As filed with the Securities and Exchange Commission
on April 30, 1998
Registration Nos. 333-19497
811-08009
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment [ ]
Post-Effective Amendment No. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 5 [X]
(Check appropriate box or boxes.)
PBHG INSURANCE SERIES FUND, INC.
--------------------------------------------------
(Exact name of registrant as specified in charter)
825 Duportail Road
Wayne, Pennsylvania 19087
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (610) 341-9000
Harold J. Baxter
825 Duportail Road
Wayne, Pennsylvania 19087
(Name and Address of Agent For Service)
Copies to:
William H. Rheiner, Esq. and to John M. Zerr, Esq.
Ballard Spahr Andrews & Ingersoll Pilgrim Baxter & Associates, Ltd.
1735 Market Street, 51st Floor 825 Duportail Road
Philadelphia, PA 19103-7599 Wayne, PA 19087
(215) 864-8600 (610) 341-9000
<PAGE>
Approximate Date of
Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
It is proposed that this filing will become effective (check appropriate box)
| | immediately upon filing pursuant to paragraph (b)
|X| on May 1, 1998 pursuant to paragraph (b)
| | 60 days after filing pursuant to paragraph (a)(1)
| | on (date) pursuant to paragraph (a)(1)
| | 75 days after filing pursuant to paragraph (a)(2)
| | on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
| | this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Offered: Common Stock
2
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 495 (a))
PART A
N-1A
- ----
<TABLE>
<CAPTION>
Item No. Location
- -------- --------
<S> <C>
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 Company
5. Management of the Fund General Information--Directors of the
Company; General Information--The
Adviser; General Information--The Sub-
Adviser (Small Cap Value, Mid-Cap
Value, and Large Cap Value Portfolios);
General Information--The Administrator
and the Sub-Administrator; General
Information--The Transfer Agent and
Shareholder Servicing Agents; General
Information--The Distributor
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Securities General Information--Voting Rights; Tax
Status, Dividends and Distributions
7. Purchase of Securities Being Offered Purchases and Redemptions; Net Asset
Value
8. Redemption or Repurchase Purchases and Redemptions; Net Asset
Value
9. Pending Legal Proceedings Not Applicable
</TABLE>
3
<PAGE>
PART B
<TABLE>
<CAPTION>
Item No. Location
- -------- --------
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Company
13. Investment Objectives and Policies Description of Permitted Investments;
Investment Limitations; Description of
Shares
14. Management of the Fund Directors and Officers of the Company;
The Administrator and Sub-Administrator
15. Control Persons and Principal Holders Directors and Officers of the Company
of Securities
16. Investment Advisory and Other The Adviser; The Sub-Adviser;
Services The Administrator and Sub-Administrator;
The Distributor
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption and Pricing of Purchase and Redemption of
Securities Being Offered Shares; Determination of Net Asset Value
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
4
<PAGE>
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.
5
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
PROSPECTUS DATED MAY 1, 1998
PBHG Insurance Series Fund, Inc. (the "Company") is an open-end management
investment company authorized to issue multiple series of shares, each
representing a portfolio of investments (individually, a "Portfolio" and
collectively, the "Portfolios"). The Company currently has authorized seven
series.
This Prospectus sets forth concisely the information about the Company that a
prospective investor should know before investing. The Company's shares are
offered only to insurance companies ("Participating Insurance Companies") to
fund benefits under their variable annuity contracts ("VA Contracts") and
variable life insurance policies ("VLI Policies").
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. Additional information about the Company 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 Company at 1-800-347-9256. The SEC
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Company and other registrants that file electronically with the
SEC. The Statement of Additional Information, as amended from time to time,
bears the same date as this Prospectus and is incorporated by reference in its
entirety into this Prospectus.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities of the Company in any jurisdiction in which such
sale, offer to sell, or solicitation may not be lawfully made.
INVESTMENTS IN THE COMPANY ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. SHARES OF THE COMPANY ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN THE COMPANY 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, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE COMPANY ARE AVAILABLE AND ARE BEING OFFERED EXCLUSIVELY AS A
POOLED FUNDING VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL TYPES OF
VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY CONTRACTS.
<PAGE>
TABLE OF CONTENTS
SUMMARY ................................................................ 3
EXPENSE SUMMARY.......................................................... 6
FINANCIAL HIGHLIGHTS..................................................... 8
INVESTMENT OBJECTIVES AND POLICIES....................................... 9
GENERAL INVESTMENT POLICIES AND STRATEGIES............................... 15
RISK FACTORS............................................................. 16
INVESTMENT LIMITATIONS................................................... 18
PURCHASES AND REDEMPTIONS................................................ 19
NET ASSET VALUE.......................................................... 20
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.................................. 20
PERFORMANCE ADVERTISING.................................................. 21
GENERAL INFORMATION...................................................... 23
GLOSSARY OF PERMITTED INVESTMENTS........................................ 29
2
<PAGE>
SUMMARY
The Company
The Company is an open-end management investment company which currently offers
shares of seven 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 Mid-Cap Value Portfolio (the "Mid-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 Company 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
Company, 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 and
Mid-Cap Value Portfolios each seek 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 Pilgrim Baxter Value Investors, Inc.
(the "Sub-Adviser") to be relatively undervalued based on certain proprietary
measures of value. The Mid-Cap Value Portfolio invests primarily in common
stocks and other equity securities of companies with market capitalizations in
the range of companies represented in the Standard & Poor's Mid-Cap 400 Index
("S&P 400") which are considered by the Adviser and 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
3
<PAGE>
securities of a limited number of larger capitalization companies (no more than
20 issuers) 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,
the Mid-Cap Value Portfolio invests extensively in securities of medium
capitalization companies, and, to a lesser extent, the Technology &
Communications Portfolio also invests in small or medium capitalization company
stocks and, therefore, may experience greater price volatility than investment
companies that invest primarily in more established, larger capitalized
companies. Because the Select 20 Portfolio invests in equity securities of a
relatively small number of companies, the impact of a change in value of a stock
holding may be magnified. Although the Technology & Communications Portfolio
will invest in the securities of technology companies in many different
industries, many of these industries share common characteristics. Furthermore,
equity securities of technology companies may be subject to greater price
volatility than securities of companies in many other industries. Each of the
Portfolios may invest in equity securities of non-U.S. issuers, which are
subject to certain risks not typically associated with domestic securities. Such
risks include changes in currency rates and in exchange control regulations,
costs associated with conversions between various currencies, limited publicly
available information regarding foreign issuers, lack of uniformity in
accounting, auditing and financial standards and requirements, greater
securities market volatility, less liquidity, less government supervision of
securities markets, changes in taxes on income on securities, and possible
seizure, nationalization or expropriation of the foreign issuer or foreign
deposits. The Portfolios also may enter into futures contracts, which are
subject to special risks. When futures contracts are being used for hedging
purposes, such risks include the potential of imperfect correlation between the
change in the value of a futures contract purchased or sold and the market value
of the securities held by the Portfolios; the possible failure to correctly
predict movements in the direction of the market; and the risk that the
Portfolios may not be able to close out a particular futures contract because of
a lack of a liquid secondary market in such futures contract. Other risks of
investing in futures contracts include that the prices of futures contracts are
volatile and are influenced by changes in market and interest rates and that
futures trading involves an extremely high degree of leverage which may result
in losses in excess of the amount invested in the futures contract. See
"Investment Objectives and Policies," "Risk Factors" and "Glossary of Permitted
Investments" in the Prospectus and see "Risks of Transactions in Futures
Contracts and Options" in the Statement of Additional Information.
WHO ARE THE ADVISER AND THE SUB-ADVISER? Pilgrim Baxter & Associates, Ltd.
serves as the investment adviser to each Portfolio. Pilgrim Baxter Value
Investors, Inc., a wholly-owned subsidiary of the Adviser, serves as the
investment sub-adviser to the Small Cap Value, Mid-Cap Value and Large Cap Value
Portfolios. See "Expense Summary," "The Adviser," and "The Sub-Adviser."
WHO ARE THE ADMINISTRATOR AND SUB-ADMINISTRATOR? PBHG Fund Services, a
wholly-owned subsidiary of the Adviser, serves as the Administrator of the
Company and SEI Fund
4
<PAGE>
Resources, an affiliate of the Company's distributor, serves as
Sub-Administrator of the Company. See "The Administrator and Sub-Administrator."
WHO ARE THE TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS? DST Systems, Inc.
serves as the transfer agent and dividend disbursing agent of the Company. PBHG
Fund Services serves as shareholder servicing agent of the Company. UAM
Shareholder Service Center, Inc. ("UAM SSC"), an affiliate of the Adviser,
provides services to the Company pursuant to a sub-shareholder servicing
agreement between PBHG Fund Services and UAM SSC. See "The Transfer Agent and
Shareholder Servicing Agents."
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. provides the Company
with distribution services. See "The Distributor."
HOW ARE SHARES PURCHASED AND REDEEMED? Individual investors may not purchase or
redeem shares of the Portfolios directly; shares may be purchased or redeemed
only through VA Contracts and VLI Policies offered by separate accounts of
Participating Insurance Companies. See "Purchases and Redemptions."
5
<PAGE>
EXPENSE SUMMARY
The purpose of this section is to provide you with information about the
expenses of the various Portfolios.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
================================================================================================================================
Large Cap Small Cap Mid-Cap Large Cap Technology &
Growth II Growth Value Value Value Communications Select 20
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None None None
- --------------------------------------------------------------------------------------------------------------------------------
Sales Load Imposed on Reinvested None None None None None None None
Dividends
- --------------------------------------------------------------------------------------------------------------------------------
Deferred Sales Load None None None None None None None
- --------------------------------------------------------------------------------------------------------------------------------
Redemption Fees None None None None None None None
- --------------------------------------------------------------------------------------------------------------------------------
Exchange Fees None None None None None None None
================================================================================================================================
</TABLE>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets
after applicable expense reimbursements or
fee waivers)
<TABLE>
<CAPTION>
==================================================================================================================================
Large Cap Small Cap Mid-Cap Large Cap Technology &
Growth II Growth Value Value Value Communications Select 20
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Advisory Fees (after fee waiver) .00% .00% .00% .43% .00% .00% .00%
- ----------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees None None None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
Other Expenses (after expense 1.20% 1.10% 1.20% .77% 1.00% 1.20% 1.20%
reimbursement)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee 1.20% 1.10% 1.20% 1.20% 1.00% 1.20% 1.20%
waiver/expense reimbursement)
==================================================================================================================================
</TABLE>
The Adviser has voluntarily agreed to waive or limit its Advisory Fees or assume
Other Expenses in an amount that operates to limit Total Operating Expenses of
the Portfolios to not more than 1.20% of the average daily net assets of the
Growth II, Small Cap Value, Mid-Cap Value, Technology & Communications and
Select 20 Portfolios, to not more than 1.10% of the average daily net assets of
the Large Cap Growth Portfolio, and to not more than 1.00% of the average daily
net assets of the Large Cap Value Portfolio, through December 31, 1998. Total
Operating Expenses include, but are not limited to, expenses such as investment
advisory fees, custodian fees, transfer agent fees, audit fees and legal fees.
Such waiver of Advisory Fees and possible assumption of Other Expenses by the
Adviser is subject to a possible reimbursement by the Portfolios in future years
if such reimbursement can be achieved within the foregoing annual expense
limits. Such fee waiver/expense reimbursement arrangements may be modified or
terminated at any time after December 31, 1998. Absent such fee waivers/expense
reimbursements, the Advisory Fees and Total Operating Expenses for the Growth
II, Large Cap Growth, Small Cap Value, Large Cap Value, Technology &
Communications and Select
6
<PAGE>
20 Portfolios would be .85% and 4.38%; .75% and 5.21%; 1.00% and 3.63%; .65% and
8.04%; .85% and 5.09%; and .85% and 3.36%, respectively. The Mid-Cap Value
Portfolio had not yet commenced operations as of the date of this Prospectus,
and the percentages set forth above are based on estimates for the current
fiscal year. Absent fee waivers and expense reimbursements, the Advisory Fees
and Total Operating Expenses for the current fiscal year for the Mid-Cap Value
Portfolio are estimated to be .85% and 1.62%, respectively.
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.
1 Year 3 Years
------ -------
Growth II Portfolio $12.00 $38.00
Large Cap Growth Portfolio $11.00 $35.00
Small Cap Value Portfolio $12.00 $38.00
Mid-Cap Value Portfolio $12.00 $38.00
Large Cap Value Portfolio $10.00 $32.00
Technology & Communications Portfolio $12.00 $38.00
Select 20 Portfolio $12.00 $38.00
The example is based upon Total Operating Expenses for the Portfolios, as set
forth in the "Annual Operating Expenses" table above (which are estimated for
the Mid-Cap Value Portfolio), 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 or VLI policies. Such charges and
expenses are described in the prospectus of the participating insurance fund
separate account. The purpose of this table is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Portfolios. See "The Adviser," "The Sub-Adviser," and
"The Administrator."
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the fiscal year ended December 31, 1997, has been
audited by Coopers & Lybrand L.L.P., the Company's independent accountants. The
Company's audited financial statements are incorporated by reference into the
Company's Statement of Additional Information under "Financial Information." The
following table should be read in conjunction with the Company's financial
statements and notes thereto. Additional information about each Portfolio's
performance is contained in the Company's Annual Report, which may be obtained
(without charge) by calling 1-800-347-9256. No information with respect to the
Mid-Cap Value Portfolio is included in the table because such Portfolio had not
yet commenced operations as of December 31, 1997.
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net
Asset Net Realized and Distributions Distributions Asset Net
Value Investment Unrealized from Net from Value Assets
Beginning Income Gains or Losses Investment Capital End Total End
of Period (Loss) on Securities Income Gains of Period Return** of Period
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PBHG Growth II Portfolio
1997(1) .... $10.00 -- $0.75 -- -- $10.75 7.50% $10,235,860
PBHG Large Cap Value Portfolio
1997(2) .... $10.00 $0.02 $0.41 -- -- $10.43 4.30% $ 1,560,495
PBHG Small Cap Value Portfolio
1997(2) .... $10.00 $0.01 $0.47 -- -- $10.48 4.80% $ 9,321,462
PBHG Technology & Communications Portfolio
1997(1) .... $10.00 -- $0.41 -- -- $10.41 4.10% $ 9,117,272
PBHG Select 20 Portfolio
1997(3) .... $10.00 -- $0.03 -- -- $10.03 0.30% $ 7,616,691
PBHG Large Cap Growth Portfolio
1997(1) .... $10.00 -- $1.82 -- -- $11.82 18.20% $ 4,916,261
</TABLE>
<TABLE>
<CAPTION>
Ratio
of Net
Ratio Income
Ratio of Expenses (Loss)
Ratio of Net to Average to Average
of Expenses Income (Loss) Net Assets Net Assets Portfolio Average
to Average to Average (Excluding (Excluding Turnover Commission
Net Assets Net Assets Waivers) Waivers) Rate Rate
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth II Portfolio
1997(1) .... 1.20%* (0.11)%* 4.38%* (3.29)%* 44.57% $0.0386
PBHG Large Cap Value Portfolio
1997(2) .... 1.00%* 1.91%* 8.04%* (5.13)%* 68.93% $0.0591
PBHG Small Cap Value Portfolio
1997(2) .... 1.20%* 1.40%* 3.63%* (1.03)%* 41.14% $0.0569
PBHG Technology & Communications Portfolio
1997(1) .... 1.20%* 0.37%* 5.09%* (3.52)%* 69.34% $0.0465
PBHG Select 20 Portfolio
1997(3) .... 1.20%* 0.51%* 3.36%* (1.65)%* 18.53% $0.0561
PBHG Large Cap Growth Portfolio
1997(1) .... 1.10%* 0.00%* 5.21%* (4.11)%* 37.42% $0.0497
</TABLE>
* Annualized.
** Total returns have not been annualized.
(1) The PBHG Growth II, PBHG Large Cap Growth, and PBHG Technology &
Communications Portfolios commenced operations on May 1, 1997.
(2) The PBHG Large Cap Value and PBHG Small Cap Value Portfolios commenced
operations on October 29, 1997.
(3) The PBHG Select 20 Portfolio commenced operations on September 26, 1997.
Amounts designated as "--" see above are either $0 or have been rounded to
$0.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Growth II Portfolio
The Growth II Portfolio, a diversified portfolio, seeks capital appreciation.
