporation.
(5) To conduct its business in all its branches at one or more offices in
Maryland and elsewhere in any part of the world, without restriction or limit
as to extent.
(6) To carry out all or any of the foregoing objects and purposes as
principal or agent, and alone or with associates, or to the extent now or
hereafter permitted by the laws of Maryland, as a member of, or as the owner
or holder of any securities of any issuer, and in connection therewith to make
or enter into such deeds or contracts with any issuer and to do such acts and
things and to exercise such powers, as a natural person could lawfully make,
enter into, do or exercise.
(7) To do any and all such further acts and things and to exercise any
and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference
from the terms of any other clause of this or any other Article of these
Articles of Incorporation, and shall be regarded as independent, and
construed as powers as well as objects and purposes, and the enumeration of
specific purposes, objects and powers shall not be construed to limit or
restrict in any manner the meaning of general terms or the general powers of
the Corporation now or hereafter conferred by the laws of the State of
Maryland, nor shall the expression of one thing be deemed to exclude another,
though it be of like nature, not expressed; provided, however, that the
Corporation shall not have power to carry on within the State of Maryland any
business whatsoever the carrying on of which would create a purpose that
would make it subject to a special provision under the laws of said State; nor
shall it carry on any business, or exercise any powers, in any other state,
territory, district or country except to the extent that the same may
lawfully be carried on or exercised under the laws thereof.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the
State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202-3242. The name of the Corporation's resident agent
in the State of Maryland is The Corporation Trust Incorporated, a corporation
of the State of Maryland, and the post office address of the resident agent is
32 South Street, Baltimore, Maryland 21202-3242.
ARTICLE V
CAPITAL STOCK
5.1 AUTHORIZED STOCK. The total number of shares of capital stock which the
Corporation shall have authority to issue is Three Billion (3,000,000,000)
shares of the par value of one tenth of one cent ($0.001) per share and of the
aggregate par value of Three Million Dollars ($3,000,000), all of which shares
are designated Common Stock and which shares shall be classified in the
following Series (Portfolios): 500,000,000 Shares in PBHG Growth II Portfolio;
500,000,000 Shares in PBHG Large Cap Growth Portfolio; 500,000,000 Shares in
PBHG Small Cap Value Portfolio; 500,000,000 Shares in PBHG Large Cap Value
Portfolio; 500,000,000 Shares in PBHG Technology & Communications Portfolio;
and 500,000,000 Shares in PBHG Select 20 Portfolio.
5.2 AUTHORIZATION OF STOCK ISSUANCE. The Board of Directors may authorize the
issuance and sale of capital stock of the Corporation, from time to time in
such amounts and on such terms and conditions, for such purposes and for such
amount or kind of consideration as the Board of Directors shall determine,
subject to any limits required by then applicable law. All shares shall be
issued on a fully paid and non-assessable basis.
5.3 FRACTIONAL SHARES. The Corporation may issue fractional shares. Any
fractional share shall carry proportionately the rights of a whole share,
excepting the right to receive a certificate evidencing such fractional share,
but including, without limitation, the right to vote and the right to receive
dividends.
5.4 DESCRIPTION OF STOCK. The voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the
Corporation's stock shall be as follows, unless otherwise provided in Articles
Supplementary hereto:
(a) INCOME. The Board of Directors shall have full discretion, to the
extent not inconsistent with the General Laws of the State of Maryland and the
1940 Act, to determine which items shall be treated as income and which items
shall be treated as capital. Each such determination shall be conclusive and
binding.
(b) DIVIDENDS AND DISTRIBUTIONS. The holders of the Corporation's
capital stock of record as of a date determined by the Board of Directors from
time to time shall be entitled, from funds or other assets legally available
therefor, to dividends and distributions, including distributions of capital
gains, in such amounts and at such times as may be determined by the Board of
Directors. Any such dividends or distributions may be declared payable in
cash, property or shares of the Corporation's stock, as determined by the
Board of Directors or pursuant to a standing resolution or program adopted or
approved by the Board of Directors. Dividends and distributions may be
declared with such frequency, including daily, as the Board of Directors may
determine and in any reasonable manner, including by standing resolution, by
resolutions adopted only once or with such frequency as the Board of Directors
may determine, or by formula or other similar method of determination, whether
or not the amount of the dividend or distribution so declared can be
calculated at the time of such declaration. The Board of Directors may
establish payment dates for such dividends and distributions on any basis,
including payment that is less frequent than the effectiveness of such
declarations. The Board of Directors shall have the discretion to designate
for such dividends and distributions amounts sufficient to enable the
Corporation to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986 or any successor or comparable statute, and regulations
promulgated thereunder (collectively, the "IRC"), and to avoid liability of
the Corporation for Federal income tax in respect of a given year and to make
other appropriate adjustments in connection therewith. Nothing in the
foregoing sentence shall limit the authority of the Board of Directors to
designate greater or lesser amounts for such dividends or distributions.