The Portfolio will normally be as fully invested as practicable in common stocks
and securities convertible into common stocks, but also may invest up to 5% of
its assets in warrants and rights to purchase common stocks. In the opinion of
the Adviser, there may be times when the shareholders' interests are best served
and the investment objective is more likely to be achieved by having varying
amounts of the Portfolio's assets invested in convertible securities. Under
normal market conditions, the Portfolio will invest at least 65% of its total
assets in common stocks and convertible securities of small and medium sized
growth companies (market capitalization or annual revenues up to $4 billion).
The average market capitalizations of holdings in the Portfolio may, however,
fluctuate over time as a result of market valuation levels and the availability
of specific investment opportunities. In addition, the Portfolio may continue to
hold securities of companies whose market capitalizations or annual revenues
grow above $4 billion subsequent to purchase, if the company continues to
satisfy the other investment policies of the Portfolio.
The Portfolio will seek to achieve its objective by investing in companies
believed by the Adviser to have an outlook for strong earnings growth and the
potential for significant capital appreciation. Securities will be sold when the
Adviser believes that anticipated appreciation is no longer probable,
alternative investments offer superior appreciation prospects, or the risk of a
decline in market price is too great. Because of its policy with respect to the
sales of investments, the Portfolio may from time to time realize short-term
gains or losses. The Portfolio will likely have somewhat greater volatility than
the stock market in general, as measured by the Standard & Poor's 500 Composite
Price Index ("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 of Directors of the Company. See "Risk
Factors" and "Glossary of Permitted Investments" in this Prospectus for a fuller
description of the Portfolio's permitted investments and their risks.
Large Cap Growth Portfolio
The Large Cap Growth Portfolio, a diversified portfolio, seeks long-term growth
of capital. The Portfolio will normally be substantially invested in equity
securities (including ADRs and foreign securities). The equity securities in
which the Portfolio will invest are common stocks, warrants and rights to
purchase common stocks, and debt securities and preferred stock convertible into
common stocks. Normally, the Portfolio will purchase exchange-traded and
over-the-counter equity securities, including foreign securities traded in the
United States. The Portfolio may invest in convertible debt
9
<PAGE>
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 Company. See "Risk Factors" and "Glossary of Permitted
Investments" in this Prospectus for a fuller description of the Portfolio's
permitted investments and their risks.
Small Cap Value Portfolio
The Small Cap Value Portfolio, a diversified portfolio, seeks to achieve
above-average total return over a market cycle of three to five years,
consistent with reasonable risk, by investing primarily in a diversified
portfolio of common stocks of small companies with market capitalizations in the
range of companies represented in the Russell 2000 Index which are considered to
be relatively undervalued based on certain proprietary measures of value.
The current market capitalization of companies in the Russell 2000 Index is
typically between $100 million and $1.5 billion. It is expected that securities
purchased by the Portfolio will typically exhibit lower price/earnings and
price/book value ratios than the average of those in the Russell 2000 Index.
Under normal circumstances, the Portfolio will be structured taking into account
the economic sector weightings of the Russell 2000 Index, with the Portfolio's
sector weightings normally within 10% of the sector weightings of that Index.
In selecting investments for the Portfolio, the Adviser and Sub-Adviser
emphasize fundamental investment value and consider the following factors, among
others, in identifying and analyzing a security's fundamental value: the
relationship of a company's potential earnings power to its current stock price;
current dividend income and the potential for current dividends; low
price/earnings ratio relative to other similar companies; strong competitive
advantages, including a recognized brand or trade name or niche market position;
sufficient resources for expansion; capability of management; and favorable
overall business prospects. The Portfolio may invest in equity securities of
companies that are considered to be financially sound and attractive investments
based on their operating history, but which may be experiencing temporary
earnings declines due to adverse economic conditions that may be company or
industry specific or due to unfavorable publicity. The Portfolio may invest in
such companies when the Adviser and Sub-Adviser believe that those companies
will react positively to changing economic conditions or that such companies
have taken or are expected to take actions designed to improve their financial
fundamentals or to otherwise increase the market price of their securities. The
utilization of a valuation approach may result in investment selections that may
be
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out-of-favor or counter to those of other investors. However, such an approach
may also produce significant capital appreciation.
In addition to the Portfolio's primary investment (i.e., 65% of its total
assets) in common stocks of undervalued small capitalization companies, the
Portfolio may also invest in other equity securities (i.e., preferred stocks,
warrants and securities convertible into or exchangeable for common stocks) of
such small capitalization issuers. The Portfolio may also utilize futures
contracts (i.e., purchase and sell futures contracts) to the extent that (i)
aggregate initial margin deposits to establish other than "bona fide hedging"
positions does not exceed 5% of the Portfolio's net assets and (ii) the total
market value of securities underlying all futures contracts does not exceed 50%
of the value of the Portfolio's total assets. In addition, the Portfolio may
invest up to 15% of its net assets in restricted or illiquid securities. This
limitation does not include any Rule 144A security that has been determined to
be liquid pursuant to procedures established by the Board. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions and, for temporary
defensive purposes, may invest in money market securities or short-term bonds
without limitation. See "General Investment Policies and Strategies -- Temporary
Defensive Positions" below for a fuller description.
The securities in which the Portfolio invests normally will be traded in the
United States or Canada on a registered securities exchange or established
over-the-counter market. The Portfolio may invest up to 15% of its total assets
in securities of foreign issuers, including ADRs and other similar instruments.
In addition, the Portfolio may purchase securities on a when-issued or delayed
delivery basis.
See "Risk Factors" and "Glossary of Permitted Investments" in this Prospectus
for a fuller description of the Portfolio's permitted investments and their
risks.
Mid-Cap Value Portfolio
The Mid-Cap Value Portfolio, a diversified portfolio, seeks to achieve
above-average total return over a market cycle of three to five years,
consistent with reasonable risk, by investing in common stocks and other equity
securities of companies with market capitalizations in the range of companies
represented in the S&P 400, which are considered to be relatively undervalued
based on certain proprietary measures of value. The current market
capitalization of companies represented in the S&P 400 is typically between $200
million and over $5 billion. It is expected that securities purchased by the
Portfolio will typically exhibit lower price/earnings ratios than the average of
those in the S&P 400. Under normal circumstances, the Portfolio will be
structured taking into account the economic sector weightings of the S&P 400
with the Portfolio's sector weightings normally within 5% of the sector
weightings of that Index.
In selecting investments for the Portfolio, the Adviser and Sub-Adviser
emphasize fundamental investment value and consider the following factors, among
others, in identifying and analyzing a security's fundamental value and capital
appreciation potential: the relationship of a company's potential earnings power
to its current stock price; current dividend income and the potential for
dividend growth; low price/earnings ratio relative to other similar companies;
strong competitive advantages, including a recognized brand or trade name or
niche market position; sufficient resources for expansion; capability of
management; and favorable overall business prospects. The Portfolio
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may invest in 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 use 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.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities (i.e., common stocks, preferred stocks,
warrants and securities convertible into or exchangeable for common stocks) of
undervalued medium capitalization issuers. 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 other similar instruments. The Portfolio may also
utilize futures contracts (i.e., purchase and sell futures contracts) to the
extent that (i) aggregate initial margin deposits to establish other than "bona
fide hedging" positions do not exceed 5% of the Portfolio's net assets and (ii)
the total market value of securities underlying all futures contracts does not
exceed 50% of the value of the Portfolio's total assets. In addition, the
Portfolio may invest up to 15% of its net assets in restricted or illiquid
securities. This limitation does not include any Rule 144A security that has
been determined to be liquid pursuant to procedures established by the Board.
The Portfolio may also engage in securities lending. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions and, for temporary
defensive purposes, may invest in money market securities or short-term bonds
without limitation. See "Temporary Defensive Positions" below for a fuller
description. In addition, the Portfolio may purchase securities on a when-issued
or delayed delivery basis.
See "Risk Factors" and "Glossary of Permitted Investments" for additional
information.
Large Cap Value Portfolio
The Large Cap Value Portfolio, a diversified portfolio, seeks long-term growth
of capital and income. Current income is a secondary objective. Under normal
market conditions, the Portfolio will invest at least 65% of its total assets in
a diversified portfolio of equity securities (i.e., common stocks, preferred
stocks, rights, warrants and securities convertible into or exchangeable for
common stocks) of large capitalization companies which, in the opinion of the
Adviser and Sub-Adviser, are undervalued or overlooked by the market. Such large
companies have market capitalizations in excess of $1 billion at the time of
purchase.
In selecting investments for the Portfolio, the Adviser and Sub-Adviser
emphasize fundamental investment value and consider the following factors, among
others, in identifying and analyzing a security's fundamental value: the
relationship of a company's potential earning power to the current market price
of its stock; continuing dividend income and the potential for increasing
dividend growth; a strong balance sheet with low financial leverage; low
price/earnings ratio relative to either that company's historical results or the
current ratios for other similar companies; and potential for
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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 also
utilize futures contracts (i.e., purchase and sell futures contracts) to the
extent that (i) aggregate initial margin deposits to establish other than "bona
fide hedging" positions do not exceed 5% of the Portfolio's net assets and (ii)
the total market value of securities underlying all futures contracts does not
exceed 50% of the value of the Portfolio's total assets. 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 use of a valuation approach may result in investment selections that may be
out-of-favor or counter to those of other investors. However, such an approach
may also produce significant capital appreciation. See "Risk Factors" and
"Glossary of Permitted Investments" in this Prospectus for a fuller description
of the Portfolio's permitted investments and their risks.
Technology & Communications Portfolio
The Technology & Communications Portfolio, a diversified portfolio, seeks
long-term growth of capital. Current income is incidental to the Portfolio's
objective. Under normal market conditions, the Portfolio will invest at least
65% of its total assets in common stocks of companies which rely extensively on
technology or communications in their product development or operations, or
which are expected to benefit from technological advances and improvements, and
that may be experiencing exceptional growth in sales and earnings driven by
technology-related or communications-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
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stocks and debt securities and preferred stocks convertible into common stocks.
Stock selections will not be based on company size, but rather on an assessment
of a company's fundamental prospects. As a result, the Portfolio's stock
holdings can range from small companies developing new technologies or pursuing
scientific breakthroughs to large, blue chip firms with established track
records in developing and marketing such scientific advances.
Normally, the Portfolio will purchase securities traded in the U.S. or Canada on
registered exchanges or in the over-the-counter market. The Portfolio may also
invest, in the aggregate, up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the U.S. and Canada and, for
hedging purposes, may purchase and sell options on stocks or stock indices. The
Portfolio also may invest up to 15% of its net assets in illiquid securities.
See "Risk Factors" and "Glossary of Permitted Investments" in this Prospectus
for a fuller description of the Portfolio's permitted investments and their
risks.
Select 20 Portfolio
The Select 20 Portfolio, a non-diversified portfolio, seeks long-term growth of
capital. The Portfolio will normally be substantially invested in equity
securities (including ADRs and foreign equity securities). The equity securities
in which the Portfolio will invest are common stocks, warrants and rights to
purchase common stocks, and debt securities and preferred stocks 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
highest 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
issuers) 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 Company. See "Risk Factors" and "Glossary of Permitted
Investments" in this Prospectus for a fuller description of the Portfolio's
permitted investments and their risks.
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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 the Growth II, Large
Cap Growth, Technology & Communications, and Select 20 Portfolios is both
quantitative and fundamental, and is focused on quality earnings growth. In
seeking to identify 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, Mid-Cap Value, and Large Cap Value
Portfolios
The Sub-Adviser's investment process with respect to the Small Cap Value,
Mid-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 each such Portfolio, the Sub-Adviser first creates a universe
of companies each of whose current share price is low in relation to its real
worth or future prospects. Using custom designed research models and proprietary
software, which incorporate certain key elements of value investing (such as
consistency of dividend payment, balance sheet strength, and low stock price
relative to its assets, earnings, cash flow and business franchise), the
Sub-Adviser screens more than 8,000 possible companies and creates an initial
universe of statistically attractive value companies. Following the creation of
this universe of possible investments, the Sub-Adviser uses its strong
fundamental research capabilities to carefully identify securities that are
currently out of favor but which have the potential to achieve significant
appreciation as the marketplace recognizes their fundamental value. Once
constructed, portfolios are continually monitored for change. The Sub-Adviser
follows a disciplined valuation approach that requires it to sell any portfolio
security that becomes overvalued relative to the market. Sales of portfolio
securities are primarily triggered by the relative change in a company's
price/earnings ratio. Adverse changes in other key value elements are, of
course, factors that would also trigger a sale. Of course, there can be no
assurance that use of these techniques will be successful.
Portfolio Turnover
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. It is expected that under normal market conditions, the annual
portfolio turnover rate for the Large Cap Value Portfolio will not exceed
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100%, and with respect to the Growth II and Large Cap Growth Portfolios will not
exceed 150%. It is expected that under normal market conditions, the annual
portfolio turnover rate for the Small Cap Value Portfolio will not exceed 200%
and with respect to the Select 20 and Technology & Communications Portfolios
will not exceed 300%. It is expected that under normal market conditions, the
annual portfolio turnover rate for the Mid-Cap Value Portfolio will not exceed
400%. High rates of portfolio turnover necessarily result in correspondingly
greater brokerage and portfolio trading costs, which are paid by the Portfolios.
Trading in fixed-income securities does not generally involve the payment of
brokerage commissions, but does involve indirect transaction costs. In addition,
high rates of portfolio turnover may adversely affect each Portfolio's status as
a "regulated investment company" ("RIC") under Section 851 of the Internal
Revenue Code of 1986, as amended ("Code").
Temporary Defensive Positions
Under normal market conditions, each Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Adviser or Sub-Adviser, as appropriate, determines that
market conditions warrant, each Portfolio may invest up to 100% of its assets in
cash and money market instruments (consisting of securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; certificates of
deposit, time deposits and bankers' acceptances issued by banks or savings and
loan associations having net assets of at least $500 million as stated on their
most recently published financial statements; commercial paper rated in one of
the two highest rating categories by at least one NRSRO; repurchase agreements
involving such securities; and, to the extent permitted by applicable law and
each Portfolio's investment restrictions, shares of other investment companies
investing solely in money market securities). To the extent a Portfolio is
invested in temporary defensive instruments, it will not be pursuing its
investment objective. See "Glossary of Permitted Investments" and the Statement
of Additional Information.
RISK FACTORS
Small and Medium Capitalization Stocks
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in each
Portfolio may be more suitable for long-term investors who can bear the risk of
these fluctuations. The Growth II and Small Cap Value Portfolios invest
extensively in securities issued by small capitalization companies. The Mid-Cap
Value Portfolio invests extensively in securities issued by medium
capitalization companies. In certain cases, the Technology & Communications
Portfolio invests in securities of issuers with small or medium market
capitalizations. While the Adviser and Sub-Adviser intend to invest in small and
medium capitalization companies that have strong balance sheets and that the
Adviser's and/or Sub- Adviser's research indicates should exceed consensus
earnings expectations, any investment in small and medium capitalization
companies involves greater risk and price volatility than that customarily
associated with investments in larger, more established companies. This
increased risk may be due to the greater business risks of their small size,
limited markets and financial resources, narrow product lines and frequent lack
of management depth. The securities of small and medium capitalization companies
are often traded in the over-the-counter market, and might not be traded in
volumes typical
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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. Foreign securities held by a Portfolio may be traded, and net asset
value may be significantly affected, at times when investors have no access to
the Company.
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.
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Futures Contracts
The primary risks associated with the use of futures contracts for hedging
purposes are: (i) imperfect correlations between the change in market value of
the securities held by a Portfolio and the prices of futures contracts purchased
or sold by a Portfolio; (ii) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a futures position, which
could have an adverse impact on a Portfolio's ability to execute futures and
options strategies; and (iii) the possible failure to correctly predict
movements in the direction of the market. Other risks of investing in futures
contracts include that the prices of futures contracts are volatile and are
influenced by changes in market and interest rates and that futures trading
involves an extremely high degree of leverage which may result in losses in
excess of the amount invested in the futures contract.
For additional information regarding risks and permitted investments for each
Portfolio, see "Glossary of Permitted Investments" and the Statement of
Additional Information.