(c) TAX ELECTIONS. The Board of Directors shall have the power, in its
discretion, to make such elections as to the tax status of the Corporation as
may be permitted or required by the IRC without the vote of stockholders of
the Corporation.
(d) LIQUIDATION. At any time there are not shares of stock of the
Corporation outstanding, the Board of Directors may liquidate the Corporation,
in accordance with applicable law. In the event of the liquidation or
dissolution of the Corporation when there are shares outstanding, the
stockholders of the Corporation shall be entitled to receive, when and as
declared by the Board of Directors, the excess of the assets of the
Corporation over the liabilities of the Corporation. Any such excess amounts
will be distributed to each stockholder of the Corporation in proportion to
the number of outstanding shares held by that stockholder and recorded on the
books of the Corporation.
Subject to the requirements of applicable law, dissolution of the
Corporation may be accomplished by distribution of assets to stockholders as
provided herein, or in any other legal manner.
(e) VOTING RIGHTS. On each matter submitted to a vote of stockholders,
each holder of a share of capital stock of the Corporation shall be entitled
to one vote for each full share, and a fractional vote for each fractional
share of stock outstanding in such holder's name on the books of the
Corporation.
(f) QUORUM. The presence in person or by proxy at a meeting of the
stockholders of the holders of one-third of the shares of stock of the
Corporation entitled to vote thereat shall constitute a quorum at any meeting
of the stockholders. If at any meeting of the stockholders there shall be less
than a quorum present, the stockholders present at such meeting may, without
further notice, adjourn the same from time to time until a quorum shall be
present.
5.5 AUTHORIZING VOTE. Notwithstanding any provision of the General Laws of
the State of Maryland requiring for any purpose a proportion greater than a
majority of the votes of the shares of the Corporation, the affirmative vote
of the holders of a majority of the total number of shares of the Corporation,
outstanding and entitled to vote under such circumstances pursuant to these
Articles of Incorporation and the By-Laws of the Corporation shall be
effective for such purpose, except to the extent otherwise required by the
1940 Act and rules thereunder; provided that, to the extent consistent with
the General Laws of the State of Maryland and other applicable law, the
By-Laws may provide for authorization to be by the vote of a proportion less
than a majority of the votes of the Corporation.
5.6 PREEMPTIVE RIGHTS. No stockholder of the Corporation shall be entitled as
of right to subscribe for, purchase, or otherwise acquire any shares or any
other securities of the Corporation which the Corporation proposes to issue or
sell; and any or all of such shares or securities of the Corporation, whether
now or hereafter authorized or created, may be issued, or may be reissued or
transferred if the same have been reacquired, and sold to such persons, firms,
corporations and associations, and for such lawful consideration, and on such
terms as the Board of Directors in its discretion may determine, without first
offering the same, or any thereof, to any said stockholder.
5.7 REDEMPTION.
(a) The Board of Directors shall authorize the Corporation, to the extent
it has funds or other property legally available therefor and subject to such
reasonable conditions as the directors may determine, to permit each holder of
shares of capital stock of the Corporation to require the Corporation to
redeem all or any part of the shares standing in the name of such holder on
the books of the Corporation, at the applicable redemption price of such
shares (which may reflect such fees and charges as the Board of Directors may
establish from time to time) determined in accordance with procedures
established by the Board of Directors of the Corporation from time to time in
accordance with applicable law.
(b) Without limiting the generality of the foregoing, the Board of
Directors may authorize the Corporation, at its option and to the extent
permitted by and in accordance with the conditions of applicable law, to
redeem stock of the Corporation owned by any stockholder under circumstances
deemed appropriate by the Board of Directors in its sole discretion from time
to time, such circumstances including but not limited to (1) failure to
provide the Corporation with a tax identification number and (2) failure to
maintain ownership of a specified minimum number or value of shares of any
class or series of stock of the Corporation, such redemption to be effected at
such price, at such time and subject to such conditions as may be required or
permitted by applicable law.
(c) Payment for redeemed stock shall be made in cash unless, in the
opinion of the Board of Directors, which shall be conclusive, conditions exist
which make it advisable for the Corporation to make payment wholly or
partially in securities or other property or assets of the Corporation.
Payment made wholly or partially in securities or other property or assets may
be delayed to such reasonable extent, not inconsistent with applicable law, as
is reasonably necessary under the circumstances. No stockholder shall have the
right, except as determined by the Board of Directors, to have his shares
redeemed in such securities, property or other assets.
(d) All rights of a stockholder with respect to a share redeemed,
including the right to receive dividends and distributions with respect to
such share, shall cease and determine as of the time as of which the
redemption price to be paid for such shares shall be fixed, in accordance with
applicable law, except the right of such stockholder to receive payment for
such shares as provided herein.
(e) Notwithstanding any other provision of this Article 5.7, the Board of
Directors may suspend the right of stockholders to require the Corporation to
redeem shares held by them for such periods and to the extent permitted by, or
in accordance with, the 1940 Act. The Board of Directors may, in the absence
of a ruling by a responsible regulatory official, terminate such suspension at
such time as the Board of Directors, in its discretion, shall deem reasonable,
such determination to be conclusive.
(f) Shares which have been redeemed shall constitute authorized but
unissued shares.
5.8 REPURCHASE OF SHARES. The Board of Directors may by resolution from time
to time authorize the Corporation to purchase or otherwise acquire, directly
or through an agent, shares of its outstanding stock upon such terms and
conditions and for such consideration as permitted by applicable law and
determined to be reasonable by the Board of Directors and to take all other
steps deemed necessary in connection therewith. Shares so purchased or
acquired shall have the status of authorized but unissued shares.
5.9 VALUATION. Subject to the requirements of applicable law, the Board of
Directors may, in its absolute discretion, establish the basis or method,
timing and frequency for determining the value of assets belonging to the
Corporation and for determining the net asset value of shares of the
Corporation for purposes of sales, redemptions, repurchases or otherwise.
Without limiting the foregoing, the Board of Directors may determine that the
net asset value per share should be maintained at a designated constant value
and may establish procedures, not inconsistent with applicable law, to
accomplish that result. Such procedures may include a requirement, in the
event of a net loss with respect to shares of the Corporation from time to
time, for automatic pro rata capital contributions from each stockholder in
amounts sufficient to maintain the designated constant share value.
5.10 CERTIFICATES. Subject to the requirements of the Maryland General
Corporation Law, the Board of Directors may authorize the issuance of some or
all of the shares without certificates and may establish such conditions as it
may determine in connection with the issuance of certificates.
5.11 SHARES SUBJECT TO ARTICLES AND BY-LAWS. All persons who shall acquire
shares of capital stock in the Corporation shall acquire the same subject to
the provisions of these Articles of Incorporation and the By-Laws of the
Corporation, as each may be amended, supplemented and/or restated from time to
time.
ARTICLE VI
BOARD OF DIRECTORS
6.1 NUMBER OF DIRECTORS. Prior to the issuance of stock, the number of
directors of the Corporation shall be one (1) and after the issuance of stock
shall be as provided in the By-Laws, provided that the By-Laws may, subject to
the limitations of the Maryland General Corporation Law, fix a different
number of directors and may authorize a majority of the directors to increase
or decrease the number of directors set by these Articles or the By-Laws
within limits set by the By-Laws and to fill vacancies created by an increase
in the number of directors. Unless otherwise provided by the By-Laws, the
directors of the Corporation need not be stockholders of the Corporation. The
name of the director who will serve until the first annual meeting and until
his successor is elected and qualified is:
Harold J. Baxter
6.2 REMOVAL OF DIRECTORS. Subject to the limits of the 1940 Act and unless
otherwise provided by the By-Laws, a director may be removed, with or without
cause, by the affirmative vote of a majority of (a) the Board of Directors,
(b) a committee of the Board of Directors appointed for such purpose, or (c)
the stockholders by vote of a majority of the outstanding shares of the
Corporation.
6.3 LIABILITY OF DIRECTORS AND OFFICES.
(a) To the fullest extent permitted by the Maryland General Corporation
Law and the 1940 Act, no director or officer of the Corporation shall be
liable to the Corporation or to its stockholders for money damages. No
amendment to these Articles of Incorporation or repeal of any of its
provisions shall limit or eliminate the benefits provided to directors and
officers under this provision with respect to any act or omission which
occurred prior to such amendment or repeal.
(b) In performance of its duties, a director is entitled to rely on any
information, opinion, report, or statement, including any financial statement
or other financial data, prepared by others, to the extent not inconsistent
with the General Laws of the State of Maryland. A person who performs his
duties in accordance with the standards of Article 2-405.1 of the Maryland
General Corporation Law or otherwise in accordance with applicable law shall
have no liability by reason of being or having been a director of the
Corporation.