INVESTMENT LIMITATIONS
The investment objectives of each Portfolio, the investment limitations set
forth below and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of the Portfolios. A Portfolio's
fundamental policies cannot be changed without the consent of the holders of a
majority of the Portfolio's outstanding shares.
A Portfolio, as a fundamental policy, may not:
1. Except for the Select 20 Portfolio, purchase securities of any issuer (except
securities issued or guaranteed by the United States, its agencies or
instrumentalities and repurchase agreements involving such securities) if, as a
result, more than 5% of the total assets of the Portfolio would be invested in
the securities of such issuer. This restriction applies to 75% of each
Portfolio's total assets.
With respect to the Select 20 Portfolio only, purchase securities of any issuer
(except securities issued or guaranteed by the United States, its agencies and
instrumentalities and repurchase agreements involving such securities) if, as a
result, more than 5% of the total assets of the Portfolio would be invested in
securities of such issuer. This restriction applies to 50% of the Select 20
Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
a Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be considered a
separate industry, and (ii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry. For purposes of this limitation, supranational organizations are
deemed to be issuers conducting their principal business activities in the same
industry.
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3. Borrow money except for temporary or for emergency purposes and then only in
an amount not exceeding 10% of the value of each Portfolio's total assets
(except not exceeding 33 1/3% of the value of total assets with respect to the
Growth II, Mid-Cap Value, and Small Cap Value Portfolios). This borrowing
provision is included solely to facilitate the orderly sale of portfolio
securities to accommodate substantial redemption requests if they should occur
and is not for investment purposes. All borrowings in excess of 5% of a
Portfolio's total assets will be repaid before making investments.
The foregoing percentages will apply at the time of the purchase of a security.
PURCHASES AND REDEMPTIONS
Individual investors may not purchase or redeem shares of the Portfolios
directly; shares may be purchased or redeemed only through VA Contracts and VLI
Policies offered by separate accounts of Participating Insurance Companies.
Please refer to the prospectus of the sponsoring Participating Insurance Company
separate account for instructions on purchasing a VA Contract or VLI Policy.
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.
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 or VLI Policy owners would be permitted to continue to authorize
investments in the Portfolios.
Redemptions. Shares of a Portfolio may be redeemed on any Business Day.
Redemption orders which are received by a Participating Insurance Company prior
to the close of regular trading on the NYSE on any Business Day and transmitted
to the Company 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. Redemption proceeds will normally
be wired to the Participating Insurance Company on the Business Day following
receipt of the redemption order by the Participating Insurance Company, but in
no event later than seven days after receipt of such order.
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NET ASSET VALUE
Each Portfolio calculates the net asset value of a share by dividing the total
value of its assets, less liabilities, by the number of shares outstanding.
Shares are valued as of the close of trading on the NYSE (currently 4:00 p.m.,
Eastern time). Portfolio securities listed on an exchange or quoted on a
national market system are valued at the last sales price. Other securities are
quoted at the most recent bid price. Short-term obligations are valued at
amortized cost. Securities for which market quotations are not readily available
and other assets held by the Company, if any, are valued at their fair value as
determined in good faith by the Board of Directors. See "Determination of Net
Asset Value" in the Statement of Additional Information.
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
Taxes
For a discussion of the tax status of a VA Contract or VLI Policy, refer to the
Participating Insurance Company separate account prospectus.
Each Portfolio intends to qualify and elect to be treated as a regulated
investment company that is taxed under the rules of Subchapter M of the Code. As
such, a Portfolio will not be subject to federal income tax on its net ordinary
income and net realized capital gains to the extent such income and gains are
distributed to the separate accounts of Participating Insurance Companies which
hold its shares. Because shares of the Portfolios may be purchased only through
VA Contracts and VLI Policies, 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 will be exempt from current taxation of
the VA Contract owner or VLI Policy owner if left to accumulate within the VA
Contract or VLI Policy.
The Clinton Administration's fiscal year 1999 budget proposal would treat a
redemption of shares of the Portfolios by VA Contracts and VLI Policies as a
taxable transaction, and it can be expected that similar proposals may be
introduced in Congress in the near future. The Company cannot predict what
proposals, if any, might be enacted or whether such proposals, if enacted, would
apply retroactively to shares of the Portfolios that are issued and outstanding
as of the date of enactment.
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
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behalf of a separate account of a Participating Insurance Company to receive
distributions in cash. Participating Insurance Companies will be informed at
least annually about the amount and character of distributions from the Company
for federal income tax purposes.
PERFORMANCE ADVERTISING
From time to time, each Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. Yield refers to the annualized income generated by an
investment in the Portfolio over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
The total return of each Portfolio refers to the average compounded rate of
return on a hypothetical investment for designated time periods (including but
not limited to the period from which the Portfolio commenced operations through
the specified date), assuming that the entire investment is redeemed at the end
of each period and assuming the reinvestment of all dividend and capital gain
distributions.
Total returns quoted for a Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract. Accordingly, the prospectus of the sponsoring
Participating Insurance Company separate account should be carefully reviewed
for information on relevant charges and expenses. Excluding these charges and
expenses from quotations of a Portfolio's performance has the effect of
increasing the performance quoted, and the effect of these charges should be
considered when comparing a Portfolio's performance to that of other mutual
funds.
Each Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. Each Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
Each Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. Each Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.
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Performance of Other Mutual Funds Managed by the Adviser
Each of the Large Cap Growth, Small Cap Value, Mid-Cap Value, Large Cap Value,
Technology & Communications, and Select 20 Portfolios has investment objectives,
policies and strategies that are substantially similar to those of a
corresponding series of The PBHG Funds, Inc.(the "PBHG Funds"), a mutual fund
company that is also managed by the Adviser. The performance of these
corresponding funds may be relevant to an investor in one or more of the
Portfolios. The sections that follow set forth the performance of each Portfolio
and its corresponding PBHG Fund.
Investors should not consider the performance data of the PBHG Funds to be an
indication of the future performance of the Portfolios. The performance data for
the PBHG Funds reflect the deduction of the historical fees and expenses paid by
the PBHG Funds, and not those to be paid by the Portfolios. The performance data
for the Portfolios do not reflect the deduction of any insurance fees or charges
which are imposed by the Participating Company in connection with the sale of VA
Contracts and VLI Policies. (The PBHG Funds are not sold through VA Contracts
and VLI Policies, so insurance fees or charges do not apply.) 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 reduce the return on the Portfolios. In
addition, although each Portfolio anticipates holding similar securities as its
corresponding PBHG Fund, investment results are expected to differ. In
particular, differences in asset size and cash flow resulting from purchases and
redemptions of Portfolio shares may result in different selection of securities,
differences in the relative weightings of securities, or differences in the
price paid for particular portfolio holdings. The performance data 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.
Large Cap Growth Portfolio. The Large Cap Growth Portfolio has investment
objectives, policies and strategies that are substantially similar to those of
the PBHG Large Cap Growth Fund, a series of The PBHG Funds, Inc. The Portfolio
has been in operation since May 1, 1997. The total return for the Portfolio from
inception through March 31, 1998 was 35.10%. The PBHG Large Cap Growth Fund has
been in operation since April 5, 1995. The total return for the PBHG Large Cap
Growth Fund for the one year period ended March 31, 1998 was 60.80%, and the
average annual total return from inception through March 31, 1998 was 33.43%.
Small Cap Value Portfolio. The Small Cap Value Portfolio has investment
objectives, policies and strategies that are substantially similar to those of
the PBHG Small Cap Value Fund, a series of The PBHG Funds, Inc. The Portfolio
has been in operation since October 29, 1997. The total return for the Portfolio
from inception through March 31, 1998 was 19.50%. The PBHG Small Cap Value Fund
has been in operation since May 1, 1997. The total return for the PBHG Small Cap
Value Fund from inception through March 31, 1998 was 62.27%.
Mid-Cap Value Portfolio. The Mid-Cap Value Portfolio has investment objectives,
policies and strategies that are substantially similar to those of the PBHG
Mid-Cap Value Fund, a series of The PBHG Funds, Inc. The Portfolio had not yet
commenced operations as of the date of this Prospectus and, accordingly, has no
performance to report. The PBHG Mid-Cap Value Fund has been in operation since
May 1, 1997. The total return for the PBHG Mid-Cap Value Fund from inception
through March 31, 1998 was 61.05%.
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Large Cap Value Portfolio. The Large Cap Value Portfolio has investment
objectives, policies and strategies that are substantially similar to those of
the PBHG Large Cap Value Fund, a series of The PBHG Funds, Inc. The Portfolio
has been in operation since October 29, 1997. The total return for the Portfolio
from inception through March 31, 1998 was 16.30%. The PBHG Large Cap Value Fund
has been in operation since January 2, 1997. The total return for the PBHG Large
Cap Value Fund for the one year period ended March 31, 1998 was 39.47%, and the
average annual total return from inception through March 31, 1998 was 31.74%.
Technology & Communications Portfolio. The Technology & Communications Portfolio
has investment objectives, policies and strategies that are substantially
similar to those of the PBHG Technology & Communications Fund, a series of The
PBHG Funds, Inc. The Portfolio has been in operation since May 1, 1997. The
total return for the Portfolio from inception through March 31, 1998 was 15.90%.
The PBHG Technology & Communications Fund has been in operation since October 2,
1995. The total return for the PBHG Technology & Communications Fund for the one
year period ended March 31, 1998 was 38.29%, and the average annual total return
from inception through March 31, 1998 was 33.57%.
Select 20 Portfolio. The Select 20 Portfolio has investment objectives, policies
and strategies that are substantially similar to those of the PBHG Large Cap 20
Fund, a series of The PBHG Funds, Inc. The Portfolio has been in operation since
September 26, 1997. The total return for the Portfolio from inception through
March 31, 1998 was 19.70%. The PBHG Large Cap 20 Fund has been in operation
since December 2, 1996. The total return for the PBHG Large Cap 20 Fund for the
one year period ended March 31, 1998 was 72.76%, and the average annual total
return from inception through March 31, 1998 was 42.21%.
GENERAL INFORMATION
The Company
PBHG Insurance Series Fund, Inc. is an open-end management investment company
which was incorporated in Maryland in 1997. All consideration received by the
Company for shares of any Portfolio and all assets of such Portfolio belong to
that Portfolio and are subject to liabilities related thereto. The Company
reserves the right to create and issue shares of additional series.
Each Portfolio of the Company pays its respective expenses relating to its
operation, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the shares of the
Portfolio under federal securities laws, pricing and insurance expenses and pays
additional expenses including litigation and other extraordinary expenses,
brokerage costs, interest charges, taxes and organization expenses.
The Adviser
Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The controlling shareholder of the Adviser is United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing
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institutional investment management services and acquiring institutional
investment management firms. UAM's corporate headquarters are located at One
International Place, Boston, Massachusetts 02110. The Adviser currently has
discretionary management authority with respect to over $14 billion in assets.
In addition to advising the Portfolios, the Adviser provides advisory services
to other mutual funds and to pension and profit-sharing plans, charitable
institutions, corporations, trusts and estates, and other investment companies.
The principal business address of the Adviser is 825 Duportail Road, Wayne,
Pennsylvania 19087.
The Adviser serves as the investment adviser to each of the Portfolios under an
investment advisory agreement with the Company (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, Mid-Cap
Value, and Large Cap Value Portfolios, oversees the investment management of the
Portfolios by the Sub-Adviser, subject to the supervision of, and policies
established by, the Board of Directors of the Company.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 1.00% of the Small Cap Value Portfolio's
average daily net assets, 0.85% of each of the Growth II, Technology &
Communications, Mid-Cap Value, 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, Mid-Cap Value, and Large Cap Value Portfolios)
Pilgrim Baxter Value Investors, Inc., 825 Duportail Road, Wayne, Pennsylvania
19087, is a registered investment adviser that was formed in 1940. The
Sub-Adviser is a wholly-owned subsidiary of the Adviser. The Sub-Adviser
currently has discretionary management authority with respect to over $4 billion
in assets. In addition to advising the Portfolios, the Sub-Adviser provides
advisory services to pension and profit-sharing plans, charitable institutions,
trusts, estates and other investment companies.
The Sub-Adviser serves as the investment sub-adviser for the Small Cap Value,
Mid-Cap Value, and Large Cap Value Portfolios pursuant to a sub-advisory
agreement with the Company and the Adviser (the "Sub-Advisory Agreement"). Under
the Sub-Advisory Agreement, the Sub-Adviser manages the investments of the Small
Cap Value, Mid-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 Company and
the Adviser.
For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreement, the Sub-Adviser is entitled to receive from the Adviser a fee,
computed daily and paid monthly, at an annual rate equal to .65% of the Small
Cap Value Portfolio's average daily net assets, 50% of the Mid-Cap Value
Portfolio's average daily net assets, and .40% of the Large Cap Value
Portfolio's average daily net assets.
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Expense Limitation Agreement
In the interest of limiting expenses of the Portfolios, the Adviser has entered
into an expense limitation agreement through December 31, 1998 with the Company
with respect to each Portfolio (the "Expense Limitation Agreement"), pursuant to
which the Adviser has agreed to waive or limit its fees and to assume other
expenses of the Portfolios to the extent necessary to limit the total annual
operating expenses (expressed as a percentage of each Portfolio's average daily
net assets) to not more than: 1.20% of the average daily net assets of the
Growth II, Small Cap Value, Mid-Cap Value, Technology & Communications and
Select 20 Portfolios; 1.10% of the average daily net assets of the Large Cap
Growth Portfolio; and 1.00% of the average daily net assets of the Large Cap
Value Portfolio. Such waivers and assumption of expenses by the Adviser may be
discontinued at any time after such date. Reimbursement by the Portfolios of the
advisory fees waived or limited and other expenses paid by the Adviser pursuant
to the Expense Limitation Agreement may be made at a later date when the
Portfolios have reached a sufficient asset size to permit reimbursement to be
made without causing the total annual expense ratio of each Portfolio to exceed
the Total Operating Expense percentages described above.
The Portfolio Managers
The Growth II Portfolio is managed by Gary L. Pilgrim, CFA and Jeffrey Wrona.
Mr. Pilgrim has been co-manager of the Portfolio since its inception. He has
served as the Chief Investment Officer of the Adviser since 1990 and is also a
Director of the Adviser. Mr. Pilgrim currently also manages or co-manages
several series of The PBHG Funds, Inc., another mutual fund managed by the
Adviser. Mr. Wrona has co-managed the Growth II Portfolio since January 29,
1998. Mr. Wrona joined the Adviser in 1997. Mr. Wrona was previously a Senior
Portfolio Manager with Munder Capital Management managing equity and balanced
portfolios and specializing in a Mid-Cap Growth mutual fund product. Mr. Wrona
has been employed in the past by Drexel Burnham Lambert and Ford Motor Company.
Mr. Wrona holds a bachelor's degree and an M.B.A. degree from the University of
Michigan.
The Large Cap Growth and Select 20 Portfolios are 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 is managed by Gary D. Haubold, CFA who will also
manage the Mid-Cap Value Portfolio. Mr. Haubold has managed the Small Cap Value
Portfolio since its inception. Mr. Haubold joined the Sub-Adviser in January
1997. Prior to joining the Sub-Adviser, Mr. Haubold was employed by Miller
Anderson & Sherrerd ("MAS") from 1993 until January 1997. At MAS, Mr. Haubold
served as the co-manager of the Mid-Cap Value Portfolio of the MAS Fund and the
co-manager of the Small Cap Value Portfolio of the MAS Fund ("MAS Small Cap
Value Portfolio"). Prior to joining MAS, Mr. Haubold was Senior Vice President
of Wood, Struthers & Winthrop.
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The Large Cap Value Portfolio is managed by James H. Farrell, CFA. Mr. Farrell
joined the Sub-Adviser in September 1996 and is its Chief Investment Officer.
Mr. Farrell also manages another mutual fund advised by the Sub-Adviser, a
series of The PBHG Funds, Inc. Prior to joining the Sub-Adviser, he was an
Investment Counselor in a sole proprietorship for two years. From 1983 to 1994,
he was a partner at Cashman, Farrell and Associates, an investment advisory
firm.
John F. Force, CFA manages 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 Company 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 Company. The principal place of business of the
Administrator is 825 Duportail Road, Wayne, Pennsylvania 19087.
SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Investments Company ("SEI") and an affiliate of the Company's
distributor, assists the Administrator in providing administrative services to
the Company. For acting in this capacity, the Administrator pays the
Sub-Administrator fees at an annual rate based on the combined average daily net
assets of the Company, The PBHG Funds, Inc., and PBHG Advisor Funds, Inc.
calculated as follows: (i) 0.040% of the first $2.5 billion, plus (ii) 0.025% of
the next $7.5 billion, plus (iii) 0.020% of the excess over $10 billion.
The Transfer Agent and Shareholder Servicing Agents
DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent and dividend disbursing agent for the Company under a
transfer agency agreement with the Company. PBHG Fund Services serves as
shareholder servicing agent of the Company. UAM Shareholder Service Center, Inc.
("UAM SSC"), an affiliate of the Adviser, provides services to the Company
pursuant to a sub-shareholder servicing agreement between PBHG Fund Services and
UAM SSC.
From time to time, the Company may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Company to
persons who beneficially own interests in the Company, such as participants in
Qualified Plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Company, delivering, on behalf of
the Company, proxy statements, annual reports, updated Prospectuses, other
communications regarding the Company, and related services as the Company or the
beneficial owners may reasonably request.
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The Distributor
SEI Investments Distribution Co. (the "Distributor"), One Freedom Valley Road,
Oaks, Pennsylvania 19456, a wholly-owned subsidiary of SEI, provides the Company
with distribution services.
Directors of the Company
The management and affairs of the Company are supervised by the Board of
Directors under the laws of the State of Maryland. The Directors have approved
agreements under which, as described above, certain companies provide essential
management services to the Company.
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 Company will be voted on only by
shareholders of the affected Portfolios. Shareholders of all Portfolios of the
Company will vote together in matters affecting the Company generally, such as
the election of Directors or selection of accountants. As a Maryland
corporation, the Company is not required to hold annual meetings of shareholders
but shareholder approval will be sought for certain changes in the operation of
the Company 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 Company. In the event that
such a meeting is requested, the Company 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. For a more
complete discussion of voting rights, refer to the Participating Insurance
Company separate account prospectus.
Conflicts of Interest
Each Portfolio offers its shares to VA Contracts and VLI Policies offered
through separate accounts of Participating Insurance Companies which may or may
not be affiliated with each other. Due to differences of tax treatment and other
considerations, the interests of VA Contract and VLI Policy owners 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 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 or VLI Policy 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.
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Reporting
The Company issues unaudited financial information semi-annually, and audited
financial statements annually for each Portfolio. The Company also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
Year 2000 Compliance
There is general concern throughout the industry that a number of computer
systems and software packages in use today may not be able to recognize the Year
2000 or accurately process information after December 31, 1999. The Company is
actively working with the Adviser, the Sub-Adviser and the Company's other
service providers, including but not limited to, the Administrator, Sub-
Administrator, Distributor, Transfer Agent and shareholder servicing agents to
identify potential problems and develop plans reasonably designed to address
these potential problems before the Year 2000. While there can be no absolute
assurance that all service providers will be fully Year 2000-compliant or that
non-compliant systems or software will have no impact at all, the Company
believes that these steps will be successful in identifying and minimizing any
negative impact associated with Year 2000 processing problems. Furthermore, the
Company does not currently anticipate that there will be any material cost to
the Company or any Portfolio as a result of this project.
Counsel and Independent Accountants
Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Company. Coopers
& Lybrand, L.L.P. serves as the independent accountants of the Company.
Custodian
CoreStates Bank, N.A. ("Custodian"), Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101, serves as the custodian for the Company. The
Custodian holds cash, securities and other assets of the Company as required by
the 1940 Act.
Miscellaneous
As of March 31, 1998, each of Fidelity Investments Life Insurance Co. and Life
Insurance Co. of Virginia owned of record more than 25% of the shares of each of
the Growth II and Large Cap Growth Portfolios and may be deemed to be
controlling persons of such Portfolio. As of March 31, 1998, Life Insurance Co.
of Virginia owned of record more than 25% of the shares of the Large Cap Growth
Portfolio and may be deemed to be a controlling person of such Portfolio. As of
March 31, 1998, Fidelity Investments Life Insurance Co. owned of record more
than 25% of the shares of each of the Small Cap Value, Large Cap Value,
Technology & Communications, and Select 20 Portfolios and may be deemed to be
controlling person of such Portfolios. The Company believes that most of these
shares are held by the record owners for their fiduciary, agency or custodial
clients.
As of the date of this Prospectus, the Adviser, as the initial shareholder of
the Mid-Cap Value Portfolio, owned of record or beneficially, all of the
outstanding shares of such Portfolio, and may be deemed to be a controlling
person of the Portfolio for purposes of the 1940 Act.
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GLOSSARY OF PERMITTED INVESTMENTS
The following is a description of permitted investments for certain of the
Portfolios:
American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs")
- --ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Bankers' Acceptance -- A bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
Certificate of Deposit -- A negotiable interest bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit
generally carry penalties for early withdrawal.
Commercial Paper -- The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
typically vary from a few days to nine months.
Convertible Securities -- Securities such as rights, bonds, notes and preferred
stocks which are convertible into or exchangeable for common stocks. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying common
stock. As a result, a Portfolio's selection of convertible securities is based,
to a great extent, on the potential for capital appreciation that may exist in
the underlying stock. The value of convertible securities is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
Demand Instruments -- Certain instruments may involve a conditional or
unconditional demand feature which permits the holder to demand payment of the
principal amount of the instrument. Demand instruments may include variable
amount master demand notes.
Derivatives -- Derivatives are securities that derive their value from other
securities. The following, among others, are considered derivative securities:
futures, options on futures, options (e.g., puts and
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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 Company's investment exposure to
changes in currency exchange rates, and could result in losses to the Company 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 Company by
selling that currency in exchange for dollars, the Company would be unable
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to participate in the currency's appreciation. Similarly, if the Adviser
increases the Company's exposure to a foreign currency, and that currency's
value declines, the Company will realize a loss.
Futures Contracts -- Futures contracts are derivatives. Futures contracts
provide for the sale by one party and purchase by another party of a specified
amount of a specific security, securities index or currency at a specified
future time and price. A Portfolio will maintain assets sufficient to meet its
obligations under such futures contracts in a segregated margin account with the
custodian bank or will otherwise comply with the SEC's position on asset
coverage. The prices of futures contracts are volatile and are influenced by,
among other things, actual and anticipated changes in the market and interest
rates.
Illiquid Securities -- Securities that cannot be disposed of in the ordinary
course of business within seven days at approximately the price at which the
Portfolio has valued the security.
Mortgage-Backed Securities -- Securities that include interests in pools of
lower-rated debt securities, or consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be significantly
affected by changes in interest rates, the market's perception of the issuers,
and the creditworthiness of the parties involved. Some securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their value highly volatile. These securities may
also be subject to prepayment risk.
Receipts -- Separately traded interest and principal component parts of U.S.
Treasury obligations that are issued by banks or brokerage firms and are created
by depositing U.S. Treasury obligations into a special account at a custodian
bank. The custodian bank holds the interest and principal payments for the
benefit of the registered owners of the receipts. The custodian bank arranges
for the issuance of the receipts evidencing ownership and maintains the
register.
Repurchase Agreements -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days from the date of purchase. The Custodian or its agents will hold the
security as collateral for the repurchase agreement. Collateral must be
maintained at a value at least equal to 102% of the purchase price. Each
Portfolio bears a risk of loss in the event the other party defaults on its
obligations and the Portfolio is delayed or prevented from its right to dispose
of the collateral securities or if the Portfolio realizes a loss on the sale of
the collateral securities. The Adviser and Sub-Adviser will enter into
repurchase agreements on behalf of a Portfolio only with financial institutions
deemed to present minimal risk of bankruptcy during the term of the agreement
based on guidelines established and periodically reviewed by the Directors.
Repurchase agreements are considered loans under the 1940 Act, as well as for
federal and state income tax purposes.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933, as amended ("1933 Act"),
or an exemption from registration. A Portfolio may invest in restricted
securities that the Adviser or Sub-Adviser determines are not illiquid, based on
guidelines and procedures developed and established by the Board of Directors of
the Company. The Board of Directors will periodically review such procedures and
guidelines and will monitor the Adviser's implementation of such procedures and
guidelines. Under these procedures and guidelines,
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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 Company may purchase restricted securities
sold in reliance upon the exemption from registration provided by Rule 144A
under the 1933 Act. Restricted securities may be difficult to value because
market quotations may not be readily available. Because of the restrictions on
the resale of restricted securities, they may pose liquidity problems for the
Portfolios.
Time Deposit -- A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities.
U.S. Government Agency Obligations -- Certain Federal agencies such as the
Government National Mortgage Association ("GNMA") have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Securities issued by these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States (e.g., GNMA securities) or supported
by the issuing agencies' right to borrow from the Treasury. The securities
issued by other agencies are supported only by the credit of the instrumentality
(e.g., Tennessee Valley Authority securities).
U.S. Government Securities -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. Treasury Obligations -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS"). Under the STRIPS
program, a Portfolio will be able to have its beneficial ownership of securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities. When U.S. Treasury obligations have been stripped of their
unmatured interest coupons by the holder, the stripped coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. The principal or corpus is sold at a deep discount because
the buyer receives only the right to receive a future fixed payment on the
security and does not receive any rights to periodic interest (cash) payments.
Purchasers of stripped obligations acquire, in effect, discount obligations that
are economically identical to the securities that the Treasury sells itself.
Other facilities are available to facilitate the transfer of ownership of
non-Treasury securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on such securities through a
book-entry record-keeping system.
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
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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.
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Company:
PBHG INSURANCE SERIES FUND, INC.
Portfolios:
PBHG GROWTH II PORTFOLIO
PBHG LARGE CAP GROWTH PORTFOLIO
PBHG SMALL CAP VALUE PORTFOLIO
PBHG MID-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 PBHG
Insurance Series Fund, Inc. (the "Company") and the PBHG Growth II Portfolio,
PBHG Large Cap Growth Portfolio, PBHG Small Cap Value Portfolio, PBHG Mid-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, 1998. The
Prospectus may be obtained without charge by calling 1-800-347-9256.
TABLE OF CONTENTS
THE COMPANY................................................................ 2
DESCRIPTION OF PERMITTED INVESTMENTS....................................... 2
INVESTMENT LIMITATIONS..................................................... 12
THE ADVISER................................................................ 14
THE SUB-ADVISER............................................................ 16
THE ADMINISTRATOR AND SUB-ADMINISTRATOR.................................... 17
THE DISTRIBUTOR............................................................ 18
DIRECTORS AND OFFICERS OF THE COMPANY...................................... 19
PERFORMANCE INFORMATION.................................................... 21
PURCHASE AND REDEMPTION OF SHARES.......................................... 23
DETERMINATION OF NET ASSET VALUE........................................... 23
TAXES...................................................................... 24
PORTFOLIO TRANSACTIONS..................................................... 29
DESCRIPTION OF SHARES...................................................... 32
INFORMATION ABOUT THE TECHNOLOGY & COMMUNICATIONS PORTFOLIO................ 32
5% AND 25% SHAREHOLDERS.................................................... 33
FINANCIAL STATEMENTS....................................................... 35
May 1, 1998
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THE COMPANY
This Statement of Additional Information relates to all Portfolios of the
Company. 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. Pilgrim
Baxter Value Investors, Inc. ("Sub-Adviser") serves as the investment
sub-adviser to the Small Cap Value, Mid-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 Company'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.
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Futures Contracts
Futures Transactions. A futures contract is a bilateral agreement to buy or sell
a security (or deliver a cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contracts) for a set price in the future. Futures contracts
are designated by boards of trade which have been designated "contracts markets"
by the Commodity Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a Portfolio upon entering into a futures contract (and to maintain the
Portfolio's open positions in futures contracts) would be required to deposit
with its custodian in a segregated account in the name of the futures broker an
amount of cash, or other assets, known as "initial margin." The margin required
for a particular futures contract is set by the exchange on which the contract
is traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased and
sold on margin that may range upward from less than 5% of the value of the
contract being traded.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market." A Portfolio expects to earn interest income on its initial and
variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss.
While futures positions taken by a Portfolio will usually be liquidated in this
manner, a Portfolio may instead make or take delivery of underlying securities
whenever it appears economically advantageous to the Portfolio to do so. A
clearing organization associated with the exchange on which futures are traded
assumes responsibility for closing out transactions and guarantees that as
between the clearing members of an exchange, the sale and purchase obligations
will be performed with regard to all positions that remain open at the
termination of the contract.
Securities Index Futures Contracts. Purchases or sales of securities index
futures contracts may be used in an attempt to protect a Portfolio's current or
intended investments from broad fluctuations in securities prices. A securities
index futures contract does not require the physical
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delivery of securities, but merely provides for profits and losses resulting
from changes in the market value of the contract to be credited or debited at
the close of each trading day to the respective accounts of the parties to the
contract. On the contract's expiration date a final cash settlement occurs and
the futures positions are simply closed out. Changes in the market value of a
particular index futures contract reflect changes in the specified index of
securities on which the future is based.
By establishing an appropriate "short" position in index futures, the Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index futures
and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, a
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
Limitations on Purchase and Sale of Futures Contracts. A Portfolio will not
purchase or sell futures contracts unless either (1) futures contracts are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (2) if purchased for other purposes, the sum of the amounts
of initial margin deposits on the Portfolio's existing futures contracts and
premiums required to establish non-hedging positions would not exceed 5% of the
liquidation value of the Portfolio's total assets. In instances involving the
purchase of futures contracts by a Portfolio, an amount of cash or other liquid
assets, equal to the cost of such futures contracts (less any related margin
deposits), will be deposited in a segregated account with its custodian, thereby
insuring that the use of such futures contracts is unleveraged. In instances
involving the sale of futures contracts by a Portfolio, the securities
underlying such futures contracts or options will at all times be maintained by
the Portfolio or, in the case of index futures contracts, the Portfolio will own
securities the price changes of which are, in the opinion of its Advisers
expected to replicate substantially the movement of the index upon which the
futures contract is based.
For information concerning the risks associated with utilizing futures
contracts, please see "Risks of Transactions in Futures Contracts and Options"
below.
Options
Options are contracts that give one of the parties to the contract the right to
buy or sell the security that is subject to the option at a stated price during
the option period, and obligates the other party to the contract to buy or sell
such security at the stated price during the option period. The types of options
transactions that the Portfolios are permitted to utilize are discussed below.
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Writing Call Options. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration of
the option, regardless of the market price of the security during the option
period. A call option on a security is covered, for example, when the writer of
the call option owns the security on which the option is written (or on a
security convertible into such a security without additional consideration)
throughout the option period.
A Portfolio will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, the Portfolio will
give up the opportunity to profit from an increase in the market price of the
underlying security above the exercise price so long as its obligations under
the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, a Portfolio will retain the risk of loss
should the price of the security decline. The premium is intended to offset that
loss in whole or in part. Unlike the situation in which a Portfolio owns
securities not subject to a call option, a Portfolio, in writing call options,
must assume that the call may be exercised at any time prior to the expiration
of its obligation as a writer, and that in such circumstances the net proceeds
realized from the sale of the underlying securities pursuant to the call may be
substantially below the prevailing market price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from the Portfolio's securities
portfolio, the Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio when
it writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash, or
other liquid obligations having a value equal to or greater than the exercise
price of the option.
A Portfolio may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline
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in the price of the underlying security, but the amount paid by the Portfolio,
offset by the option premium, is less than the current price). The risk of
either strategy is that the price of the underlying security may decline by an
amount greater than the premium received. The premium which the Portfolio
receives from writing a put option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to that market price, the historical price volatility of the underlying
security, the option period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised.
Purchasing Put and Call Options. A Portfolio may purchase put options on
securities to protect its holdings against a substantial decline in market
value. The purchase of put options on securities will enable the Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, a Portfolio will
continue to receive interest or dividend income on the security. A Portfolio may
also purchase call options on securities to protect against substantial
increases in prices of securities that the Portfolio intends to purchase pending
its ability to invest in an orderly manner in those securities. A Portfolio may
sell put or call options it has previously purchased, which could result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction cost paid on the put or call option
which was bought.