6.4 POWERS OF DIRECTORS. In addition to any powers conferred herein or in the
By-Laws, the Board of Directors may, subject to any express limitations
contained in these Articles of Incorporation or in the By-Laws, exercise the
full extent of powers conferred by the General Laws of the State of Maryland
or other applicable law upon corporations or directors thereof and the
enumeration and definition of particular powers herein or in the By-laws shall
in no way be deemed to restrict or otherwise limit those lawfully conferred
powers. In furtherance and without limitation of the foregoing, the Board of
Directors shall have power:
(a) to make, alter, amend or repeal from time to time the By-Laws of the
Corporation except as otherwise provided by the By-Laws;
(b) subject to requirements of the 1940 Act and the General Laws of the
State of Maryland, to authorize the Corporation to enter into contracts with
any person, including any firm, corporation, trust or association in which a
director, officer, employee or stockholder of the Corporation may be
interested. Such contracts may be for any lawful purpose, whether or not such
purpose involves delegating functions normally performed by the board of
directors or officers of a corporation, including, but not limited to, the
provision of investment management for the Corporation's investment portfolio,
the distribution of securities issued by the Corporation, the administration
of the Corporation's affairs, the provision of transfer agent services with
respect to the Corporation's shares of capital stock, and the custody of the
Corporation's assets. Any person (including its affiliates) may be retained in
multiple capacities pursuant to one or more contracts and may also perform
services, including similar or identical services, for others, including other
investment companies. Subject to the requirements of applicable law, such
contracts may provide for compensation to be paid by the Corporation in such
amounts, including payments of multiple amounts for persons (including their
affiliates) acting in multiple capacities, as the Board of Directors shall
determine in its discretion to be proper and reasonable.
(c) to authorize from time to time the payment of compensation to the
Directors for services to the Corporation, including fees for attendance at
meetings of the Board of Directors and committees thereof.
6.5 DETERMINATIONS BY BOARD OF DIRECTORS. Any determination made by or
pursuant to the direction of the Board of Directors and in accordance with the
standards set by the General Laws of the State of Maryland shall be final and
conclusive and shall be binding upon the Corporation and upon all
stockholders, past, present and future of the Corporation.
ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING AND REGULATING THE POWERS
OF THE CORPORATION AND THE DIRECTORS AND STOCKHOLDERS
7.1 LOCATION OF MEETINGS, OFFICES AND BOOKS. Both directors and stockholders
may hold meetings within or without the State of Maryland and abroad, and the
Corporation may have one or more offices and may keep its books within or
without the State of Maryland and abroad at such places as the directors shall
determine.
7.2 MEETINGS OF STOCKHOLDERS. Except as otherwise provided in the By-Laws, in
accordance with applicable law, the Corporation shall not be required to hold
an annual meeting of stockholders in any year unless required by applicable
law. Election of directors, whether by the directors or by stockholders, need
not be by ballot unless the By-Laws so provide.
7.3 INSPECTION OF RECORDS. Stockholders of the Corporation shall have only
such rights to inspect and copy the records, documents, accounts and books of
the Corporation and to request statements regarding its affairs as are
provided by the Maryland General Corporation Law, subject to such reasonable
regulations, not contrary to the General Laws of the State of Maryland, as the
Board of Directors may from time to time adopt regarding the conditions and
limits of such rights.
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.
7.5 WHOLLY-OWNED SUBSIDIARIES. The Corporation may own all or any portion of
the securities of, make loans to, or contribute to the costs or other
financial requirements of any company which is wholly owned by the Corporation
or by the Corporation and by one or more other investment companies and is
primarily engaged in the business of providing, at cost, management,
administrative or related services to the Corporation or to the Corporation
and other investment companies.
7.6 AMENDMENTS. The Corporation reserves the right to amend, alter, change or
repeal any provision of these Articles of Incorporation, and all rights
conferred upon stockholders herein are granted subject to this reservation.
7.7 REFERENCES TO STATUTES, ARTICLES AND BY-LAWS. All references herein to
statutes, to these Articles of Incorporation or to the By-Laws shall be deemed
to refer to those statutes, Articles or By-Laws as they are amended and in
effect from time to time.
IN WITNESS WHEREOF, the undersigned incorporator of PBHG INSURANCE SERIES
FUND, INC. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to be his act.
Dated this 23rd day of December, 1996.
/s/JOHN M. ZERR
_____________________________________
John M. Zerr, Incorporator