Securities Index Options. A Portfolio may write covered put and call options and
purchase call and put options on securities indexes for the purpose of hedging
against the risk of unfavorable price movements adversely affecting the value of
the Portfolio's securities or securities it intends to purchase. A Portfolio
will only write "covered" options. A call option on a securities index is
considered covered, for example, if, so long as the Portfolio is obligated as
the writer of the call, it holds securities the price changes of which are, in
the opinion of the Adviser, expected to replicate substantially the movement of
the index or indexes upon which the options written by the Portfolio are based.
A put on a securities index written by the Portfolio will be considered covered
if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash or other liquid obligations having a value
equal to or greater than the exercise price of the option. Unlike a stock
option, which gives the holder the right to purchase or sell a specified stock
at a specified price, an option on a securities index gives the holder the right
to receive a cash "exercise settlement amount" equal to (i) the difference
between the exercise price of the option and the value of the underlying stock
index on the exercise date, multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market value of the securities
so included. For example, some securities index options are based on a broad
market index such as the S&P 500 or the NYSE Composite Index, or a narrower
market index such as the S&P 100. Indexes may
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also be based on an industry or market segment such as the AMEX Oil and Gas
Index or the Computer and Business Equipment Index.
Over-the-Counter Options. A Portfolio may enter into contracts with primary
dealers with whom it may write over-the-counter options. Such contracts will
provide that the Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but which
in no event will exceed a price determined pursuant to a formula contained in
the contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount the option
is "in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." A Portfolio has established
standards of creditworthiness for these primary dealers, although the Portfolio
may still be subject to the risk that firms participating in such transactions
will fail to meet their obligations. In instances in which a Portfolio has
entered into agreements with respect to the over-the-counter options it has
written, and such agreements would enable the Portfolio to have an absolute
right to repurchase at a pre-established formula price the over-the-counter
option written by it, the Portfolio would treat as illiquid only securities
equal in amount to the formula price described above less the amount by which
the option is "in-the-money," i.e., the amount by which the price of the option
exceeds the exercise price.
For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.
Risks of Transactions in Futures Contracts and Options
Futures. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
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Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. The Advisers
will, however, attempt to reduce this risk by entering into futures contracts
whose movements, in its judgment, will have a significant correlation with
movements in the prices of the Portfolio's underlying instruments sought to be
hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to the Adviser's ability to correctly predict movements in the direction
of the market. It is possible that, when the Portfolio has sold futures to hedge
its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in the Portfolio's portfolio might decline. If this were to
occur, the Portfolio would lose money on the futures and also would experience a
decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although each Portfolio
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will exist
for any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
at such time, and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
However, in the event futures positions are used to hedge portfolio securities,
the securities will not be sold until the futures positions can be liquidated.
In such circumstances, an increase in the price of securities, if any, may
partially or completely offset losses on the futures contracts.
Options. A closing purchase transaction for exchange-traded options may be made
only on a national securities exchange (exchange). There is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some
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options, such as over-the-counter options, no secondary market on an exchange
may exist. If a Portfolio is unable to effect a closing purchase transaction,
the Portfolio will not sell the underlying security until the option expires or
the Portfolio delivers the underlying security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. A Portfolio will engage in such
transactions only with firms of sufficient credit so as to minimize these risks.
Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by the Portfolio will not exactly match the composition
of the securities indexes on which options are written. In the purchase of
securities index options the principal risk is that the premium and transaction
costs paid by a Portfolio in purchasing an option will be lost if the changes
(increase in the case of a call, decrease in the case of a put) in the level of
the index do not exceed the cost of the option.
Investment Company Shares
The Portfolios may invest in shares of money market mutual funds, to the extent
set forth under "Investment Limitations" below. Since such funds pay management
fees and other expenses, shareholders of a Portfolio would indirectly pay both
the Portfolio's expenses and the expenses of underlying funds with respect to
the Portfolio's assets invested therein. Applicable regulations prohibit a
Portfolio from acquiring the securities of other investment companies that are
"not part of the same group of investment companies" if, as a result of such
acquisition, the Portfolio owns more than 3% of the total voting stock of the
company; more than 5% of the Portfolio's total assets are invested in securities
of any one investment company; or more than 10% of the total assets of the
Portfolio are invested in securities (other than treasury stock) issued by all
investment companies.
Illiquid Investments
Illiquid investments are investments that cannot be sold or disposed of in the
ordinary course of business within seven (7) days at approximately the prices at
which they are valued. Under the supervision of the Board of Directors, the
Advisers determine the liquidity of the Company'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
9
<PAGE>
and prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender
features), and (5) the nature of the market place for trades (including the
ability to assign or offset a Portfolio's rights and obligations relating to the
investment). Investments currently considered by a Portfolio to be illiquid
include repurchase agreements not entitling the holder to payment of principal
and interest within seven (7) days, over the-counter options, and non-government
stripped fixed-rate mortgage backed securities. Also, the Advisers may determine
some government-stripped fixed-rate mortgage backed securities, loans and other
direct debt instruments, and swap agreements to be illiquid. However, with
respect to over-the-counter options a Portfolio writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets held
to cover the option and the nature and terms of any agreement a Portfolio may
have to close out the option before expiration. In the absence of market
quotations, illiquid investments are priced at fair value as determined in good
faith by a committee appointed by the Board of Directors. If, through a change
in values, net assets or other circumstances, a Portfolio was in a position
where more than 15% of its net assets were invested in illiquid securities, it
would seek to take appropriate steps to protect liquidity.
Restricted Securities
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
a Portfolio may be obligated to pay all or part of the registration expense and
a considerable period may elapse between the time it decides to seek
registration and the time a Portfolio may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse market
conditions were to develop, a Portfolio might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
Foreign Currency Transactions
A Portfolio may hold foreign currency deposits from time to time, and may
convert dollars and foreign currencies in the foreign exchange markets. Currency
conversion involves dealer spreads and other costs, although commissions usually
are not charged. Currencies may be exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. Forward contracts generally are traded in an interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before maturity, or may hold the contract to
maturity and complete the contemplated currency exchange.
A Portfolio may use currency forward contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Portfolios.
10
<PAGE>
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 Deutschemarks 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.
11
<PAGE>
The policies described in this section of the Statement of Additional
Information are non- fundamental policies of a Portfolio.
INVESTMENT LIMITATIONS
Fundamental Policies
Each Portfolio has adopted certain investment restrictions which (in addition to
those fundamental investment restrictions set forth in the Prospectus) are
fundamental and may not be changed without approval by a majority vote of the
Portfolio's shareholders. Such majority is defined in the 1940 Act as the lesser
of (i) 67% or more of the voting securities of the Portfolio present in person
or by proxy at a meeting, if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy; or (ii) more than 50% of
the outstanding voting securities of the Portfolio.
Each Portfolio may not:
1. Acquire more than 10% of the voting securities of any one issuer except that
such limitation shall only apply to 75% of the Growth II Portfolio's assets.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of the Portfolio's total assets (except
not exceeding 33 1/3% of the value of total assets with respect to the Growth
II, Mid-Cap Value, and Small Cap Value Portfolios). This borrowing provision is
included solely to facilitate the orderly sale of portfolio securities to
accommodate substantial redemption requests if they should occur and is not for
investment purposes. All borrowings in excess of 5% of the Portfolio's total
assets will be repaid before making investments.
4. Make loans, except that each Portfolio, in accordance with that Portfolio's
investment objectives and policies, may (i) purchase or hold debt instruments,
and (ii) enter into repurchase agreements as described in the Portfolio's
prospectus and this Statement of Additional Information. In addition, the PBHG
Mid-Cap Value Portfolio may lend its portfolio securities in an amount not
exceeding one-third the value of its total assets.
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.
12
<PAGE>
6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodity contracts, except that this shall
not prevent a Portfolio from (i) investing in readily marketable securities of
issuers which can invest in real estate or commodities, institutions that issue
mortgages, or real estate investment trusts which deal in real estate or
interests therein, pursuant to the Portfolio's investment objective and
policies, and (ii) entering into futures contracts and options thereon that are
listed on a national securities or commodities exchange where, as a result
thereof, no more than 5% of the total assets for that Portfolio (taken at market
value at the time of entering into the futures contracts) would be committed to
margin deposits on such futures contracts and premiums paid for unexpired
options on such futures contracts; provided that, in the case of an option that
is "in-the-money" at the time of purchase, the "in-the-money" amount, as defined
under the Commodity Futures Trading Commission regulations, may be excluded in
computing the 5% limit. Each Portfolio (as a matter of operating policy) will
utilize only listed futures contracts and options thereon.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that each Portfolio may (i) obtain short-term
credits as necessary for the clearance of security transactions and (ii)
establish margin accounts as may be necessary in connection with the Portfolio's
use of options and futures contracts.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with a permitted borrowing of money or pledging, mortgaging or hypothecating
assets, as described in each Portfolio's limitation on borrowing money and each
Portfolio's limitation on permitted borrowings and each Portfolio's limitation
on pledging, mortgaging or hypothecating assets, or as permitted by rule,
regulation or order of the SEC.
11. Invest in interests in oil, gas or other mineral exploration or development
programs.
12. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. This
restriction applies to 75% of each Portfolio's total assets, except for the
Select 20 Portfolio for which the restriction applies to 50% of its total
assets.
13. Purchase any securities which would cause 25% or more of the total assets of
a Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in
13
<PAGE>
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities. For
purposes of this limitation, (i) utility companies will be divided according to
their services, for example, gas distribution, gas transmission, electric and
telephone will each be considered a separate industry, and (ii) financial
service companies will be classified according to the end users of their
services, for example, automobile finance, bank finance and diversified finance
will each be considered a separate industry. For purposes of this limitation,
supranational organizations are deemed to be issuers conducting their principal
business activities in the same industry.
Non-fundamental Policies
In addition to the foregoing, and the policies set forth in the Portfolios'
Prospectus, each Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.
Each Portfolio may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of its net assets. This limitation does not include any Rule 144A restricted
security that has been determined by, or pursuant to procedures established by,
the Board, based on trading markets for such security, to be liquid.
2. Purchase or sell puts, calls, straddles, spreads, and any combination
thereof, if by reason thereof, the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets.
THE ADVISER
The Company 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 Company 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
14
<PAGE>
who serve as officers and executive employees of the Company. The Advisory
Agreement provides that the Adviser is not responsible for other expenses of
operating the Company. (See the Prospectus for a description of expenses borne
by the Company.)
The Adviser is entitled to a fee which is calculated daily and paid monthly. The
fees to be paid under the Advisory Agreement are set forth in the Prospectus.
The Adviser has agreed to waive or limit its Advisory Fees or assume certain
operating expenses of the Portfolios as described in the Prospectus.
The continuance of the Advisory Agreement with respect to each Portfolio after
the first two years must be specifically approved at least annually (i) by the
Company'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 Company 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
Company. The Advisory Agreement will also terminate automatically in the event
of its assignment (as defined in the 1940 Act).
For the fiscal year ended December 31, 1997, the Portfolios paid or waived the
following advisory fees:
- ----------------------------------------------------------------------------
Portfolio Fees Paid Fees Waived
- ----------------------------------------------------------------------------
Growth II Portfolio1 $22,720.00 $84,484.00
- ----------------------------------------------------------------------------
Large Cap Growth $9,625.00 $52,349.00
Portfolio1
- ----------------------------------------------------------------------------
Small Cap Value Portfolio2 $5,577.00 $13,575.00
- ----------------------------------------------------------------------------
Mid-Cap Value Portfolio * *
- ----------------------------------------------------------------------------
Large Cap Value Portfolio2 $972.00 $10,521.00
- ----------------------------------------------------------------------------
Technology & $6,824.00 $31,235.00
Communications Portfolio1
- ----------------------------------------------------------------------------
Select 20 Portfolio3 $5,406.00 $13,964.00
- ----------------------------------------------------------------------------
* Not in operation during the period.
15
<PAGE>
1 For the period from May 1, 1997 (commencement of operations) through
December 31, 1997.
2 For the period from October 29, 1997 (commencement of operations) through
December 31, 1997.
3 For the period from September 26, 1997 (commencement of operations) through
December 31, 1997.
THE SUB-ADVISER
The Company, on behalf of the Small Cap Value, Mid-Cap Value, and Large Cap
Value Portfolios, and the Adviser have entered into a sub-advisory agreement
(the "Sub-Advisory Agreement") with Pilgrim Baxter Value Investors, Inc. (the
"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, Mid-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, Mid-Cap Value, and Large Cap Value
Portfolios' investments and to determine from time to time what investments and
securities will be purchased, retained or sold by these Portfolios and what
portion of the assets will be invested or held uninvested in cash; and (3)
determine the securities to be purchased or sold by the Small Cap Value, Mid-Cap
Value, and Large Cap Value Portfolios and place orders with or through such
persons, brokers or dealers to carry out the policy with respect to brokerage
set forth in the Prospectus or as the Board of Directors or the Adviser may
direct from time to time, in conformity with federal securities laws.
The continuance of the Sub-Advisory Agreement with respect to the Small Cap
Value, Mid-Cap Value, and Large Cap Value Portfolios, respectively, after the
first two years must be specifically approved at least annually (i) by the
Company'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, Mid-Cap Value, and
Large Cap Value Portfolios may be terminated (i) by the Company, without the
payment of any penalty, by the vote of a majority of the Directors of the
Company or by the vote of a majority of the
16
<PAGE>
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 Company and PBHG Fund Services (the "Administrator") entered into an
Administrative Services Agreement (the "Administrative Agreement") on April 1,
1997, pursuant to which the Administrator oversees the administration of the
business and affairs of the Company, 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 825 Duportail Road,
Wayne, Pennsylvania 19087. Under the Administrative Agreement, the Administrator
is entitled to a fee from the Company, which is calculated daily and paid
monthly, at an annual rate of 0.15% of the average daily net assets of each
Portfolio of the Company. 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 Company in connection with the matters to which the
Administrative Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Administrator in the
performance of its duties. The Administrative Agreement shall remain in effect
until December 31, 1998 and shall thereafter continue in effect for successive
periods of one year, unless terminated by either party upon not less than ninety
(90) days' prior written notice to the other party.
The Company, the Administrator and SEI Fund Resources (the "Sub-Administrator")
entered into a Sub-Administrative Services Agreement (the "Sub-Administrative
Agreement") on April 1, 1997, as amended effective May 1, 1998, pursuant to
which the Sub-Administrator assists the Administrator in connection with the
administration of the business and affairs of the Company. SEI Investments
Management Corporation ("SEI Investments"), which is a wholly-owned subsidiary
of SEI Investments Company ("SEI"), owns all beneficial interest in the Sub-
Administrator. The Sub-Administrator was organized as a Delaware business trust,
and has its principal business offices at One Freedom Valley Road, Oaks,
Pennsylvania 19456. Under the Sub-Administrative Agreement, the Administrator
pays the Sub-Administrator fees at an annual rate based on the combined average
daily net assets of the Company, The PBHG Funds, Inc., and PBHG Advisor Funds,
Inc., calculated as follows: (i) 0.040% of the first $2.5 billion, plus (ii)
0.025% of the next $7.5 billion, plus (iii) 0.020% of the excess over $10
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 Company 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
17
<PAGE>
remain in effect until December 31, 1998 and shall thereafter continue in effect
for successive periods of one year, unless terminated by either party upon not
less than ninety (90) days' prior written notice to the other party.
For the fiscal year ended December 31, 1997, the Portfolios paid the following
administration fees:
- --------------------------------------------------------------------------------
Portfolio Fees Paid Fees Waived
- --------------------------------------------------------------------------------
Growth II Portfolio1 $4,009.00 $0
- --------------------------------------------------------------------------------
Large Cap Growth $1,925.00 $0
Portfolio1
- --------------------------------------------------------------------------------
Small Cap Value Portfolio2 $837.00 $0
- --------------------------------------------------------------------------------
Mid-Cap Value Portfolio * *
- --------------------------------------------------------------------------------
Large Cap Value Portfolio2 $224.00 $0
- --------------------------------------------------------------------------------
Technology & Communications Portfolio1 $1,204.00 $0
- --------------------------------------------------------------------------------
Select 20 Portfolio3 $954.00 $0
- --------------------------------------------------------------------------------
* Not in operation during the period.
1 For the period from May 1, 1997 (commencement of operations) through
December 31, 1997.
2 For the period from October 29, 1997 (commencement of operations) through
December 31, 1997.
3 For the period from September 26, 1997 (commencement of operations) through
December 31, 1997.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Company are parties to a distribution agreement (the
"Distribution Agreement") dated April 1, 1997, pursuant to which the Distributor
serves as principal underwriter for the Company. 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
18
<PAGE>
and have no financial interest in the Distribution Agreement or by a majority
vote of the outstanding securities of the Company upon not more than sixty (60)
days' written notice by either party or upon assignment by the Distributor.
DIRECTORS AND OFFICERS OF THE COMPANY
The management and affairs of the Company are supervised by the Board of
Directors under the laws of the State of Maryland. The Directors and executive
officers of the Company 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. Each Director serves as a Director of two other registered
investment companies advised by the Adviser and each officer serves as an
officer in a similar capacity in two other registered investment companies
advised by the Adviser. The age of each Director and officer is indicated in the
parentheses.
JOHN R. BARTHOLDSON (51) - Director - Triumph Group Holdings, Inc.
(manufacturing), 1255 Drummers Lane, Suite 200, Wayne, PA 19087-1590. Chief
Financial Officer and Director, the Triumph Group Holdings, Inc. since 1992.
Senior Vice President and Chief Financial Officer, Lukens, Inc., 1978-1992.
HAROLD J. BAXTER (51)1 - Director - Chairman, Chief Executive Officer and
Director, the Adviser, 825 Duportail Road, Wayne, PA 19087. Trustee, the
Administrator since May 1996 and Chief Executive Officer, the Sub-Adviser, 825
Duportail Road, Wayne, PA 19087, since June 1996.
JETTIE M. EDWARDS (49) - Director - Syrus Associates, 76 Seaview Drive, Santa
Barbara, California 93108. Consultant, Syrus Associates since 1986. Trustee,
Provident Investment Counsel Trust (investment company) since 1992.
ALBERT A. MILLER (62) - Director - 7 Jennifer Drive, Holmdel, New Jersey 07733.
Principal and Treasurer, JK Equipment Exporters since 1995. Advisor and
Secretary, The Underwoman Shoppes Inc. (retail clothing stores) since 1980.
Merchandising Group Vice President, R.H. Macy & Co., 1958-1995 (retired).
GARY PILGRIM (57) - President - President, Chief Investment Officer and
Director, the Adviser since 1982. Trustee, the Administrator since May 1996.
Director, the Sub-Adviser since June 1996.
- ----------------
1 Mr. Baxter is a Director who may be deemed to be an "interested person" of
the Company as that term is defined in the 1940 Act.
19
<PAGE>
PAUL J. HONDROS (49) - Executive Vice President - President and Chief Operating
Officer, the Adviser since October 1997. President and Chief Operating Officer,
the Sub-Adviser since January 1998. President and Chief Executive Officer,
Fidelity Investments Retail Group, 1990- 1997.
SANDRA K. ORLOW (44) - Vice President, Assistant Secretary - Vice President and
Assistant Secretary of SEI since 1983, the Sub-Administrator, the Vice President
and Secretary (formerly Assistant Secretary), Distributor since 1983, and Vice
President and Assistant Secretary, SEI Investments since June 1996.
KATHRYN L. STANTON (39) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1994
and SEI Investments since June 1996. Associate, Morgan, Lewis & Bockius LLP (law
firm), 1989-1994.
TODD CIPPERMAN (32) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1995
and SEI Investments since June 1996. Associate, Dewey Ballantine (law firm)
1994-1995. Associate, Winston & Strawn (law firm), 1991-1994.
BARBARA A. NUGENT (41) - Vice President, Assistant Secretary - Counsel, the
Adviser since February 1998. Vice President and Assistant Secretary, SEI
1996-1998. Associate, Drinker, Biddle & Reath (law firm), 1994-1996. Assistant
Vice President/Operations, Delaware Group of Funds, 1980-1994.
MICHAEL HARRINGTON (29) - Vice President - Director of Fund Services, the
Adviser since 1994. Secretary, the Administrator since May 1996. Account
Manager, SEI, 1991-1994.
LEE T. CUMMINGS (34) - Treasurer, Chief Financial Officer and Controller -
Director of Mutual Fund Operations, the Adviser since 1996. Treasurer, the
Administrator since May 1996. Investment Accounting Officer, Delaware Group of
Funds, 1994-1996. Vice President, Fund/Plan Services, Inc., 1992-1994. Assistant
Vice President, Fund/Plan Services, Inc., 1990- 1992.
BRIAN BEREZNAK (36) - Vice President - Trustee and President, the Administrator
since May 1996. Chief Operating Officer, the Adviser from 1989 through December
31, 1996.
JOHN M. ZERR (35) - Vice President and Secretary - General Counsel and
Secretary, the Adviser and the Sub-Adviser since November 1996. Vice President
and Assistant Secretary, Delaware Management Company, Inc. and the Delaware
Group of Funds, 1995-1996. Associate, Ballard Spahr Andrews & Ingersoll (law
firm), 1987-1995.
Each current Director of the Company who is not an "interested person" of the
Company received the following compensation during the fiscal year ended
December 31, 1997:
20
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
Pension or Total
Retirement Compensation
Benefits Estimated from Registrant
Aggregate Accrued as Annual and Company
Compensation Part Benefits Complex
Name of Person, from of Company Upon Paid to
Position Registrant Expenses Retirement Directors*
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John R. Bartholdson, $13,500 N/A N/A $47,583
Director
- -------------------------------------------------------------------------------------------------------------------------------
Harold J. Baxter, N/A N/A N/A N/A
Director**
- -------------------------------------------------------------------------------------------------------------------------------
Jettie M. Edwards, $13,500 N/A N/A $47,583
Director
- -------------------------------------------------------------------------------------------------------------------------------
Albert A. Miller, $13,500 N/A N/A $47,583
Director
===============================================================================================================================
</TABLE>
* The Company is expected to pay approximately $19,500 to each Director who is
not an "interested person" of the Company for the fiscal year ending December
31, 1998, which includes $500 for each Board and committee meeting attended.
Each Portfolio pays its proportionate share of the total compensation, based on
its total net assets relative to the total net assets of the Company.
** Mr. Baxter is a Director who may be deemed to be an "interested person" of
the Company, as that term is defined in the 1940 Act, and consequently will be
receiving no compensation from the Company.
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.
21
<PAGE>
Computation of Yield
From time to time, a Portfolio may advertise yield. These figures are 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 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. In particular, yield is 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 is 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.
Based on the foregoing, the aggregate total return for each of the Portfolios
from its inception through December 31, 1997, were as follows:
- ---------------------------------------------------------------------------
Portfolio Aggregate Total Return
Since Inception
- ---------------------------------------------------------------------------
Growth II Portfolio1 7.50%
- ---------------------------------------------------------------------------
Large Cap Growth Portfolio1 18.20%
- ---------------------------------------------------------------------------
Small Cap Value Portfolio2 4.80%
- ---------------------------------------------------------------------------
Mid-Cap Value Portfolio *
- ---------------------------------------------------------------------------
Large Cap Value Portfolio2 4.30%
- ---------------------------------------------------------------------------
Technology & Communications Portfolio1 4.10%
- ---------------------------------------------------------------------------
Select 20 Portfolio3 0.30%
- ---------------------------------------------------------------------------
22
<PAGE>
* Not in operation during the period.
1 For the period from May 1, 1997 (commencement of operations) through
December 31, 1997.
2 For the period from October 29, 1997 (commencement of operations) through
December 31, 1997.
3 For the period from September 26, 1997 (commencement of operations) through
December 31, 1997.
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 Company: New Year's Day, Martin Luther King, Jr. 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 Company 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
Company 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 Company under the general
supervision of the Board of Directors.
23
<PAGE>
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 most
recent bid price. 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 most recently quoted bid price. 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 Company, 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 the 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.
Qualification as a Regulated Investment Company. Each Portfolio intends to
qualify as a "regulated investment company" ("RIC") as defined under Subchapter
M of the Code. In order to qualify for treatment as a RIC under the Code, each
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"). In addition to the
Distribution Requirement, each Portfolio must meet several other requirements.
Among these requirements are the following: (i) each Portfolio must derive at
least 90% of its gross income in each taxable year from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies and other income
(including but not limited to gains from options, futures or forward contracts
derived with respect to the Portfolio's business of investing in such stock,
securities or currencies) (the "Income Requirement"); (ii) 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
24
<PAGE>
securities, securities of other RICs and securities of other issuers, with such
securities of other issuers 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
(iii) no more than 25% of the value of a Portfolio's total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which the Portfolio controls and which are engaged in the same or
similar trades or businesses (the "Asset Diversification Test"). For purposes of
the Asset Diversification Test, it is unclear under present law who should be
treated as the issuer of forward foreign currency exchange contracts, of options
on foreign currencies, or of foreign currency futures and related options. It
has been suggested that the issuer in each case may be the foreign central bank
or foreign government backing the particular currency. Consequently, a Portfolio
may find it necessary to seek a ruling from the Internal Revenue Service on this
issue or to curtail its trading in forward foreign currency exchange contracts
in order to stay within the limits of the Asset Diversification Test.
For purposes of the Income Requirement, foreign currency gains (including gains
from options, futures or forward contracts on foreign currencies) that are not
"directly related" to a Portfolio's principal business may, under regulations
not yet issued, be excluded from qualifying income.
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.
Portfolio Distributions. 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.
Treasury regulations permit a RIC in determining its investment company taxable
income and undistributed net capital gain for any taxable year to elect to treat
all or part of any net capital loss, any net long-term capital loss, or any net
foreign currency loss incurred after October 31 as if it had been incurred in
the succeeding year.
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in shares.
25
<PAGE>
Capital gain dividends are taxable to shareholders as a long-term capital gain,
regardless of the length of time a shareholder has held his shares. Under the
Taxpayer Relief Act of 1997, the Internal Revenue Service is authorized to issue
regulations that will enable shareholders to determine the tax rates applicable
to such capital gain distributions. For calendar year 1997, the Internal Revenue
Service has announced that RICs will be required to report to their shareholders
the amount of capital gain dividends subject to taxation at the 28 percent tax
rate.
Withholding. In certain cases, a Portfolio will be required to withhold, and
remit to the U.S. Treasury, 31% of any distributions paid to a shareholder who
(i) has failed to provide a correct taxpayer identification number, (ii) is
subject to backup withholding by the Internal Revenue Service, or (iii) has not
certified to the Portfolio that such shareholder is not subject to backup
withholding.
Redemption or Exchange of Shares. Upon a redemption or exchange of shares, a
shareholder will recognize a taxable gain or loss depending upon his or her
basis in the shares. Unless the shares are disposed of as part of a conversion
transaction, such gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss recognized by a shareholder on the sale of Portfolio shares held six months
or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gains received by the shareholder with respect to
such shares.
Any loss recognized on a sale or exchange will be disallowed to the extent that
Portfolio shares are sold and replaced within the 61-day period beginning 30
days before and ending 30 days after the disposition of such shares. In such a
case, the basis of the shares acquired will be increased to reflect the
disallowed loss. Shareholders should particularly note that this loss
disallowance rule applies even where shares are automatically replaced under the
dividend reinvestment plan.
Investment in Foreign Financial Instruments. Under Code Section 988, gains or
losses from certain foreign currency forward contracts or fluctuations in
currency exchange rates will generally be treated as ordinary income or loss.
Such Code Section 988 gains or losses will increase or decrease the amount of a
Portfolio's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Portfolio's net capital gains. Additionally, if Code Section 988 losses
exceed other investment company taxable income during a taxable year, the
Portfolio would not be able to pay any ordinary income dividends, and any such
dividends paid before the losses were realized, but in the same taxable year,
would be recharacterized as a return of capital to shareholders, thereby
reducing the tax basis of Portfolio shares.
Hedging Transactions. Some of the forward foreign currency exchange contracts,
options and futures contracts that the Portfolios may enter into will be subject
to special tax treatment as
26
<PAGE>
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year,
regardless of whether a taxpayer's obligations (or rights) under such contracts
have terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is combined with any other
gain or loss that was previously recognized upon the termination of Section 1256
contracts during that taxable year. The net amount of such gain or loss for the
entire taxable year (including gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is deemed to be 60% long-term and 40%
short-term gain or loss. However, in the case of Section 1256 contracts that are
forward foreign currency exchange contracts, the net gain or loss is separately
determined and (as discussed above) generally treated as ordinary income or
loss.
Generally, the hedging transactions in which the Portfolios may engage may
result in "straddles" or "conversion transactions" for U.S. federal income tax
purposes. The straddle and conversion transaction rules may affect the character
of gains (or in the case of the straddle rules, losses) realized by the
Portfolios. In addition, losses realized by the Portfolios on positions that are
part of a straddle may be deferred under the straddle rules, rather than being
taken into account in calculating the taxable income for the taxable year in
which the losses are realized. Because only a few regulations implementing the
straddle rules and the conversion transaction rules have been promulgated, the
tax consequences to the Portfolios of hedging transactions are not entirely
clear. The hedging transactions may increase the amount of short-term capital
gain realized by the Portfolios (and, if they are conversion transactions, the
amount of ordinary income) which is taxed as ordinary income when distributed to
shareholders.
Each Portfolio may make one or more of the elections available under the Code
which are applicable to straddles. If a Portfolio makes any of the elections,
the amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Transactions that may be engaged in by certain of the Portfolios (such as short
sales "against the box") may be subject to special tax treatment as
"constructive sales" under section 1259 of the Code if a Portfolio holds certain
"appreciated financial positions" (defined generally as any interest (including
a futures or forward contract, short sale or option) with respect to stock,
certain debt instruments, or partnership interests if there would be a gain were
such interest sold, assigned, or otherwise terminated at its fair market value).
Upon entering into a constructive sales transaction with respect to an
appreciated financial position, a Portfolio will be deemed to have
constructively sold such appreciated financial position and will recognize gain
as if such position were sold, assigned, or otherwise terminated at its fair
market value on the date of such constructive sale (and will take into account
any gain for the taxable year which includes such date).
27
<PAGE>
Because application of the straddle, conversion transaction and constructive
sale rules may affect the character of gains or losses, defer losses and/or
accelerate the recognition of gains or losses from the affected straddle or
investment positions, the amount which must be distributed to shareholders and
which will be taxed to shareholders as ordinary income or long-term capital gain
may be increased or decreased as compared to a fund that did not engage in such
transactions.
Requirements relating to each Portfolio's tax status as a RIC may limit the
extent to which a Portfolio will be able to engage in transactions in options
and futures contracts.
State Taxes
Distributions by a Portfolio to shareholders and the ownership of shares may be
subject to state and local taxes.
Miscellaneous Considerations
The foregoing general discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Future legislative or administrative
changes or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
Prospective shareholders are encouraged to consult their tax advisors as to the
consequences of these and other U.S., state, local, and foreign tax rules
affecting investments in the Portfolio.
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.
Provided that all of the beneficial interests in the Portfolios are owned by one
or more (1) insurance companies in their general account or in segregated asset
accounts, or (2) fund managers in connection with the creation or management of
a regulated investment company or trust, the diversification requirements of
28
<PAGE>
section 817 will be applied on a look-through basis to the assets held by the
Portfolios, and the interests in the Portfolios will be disregarded.
The Treasury Regulations amplify the diversification standards set forth in
Section 817(h). 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. Certain Portfolios holding Treasury securities may be able to
avail themselves of an alternative diversification test provided under the
Treasury Regulations.
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 Company 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
29
<PAGE>
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 Company'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 Company, have adopted procedures
for evaluating the reasonableness of commissions paid to the Distributor and
will review these procedures periodically.
Consistent with the Conduct Rules 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 Company
shares or VA Contracts and VLI Policies as a factor in the selection of dealers
to execute portfolio transactions for the Company.
The Directors have adopted a Code of Ethics governing personal trading by
persons who manage, or who have access to trading activity by, the Portfolio.
The Code of Ethics allows
30
<PAGE>
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.
For the fiscal year ended December 31, 1997, the Portfolios paid brokerage fees
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Total Amount of Total Amount of Percent of Total
Brokerage Brokerage Amount of Brokerage
Commissions Paid Commissions Paid to Commissions Paid to
Portfolio 1997 the Distributor 1997 the Distributor 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth II Portfolio1 $5,282 $257 5%
- -----------------------------------------------------------------------------------------------------------------------------
Large Cap Growth $5,204 $122 2%
Portfolio1
- -----------------------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio2 $10,608 $77 1%
- -----------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Portfolio * * *
- -----------------------------------------------------------------------------------------------------------------------------
Large Cap Value $2,778 $20 1%
Portfolio2
- -----------------------------------------------------------------------------------------------------------------------------
Technology & $2,630 $121 5%
Communications Portfolio1
- -----------------------------------------------------------------------------------------------------------------------------
Select 20 Portfolio3 $4,599 $94 2%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation during the period.
1 For the period from May 1, 1997 (commencement of operations) through
December 31, 1997.
2 For the period from October 29, 1997 (commencement of operations) through
December 31, 1997.
3 For the period from September 26, 1997 (commencement of operations) through
December 31, 1997.
DESCRIPTION OF SHARES
The Company is authorized to issue 500,000,000 shares of each Portfolio and to
create additional portfolios of the Company. 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
31
<PAGE>
have no preemptive rights. All consideration received by the Company 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 the 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 -- a 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.
32
<PAGE>
5% AND 25% SHAREHOLDERS
As of March 31, 1998, the following persons were the only persons who were
record owners of 5% or more of the shares of the Portfolios. The Company
believes that most of the shares referred to below were held by the persons
indicated in the accounts for their fiduciary, agency or custodial clients.
PBHG Growth II Portfolio
<TABLE>
<S> <C>
Life Insurance Co. of Virginia 62.82%
6610 W. Broad Street
Richmond, VA 23230-1799
AUL American Individual Unit Trust 5.95%
Registered Separate Account
P.O. Box 1995
Indianapolis, IN 46206-9102
Fidelity Investments 26.27%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Large Cap Growth Portfolio
Life Insurance Co. of Virginia 97.27%
6610 W. Broad Street
Richmond, VA 23230-1799
PBHG Small Cap Value Portfolio
Empire Fidelity Investments 7.71%
Life Insurance Co.
200 Liberty Street
One Financial Center
New York, NY 10281-1003
Fidelity Investments 90.01%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
PBHG Large Cap Value Portfolio
UAM Investment Corporation 6.07%
P.O. Box 7048
Wilmington, DE 19803-0048
Pilgrim Baxter & Associates, Ltd. 6.07%
825 Duportail Road
Wayne, PA 19087-5525
Empire Fidelity Investments 15.21%
Life Insurance Co.
200 Liberty Street
One Financial Center
New York, NY 10281-1003
Fidelity Investments 72.24%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Technology & Communications Portfolio
Annuity Investors Life Insurance Co. 8.13%
250 E. Fifth Street
Cincinnati, OH 45202-4119
Empire Fidelity Investments 6.65%
Life Insurance Co.
200 Liberty Street
One Financial Center
New York, NY 10281-1003
Fidelity Investments 80.95%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Select 20 Portfolio
Empire Fidelity Investments 8.27%
Life Insurance Co.
200 Liberty Street
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
One Financial Center
New York, NY 10281-1003
Fidelity Investments 91.68%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
</TABLE>
FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P., located at 2400 Eleven Penn Center, Philadelphia,
Pennsylvania, serves as the independent accountants for the Company. Coopers &
Lybrand L.L.P. provides audit services, tax return preparation and assistance
and consultation in connection with review of SEC filings.
The audited financial statements for the fiscal year ended December 31, 1997 and
the report of the independent accountants for that year are included in the
Company's Annual Report to Shareholders dated December 31, 1997. The Annual
Report for each Portfolio, except for pages 1 through 2 thereof, is incorporated
herein by reference and made a part of this document. These financial statements
have been audited by Coopers & Lybrand L.L.P. and have been incorporated by
reference into the Statement of Additional Information in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in auditing and accounting.
35
<PAGE>
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
PART A:
Financial Highlights included in Prospectus dated March 1, 1998
PART B:
The following financial statements for each series (other than the PBHG Mid-Cap
Value Portfolio, which had not yet commenced operations as of the date of the
financial statements) of PBHG Insurance Series Fund, Inc. (the "Company") are
incorporated into the Statement of Additional Information dated May 1, 1998, by
reference to the Annual Report of the Company dated December 31, 1997:
Statement of Net Assets as of December 31, 1997
Statement of Operations for the period ended December 31, 1997
Statement of Changes in Net Assets for the period ended December 31, 1997
Financial Highlights for the fiscal year ended December 31, 1997
Notes to Financial Statements as of December 31, 1997
(b) Exhibits:
1(a) Articles of Incorporation (1)
(b) Articles Supplementary of Registrant (3)
(c) Certificate of Correction of the Registrant dated March 24,
1998
2 Amended and Restated Bylaws of the Registrant adopted
effective April 9, 1998
3 Not Applicable
4 Certificate of Incorporation and Certificate of Correction
filed as Exhibits 1(a) and 1(c)
5(a) Investment Advisory Agreement dated April 1, 1997, by and
between the Registrant, on behalf of each Portfolio of the
Registrant, and Pilgrim Baxter & Associates, Ltd. (3)
(b) Schedule A dated February 20, 1998 to Investment Advisory
Agreement dated April 1, 1997, by and between the Registrant,
on behalf of each Portfolio of the Registrant, and Pilgrim
Baxter & Associates, Ltd.
(c) Investment Sub-Advisory Agreement dated April 1, 1997, by 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. (3)
(d) Schedule A dated February 20, 1998 to Investment Sub-Advisory
Agreement dated April 1, 1997, by 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.
<PAGE>
6(a) Distribution Agreement dated April 1, 1997 by and between the
Registrant and SEI Financial Services Company (3)
(b) Schedule A dated February 20, 1998 to Distribution Agreement
dated April 1, 1997 by and between the Registrant and SEI
Financial Services Company
7 Not Applicable
8 Custodian Agreement dated April 1, 1997, by and between the
Registrant and CoreStates Bank, N.A. (3)
9(a) Transfer Agency Agreement dated April 1, 1997, by and between
the Registrant and DST Systems, Inc. (3)
(b) Administrative Services Agreement dated April 1, 1997 by and
between the Registrant and PBHG Fund Services (3)
(c) Schedule A dated February 20, 1998 to Administrative Services
Agreement dated April 1, 1997 by and between the Registrant
and PBHG Fund Services
(d) Sub-Administrative Services Agreement dated April 1, 1997, by
and among the Registrant, PBHG Fund Services and SEI Fund
Resources (3)
(e) Schedule A dated February 20, 1998 to Sub-Administrative
Services Agreement dated April 1, 1997, by and among the
Registrant, PBHG Fund Services and SEI Fund Resources
(f) Amendment dated May 1, 1998 to Sub-Administrative Services
Agreement dated April 1, 1997, by and among the Registrant,
PBHG Fund Services and SEI Fund Resources
(g) Expense Limitation Agreement dated April 1, 1997 between the
Registrant and Pilgrim Baxter & Associates, Ltd. (3)
(h) Schedule A dated February 20, 1998 to Expense Limitation
Agreement dated April 1, 1997 between the Registrant and
Pilgrim Baxter & Associates, Ltd.
(i) Schedule B dated February 20, 1998 to Expense Limitation
Agreement dated April 1, 1997 between the Registrant and
Pilgrim Baxter & Associates, Ltd.
(j) Form of Fund Participation Agreement (2)
(k) Organizational Expense Reimbursement Agreement dated April 1,
1997 between the Registrant and Pilgrim Baxter & Associates,
Ltd. (3)
11(a) Consent of Counsel
(b) Consent of Independent Accountants
12 Not Applicable
13 Not Applicable
14 Not Applicable
2
<PAGE>
15 Not Applicable
16 Schedule for Computation of Performance Quotations (3)
18 Not Applicable
24(a) Directors' Power of Attorney
(b) Officers' Power of Attorney
27 Financial Data Schedules
(1) Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A (File No. 333-19497) as filed electronically with the Commission on
January 10, 1997
(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No. 333-19497) as filed
electronically with the Commission on April 8, 1997
(3) Incorporated herein by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A (File No. 333-19497) as filed
electronically with the Commission on February 13, 1998
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
As of March 31, 1998, the number of shareholders of each series of PBHG
Insurance Series Fund, Inc. was as follows:
Title of Class Number of Record Holders
PBHG Growth II Portfolio 12
PBHG Large Cap Growth Portfolio 8
PBHG Small Cap Value Portfolio 10
PBHG Large Cap Value Portfolio 10
PBHG Technology & Communications Portfolio 11
PBHG Select 20 Portfolio 8
PBHG Mid-Cap Value Portfolio 1
3
<PAGE>
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 Bylaws of the Registrant include the following:
ARTICLE IX
Indemnification of Directors and Officers. The Corporation shall indemnify its
directors to the fullest extent that indemnification of directors is permitted
by the Maryland General Corporation Law. The Corporation shall indemnify its
officers to the same extent as its directors and to such further extent as is
consistent with law. The Corporation shall indemnify its directors and officers
who, while serving as directors or officers, also serve at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, real estate
investment trust, trust, other enterprise or employee benefit plan to the
fullest extent consistent with law. The indemnification and other rights
provided for by this Article shall continue as to a person who has ceased to be
a director or officer, and shall inure to the benefit of the heirs, executors
and administrators of such a person. This Article shall not protect any such
person against any liability to the Corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office ("disabling conduct").
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
4
<PAGE>
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>
Name and Position with Pilgrim
Baxter & Associates, Ltd. Name of Other Company Connection with Other Company
- ------------------------- --------------------- -----------------------------
<S> <C> <C>
Harold J. Baxter Pilgrim Baxter Value Investors, Inc. Director, Chairman and Chief Executive
Director, Chairman & Officer
Chief Executive Officer PBHG Fund Services Trustee
PBHG Fund Distributors Trustee
United Asset Management Director
Corporation
Gary L. Pilgrim PBHG Fund Services Trustee
Director & Chief Investment Officer
President (4/95 - 10/97), Secretary
(4/95 - 11/96) Pilgrim Baxter Value Investors, Inc. President & Chief Operating Officer
Paul J. Hondros PBHG Fund Distributors Trustee
President & Chief Operating
Officer
Brian F. Bereznak Pilgrim Baxter Value Investors, Inc. Director
Chief Operating Officer
(from 1989 through 1996) PBHG Fund Services President and Trustee
PBHG Fund Distributors President
Eric C. Schneider Pilgrim Baxter Value Investors, Inc. Chief Financial Officer & Treasurer
Chief Financial Officer
PBHG Fund Services Chief Financial Officer
PBHG Fund Distributors Trustee, Chief Financial Officer
John M. Zerr Pilgrim Baxter Value Investors, Inc. General Counsel and Secretary
General Counsel and Secretary
PBHG Fund Distributors General Counsel and Secretary
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Name and Position with
Pilgrim Baxter Value Investors, Connection
Inc. Name of Other Company with Other Company
- ------------------------------- --------------------- ------------------
<S> <C> <C>
Harold J. Baxter Pilgrim Baxter & Director, Chairman &
Director, Chairman & Chief Associates, Ltd. Chief Executive Officer
Executive Officer
PBHG Fund Services Trustee
PBHG Fund Distributors Trustee
United Asset Management Member, Board of
Corporation Directors
Brian F. Bereznak Pilgrim Baxter & Chief Operating Officer
Director Associates, Ltd. (1989 to 1996)
PBHG Fund Services President & Trustee
PBHG Fund Distributors President
Gary L. Pilgrim Pilgrim Baxter & Director & Chief Investment Officer
Director Associates, Ltd. President (4/95 - 10/97), Secretary (4/95 -
11/96)
PBHG Fund Services Trustee
Paul J. Hondros Pilgrim Baxter & President & Chief Executive Officer
President & Chief Executive Associates, Ltd.
Officer
PBHG Fund Distributors Trustee
David W. Jennings Pilgrim Baxter & Director of Client Service
Director, President & Chief Associates, Ltd.
Executive Officer (6/96 - 12/97)
Eric C. Schneider Pilgrim Baxter & Chief Financial Officer
Chief Financial Officer & Associates, Ltd.
Treasurer
PBHG Fund Services Chief Financial Officer
PBHG Fund Distributors Trustee, Chief Financial Officer
John M. Zerr Pilgrim Baxter & General Counsel and Secretary
General Counsel and Secretary Associates, Ltd.
PBHG Fund Distributors General Counsel and Secretary
</TABLE>
The principal business addresses of the entities listed in the above tables are
as follows:
Pilgrim Baxter & Associates, Ltd., Pilgrim Baxter Value Investors, Inc., PBHG
Fund Services, and PBHG Distributors: 825 Duportail Road, Wayne, PA 19087
6
<PAGE>
United Asset Management Corporation: One International Place, 44th Floor,
Boston, MA 02110.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing the securities of the
Registrant also acts as a principal underwriter, distributor or investment
adviser.
Registrant's distributor, SEI Investments Distribution Co., acts as distributor
for:
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
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
Boston 1784 Funds (R) June 1, 1993
MarquisR Funds August 17, 1993
Morgan Grenfell Investment Trust January 3, 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
TIP Funds April 28, 1996
The PBHG Funds, Inc. June 1, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
Highmark Funds February 15, 1997
Armada Funds March 8, 1997
Expedition Funds June 9, 1997
TIP Institutional Funds January 1, 1998
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").
7
<PAGE>
(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.
The principal business address of each person named in the table below is SEI
Investments Distribution Co., One Freedom Valley Road, Oaks, Pennsylvania 19456
<TABLE>
<CAPTION>
Positions and
Offices with
Name Position and Office with Underwriter Registrant
- ---- ------------------------------------ ----------
<S> <C> <C>
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 -
Dennis J. McGonigle Executive Vice President -
Richard B. Lieb Executive Vice President, President - -
Investment Services Division
Leo J. Dolan, Jr. Senior Vice President -
Carl A. Guarino Senior Vice President -
Larry Hutchinson Senior Vice President -
Jack May Senior Vice President -
A. Keith McDowell Senior Vice President -
Hartland J. McKeown Senior Vice President -
Barbara J. Moore Senior Vice President -
Kevin P. Robins Senior Vice President, General Counsel Vice President &
and Secretary Assistant Secretary
Patrick K. Walsh Senior Vice President -
Robert Crudup Vice President & Managing Director -
Vic Galef Vice President & Managing Director -
Kim Kirk Vice President & Managing Director -
John Krzeminski Vice President & Managing Director -
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Positions and
Offices with
Name Position and Office with Underwriter Registrant
- ---- ------------------------------------ ----------
<S> <C> <C>
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 -
Robert Aller Vice President -
Gordon W. Carpenter Vice President -
Todd Cipperman Vice President & Assistant Secretary -
Barbara Doyne Vice President -
Jeff Drennen Vice President -
Kathy Heilig Vice President -
Michael Kantor Vice President -
Samuel King Vice President -
W. Kelso Morrill Vice President -
Joanne Nelson Vice President -
Mark Nagle Vice President -
Sandra K. Orlow Vice President & Secretary Vice President &
Assistant Secretary
Cynthia M. Parrish Vice President & Assistant Secretary Vice President &
Assistant Secretary
Kim Rainey Vice President -
Rob Redican Vice President -
Maria Reinehart Vice President -
Steve Smith Vice President -
Daniel Spaventa Vice President -
Kathryn L. Stanton Vice President & Assistant Secretary Vice President &
Assistant Secretary
</TABLE>
c. None.
9
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8);
(12); and 31a-1(d), the required books and records are maintained at the offices
of Registrant's Custodian:
CoreStates Bank, N.A.
Broad and Chestnut Streets
P.O. Box 7618
Philadelphia, PA 19101
(b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4); (5);
(6); (8); (9); (10); (11) and 31a-1(f), the required books and records are
currently maintained at the offices of Registrant's Sub-Administrator:
SEI Fund Resources
One Freedom Valley Road
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Adviser or Sub-Adviser:
Pilgrim Baxter & Associates, Ltd.
825 Duportail Road
Wayne, PA 19087
Pilgrim Baxter Value Investors, Inc.
825 Duportail Road
Wayne, PA 19087
ITEM 31. MANAGEMENT SERVICES:
None
ITEM 32. UNDERTAKINGS
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.
10
<PAGE>
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant certifies that it meets all the requirements for effectiveness
of this Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Post-Effective Amendment No. 4 to the
Registration Statement to be signed on its behalf by the undersigned thereto
duly authorized, in the City of Wayne, and Commonwealth of Pennsylvania, on the
28th day of April, 1998.
PBHG INSURANCE SERIES FUND, INC.
Registrant
By: /s/Harold J. Baxter
----------------------------
Harold J. Baxter
Chairman and Director
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 4 to the Registration Statement has been signed below by the
following persons on the 28th day of April, 1998 in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ------------------- ----
<S> <C> <C>
/s/Harold J. Baxter Chairman and Director 4/28/98
- --------------------------- -------------------------
Harold J. Baxter
* Director 4/28/98
- --------------------------- -------------------------
John R. Bartholdson
* Director 4/28/98
- --------------------------- -------------------------
Jettie M. Edwards
* Director 4/28/98
- --------------------------- -------------------------
Albert A. Miller
/s/ Gary L. Pilgrim President 4/28/98
- --------------------------- -------------------------
Gary L. Pilgrim
/s/Paul J. Hondros Executive Vice President 4/28/98
- --------------------------- -------------------------
Paul J. Hondros
/s/ Brian F. Bereznak Vice President 4/28/98
- --------------------------- -------------------------
Brian F. Bereznak
/s/Lee T. Cummings Treasurer, Chief Financial Officer 4/28/98
- --------------------------- and Controller -------------------------
Lee T. Cummings
*By: /s/ John M. Zerr
----------------------------------
John M. Zerr
Attorney-in-Fact
</TABLE>
<PAGE>
REPRESENTATION OF COUNSEL PURSUANT TO
RULE 485(b) UNDER THE SECURITIES ACT OF 1933
We hereby represent that Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A of the PBHG Insurance Series Fund, Inc.
(File No. 333-19497) filed with the Securities and Exchange Commission under the
Securities Act of 1933 and Amendment No. 5 under the Investment Company Act of
1940 (File No. 811-08009) contains no disclosure which would render it
ineligible to become effective pursuant to paragraph (b) of Rule 485 under the
Securities Act of 1933.
Ballard Spahr Andrews & Ingersoll, LLP
<PAGE>
EXHIBIT LIST
Exhibit
Number Description
- ------ -----------
EX-99.B1(c) Certificate of Correction of the Registrant filed March 24,
1998
EX-99.B2 Amended and Restated Bylaws of the Registrant adopted
effective April 9, 1998
EX-99.B5(b) Schedule A dated February 20, 1998 to Investment Advisory
Agreement dated April 1, 1997, by and between the Registrant,
on behalf of each Portfolio of the Registrant, and Pilgrim
Baxter & Associates, Ltd.
EX-99.B5(d) Schedule A dated February 20, 1998 to Investment Sub-Advisory
Agreement dated April 1, 1997, by and among the Registrant, on
behalf of the Small Cap Value and Large Cap Value Portfolios,
Pilgrim Baxter & Associates, Ltd. and Newbold's Asset
Management, Inc.
EX-99.B6(b) Schedule A dated February 20, 1998 to Distribution Agreement
dated April 1, 1997 by and between the Registrant and SEI
Financial Services Company
EX-99.B9(c) Schedule A dated February 20, 1998 to Administrative Services
Agreement dated April 1, 1997 by and between the Registrant
and PBHG Fund Services
EX-99.B9(e) Schedule A dated February 20, 1998 to Sub-Administrative
Services Agreement dated April 1, 1997, by and among the
Registrant, PBHG Fund Services and SEI Fund Resources
[EX-99.B9(f) Amendment dated May 1, 1998 to Sub-Administrative Services
Agreement dated April 1, 1997, by and among the Registrant,
PBHG Fund Services and SEI Fund Resources]
EX-99.B9(h) Schedule A dated February 20, 1998 to Expense Limitation
Agreement dated April 1, 1997 between the Registrant and
Pilgrim Baxter & Associates, Ltd.
EX-99.B9(i) Schedule B dated February 20, 1998 to Expense Limitation
Agreement dated April 1, 1997 between the Registrant and
Pilgrim Baxter & Associates, Ltd.
EX-99.B11(a) Consent of Counsel
EX-99.B11(b) Consent of Independent Accountants
EX-99.B24(a) Directors' Power of Attorney
EX-99.B24(b) Officers' Power of Attorney
EX-99.B27 Financial Data Schedules
Exhibit 99.B1(c)
PBHG INSURANCE SERIES FUND, INC.
CERTIFICATE OF CORRECTION
THIS IS TO CERTIFY THAT:
First: the title of the document being corrected hereby is
Articles of Incorporation of PBHG Insurance Series Fund, Inc.
Second: the name, as it appeared in the Articles of
Incorporation, of the parties to such Articles of Incorporation, is PBHG
Insurance Series Fund, Inc.
Third: the Articles of Incorporation to be corrected hereby
were filed on January 9, 1997.
Fourth: the following Article 5.4(g) was excluded in error
from the Articles of Incorporation and Article 5.4(g) to the Articles of
Incorporation of PBHG Insurance Series Fund, Inc. as corrected, shall read as
follows:
(g) The Board of Directors may classify any unissued shares of
Common Stock from time to time in one or more classes or
series of stock. The Board of Directors may reclassify any
previously classified but unissued shares of any class or
series of stock from time to time in one or more classes or
series of stock. The Board of Directors may set or change
preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of such unissued shares of
stock. Subject to the foregoing powers of the Board, the
shares of each class or series of stock of the Corporation now
or hereafter issued shall have the following preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and
conditions of redemption:
(i) All consideration received by the Corporation for
the issuance or sale of shares of a particular class or
series, together with all income, earnings, profits and
proceeds thereon, shall irrevocably belong to such class or
series for all purposes, subject only to the rights of
creditors, and are herein referred to as "assets belonging to"
such class or series.
(ii) The assets belonging to such class or series
shall be charged with the liabilities of the
<PAGE>
Corporation in respect of such class or series and with such
class' or series' share of the general liabilities of the
Corporation, in the later case in the proportion that the net
asset value of such class or series bears to the net asset
value of all classes and series. The determination of the
Board of Directors shall be conclusive as to the allocation of
liabilities, including accrued expenses and reserves, to each
class or series.
(iii) Dividends or distributions on shares of any
class or series, whether payable in stock or cash, shall be
paid only out of earnings, surplus or other assets belonging
to such class or series.
(iv) In the event of the liquidation or dissolution
of the Corporation, stockholders of each class or series shall
be entitled to receive, as a class or series, out of the
assets of the Corporation available for distribution to
stockholders, the assets belonging to such class or series;
and the assets so distributable to the stockholders of such
class or series shall be distributed among such stockholders
in proportion to the number of shares of such class or series
held by them and recorded on the books of the Corporation.
IN WITNESS WHEREOF, I have signed this Certificate of
Correction and acknowledge the same to be my act on this 20th day of March,
1998.
/s/ John M. Zerr
-------------------------------
John M. Zerr
Incorporator
2
Exhibit 99.B2
AMENDED AND RESTATED BYLAWS
FOR
PBHG INSURANCE SERIES FUND, INC.
Adopted Effective April 9, 1998
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the
Corporation in the State of Maryland shall be in the City of Baltimore.
Section 2. Other Offices. The Corporation may have such other
offices in such places as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings. Meetings of the
stockholders of the Corporation need not be held except as required under the
general laws of the State of Maryland, as the same may be amended from time to
time. Meetings of stockholders shall be held at such place within the United
States designated
<PAGE>
by the Board of Directors and set forth in the notice of the meeting.
Section 2. Annual Meetings. If a meeting of the stockholders
of the Corporation is required by the Investment Company Act of 1940, as amended
(the "1940 Act"), to take action with respect to the election of directors, then
such matter shall be submitted to the stockholders at a special meeting called
for such purpose, which shall be deemed the annual meeting of stockholders for
that year. In years in which no such action by stockholders is so required, no
annual meeting of stockholders need be held.
Section 3. Special Meetings. Special meetings of stockholders
may be called at any time by the chairman of the board, if any, the president or
by a majority of the Board of Directors. Special meetings of stockholders shall
also be called by the secretary upon the written request of the holders of
shares entitled to cast not less than ten percent (10%) of all the votes
entitled to be cast at such meeting. Such request shall state the purpose of the
meeting and the matters proposed to be acted on at the meeting. The secretary
shall inform such stockholders of the reasonably estimated cost of preparing and
mailing notice of the meeting and, upon payment to the Corporation by such
stockholders of such costs, the secretary shall give notice to each stockholder
entitled to notice of the
2
<PAGE>
meeting. Unless requested by the stockholders entitled to cast a majority of all
the votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of the stockholders held during the preceding twelve
months.
Section 4. Notice of Meetings. Not less than ten nor more than
90 days before each meeting of stockholders, the secretary shall give to each
stockholder entitled to vote at such meeting and to each stockholder not
entitled to vote who is entitled to notice of the meeting, written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting or as otherwise may be required by any statute, the purpose for which
the meeting is called, either by mail or by delivering such notice personally or
by leaving it at each stockholder's residence or usual place of business. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, addressed to the stockholder at such stockholder's
address as it appears on the records of the Corporation.
Section 5. Scope of Notice. Any business of the Corporation
may be transacted at an annual meeting of stockholders without being
specifically designated in the notice, except such business as is required by
any statute to be stated
3
<PAGE>
in such notice. No business shall be transacted at a special meeting of
stockholders except as specifically designated in the notice.
Section 6. Quorum; Adjournment of Meetings. The presence in
person or by proxy of stockholders entitled to cast thirty percent (30%) of the
votes entitled to be cast at the meeting, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders, except for
any matter which by law or the charter of the Corporation requires the separate
approval of one or more series or classes of stock, in which case the presence
in person or by proxy of stockholders entitled to cast thirty percent (30%) of
the votes of such series or class (or of such series or classes voting together
as a single class) entitled to be cast on the matter shall constitute a quorum.
The holders of a majority of the votes entitled to be cast at the meeting and
present in person or by proxy, whether or not sufficient to constitute a quorum,
or, any officer entitled to preside or act as secretary of such meeting may
adjourn the meeting without determining the date of the new meeting or from time
to time without further notice to a date not more than 120 days after the
original record date. Any business that might have been transacted at the
meeting originally called may be transacted at any such adjourned meeting at
which a quorum is present.
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Section 7. Conduct of Stockholders Meetings. The meetings of
stockholders shall be presided over by the chairman of the board or, if the
chairman shall not be present or if there is no chairman, by one of the
following officers who shall be present in the order stated: the president, the
vice presidents in their order of rank and seniority, or a chairman elected for
such purpose at the meeting. The secretary, or, in his absence, an assistant
secretary, or in the absence of both the secretary and assistant secretaries, a
person appointed by the chairman shall act as secretary of the meeting.
Section 8. Voting. Except as otherwise provided by statute or
the charter of the Corporation, each stockholder of record having voting power
shall be entitled at each meeting of the stockholders to one vote for each share
(and a fractional vote for each fractional share) of stock outstanding in such
holder's name on the record of stockholders of the Corporation as of the record
date determined pursuant to Section 13 of this Article II. A plurality of all
the votes cast at a meeting of stockholders duly called and at which a quorum is
present shall be sufficient to elect a director. Each vote may be cast for as
many individuals as there are directors to be elected and for whose election the
vote is entitled to be cast. A majority of the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
approve any other matter which may properly come before the meeting, unless
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more than a majority of the votes cast is required by statute or by the charter
of the Corporation.
Section 9. Proxies. Each stockholder entitled to vote at any
meeting of stockholders may authorize another person or persons to act for him
by a proxy signed by such stockholder or his duly authorized agent. Signing may
be accomplished by the stockholder or the stockholder's authorized agent signing
the proxy or causing the stockholder's signature to be affixed to the proxy by
any reasonable means, including facsimile signature. The stockholder also may
authorize another person to act as proxy by transmitting, or authorizing the
transmission of, a telegram, cablegram, datagram or other means of electronic
transmission to the person authorized to act as proxy or to a proxy solicitation
firm, proxy support service organization or other person authorized by the
person who will act as proxy to receive the transmission. No proxy shall be
valid after the expiration of eleven months from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the stockholder executing it, except in those cases where such proxy states
that it is irrevocable and where an irrevocable proxy is coupled with an
interest.
Section 10. Voting of Stock by Certain Holders.
(a) Stock of the Corporation registered in the name of a
corporation, partnership, trust or other entity, if entitled to
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be voted, may be voted by the president or a vice president, a general partner
or trustee thereof, as the case may be, or a proxy appointed by any of the
foregoing individuals, unless some other person, who has been appointed to vote
such stock pursuant to a bylaw or a resolution of the governing body of such
corporation or other entity or agreement of the partners of a partnership,
presents a certified copy of such bylaw, resolution or agreement, in which case
such person may vote such stock. Any director or other fiduciary may vote stock
registered in his name as such fiduciary, either in person or by proxy.
(b) Shares of stock of the Corporation directly or indirectly
owned by it shall not be voted at any meeting and shall not be counted in
determining the total number of votes that may be cast at any given time, unless
they are held by it in a fiduciary capacity, in which case they may be voted and
shall be counted in determining the total number of votes that may be cast at
any given time.
(c) The Board of Directors may adopt by resolution a procedure
by which a stockholder may certify in writing to the Corporation that any shares
of stock registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of
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certification and the information to be contained in it; if the certification is
with respect to a record date or closing of the stock transfer books, the time
after the record date or closing of the stock transfer books within which the
certification must be received by the Corporation; and any other provisions with
respect to the procedure which the Board of Directors considers necessary or
desirable. On receipt of such certification, the person specified in the
certification shall be regarded as, for the purposes set forth in the
certification, the stockholder of record of the specified stock in place of the
stockholder who makes the certification.
Section 11. Inspectors.
(a) At any meeting of stockholders, the chairman of the
meeting may appoint one or more persons as inspectors for such meeting. Such
inspectors shall ascertain and report the number of shares represented at the
meeting based upon their determination of the validity and effect of proxies,
count all votes, report the results and perform such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
stockholders.
(b) Each report of an inspector shall be in writing and signed
by him or by a majority of them if there is more than one inspector acting at
such meeting. If there is more than one inspector, the report of a majority
shall be the report of the
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inspectors. The report of the inspector or inspectors on the number of votes
represented at the meeting and the results of the voting shall be prima facie
evidence thereof.
Section 12. Voting by Ballot. If a vote shall be taken on any
question other than the election of directors, which shall be by written ballot,
then unless required by statute or these Bylaws, or determined by the chairman
of the meeting to be advisable, any such vote need not be by ballot. On a vote
by ballot, each ballot shall be signed by the stockholder voting, or by his
proxy, if there be such proxy, and shall state the dollar value of shares voted.
Section 13. Fixing of Record Date. The Board of Directors may
set a record date for the purpose of making any proper determination with
respect to stockholders, including determining which stockholders are entitled
to notice of and to vote at a meeting or by consent, to receive a dividend or be
allotted other rights. The record date may not be prior to the close of business
on the date the record date is fixed and shall not be more than ninety (90) days
before the date on which the action requiring the determination is taken. In the
case of a meeting of stockholders, the record date shall be at least ten (10)
days before the date of the meeting. Only stockholders of record on such date
shall be entitled to notice of and to vote at
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such meeting or by consent or to receive such dividends or rights, as the case
may be.
Section 14. Consent of Stockholders in Lieu of Meeting. Except
as otherwise provided by statute or the charter of the Corporation, any action
required or permitted to be taken at any meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if the following are
filed with the records of stockholders meetings: (i) a unanimous written consent
which sets forth the action and is signed by each stockholder entitled to vote
on the matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors and
all powers of the Corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to the stockholders by
law, the charter of the Corporation or these Bylaws.
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Section 2. Number of Directors. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the directors then in office; provided, however, that the number of
directors shall in no event be less than three nor more than fifteen except that
the Corporation shall have at least one director if there is no stock
outstanding, and, if there is stock outstanding and so long as there are less
than three stockholders, the number of directors may be less than three but not
less than the number of stockholders. Any vacancy created by an increase in
directors may be filled in accordance with Section 6 of this Article III. No
reduction in the number of directors shall have the effect of removing any
director from office prior to the expiration of his term unless such director is
specifically removed pursuant to Section 5 of this Article III at the time of
such decrease. Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors shall be
elected annually, by written ballot at the annual meeting of stockholders or a
special meeting held for that purpose; provided, however, that if no annual
meeting of the stockholders of the Corporation is required to be held in a
particular year pursuant to Section 1 of Article II of these Bylaws, directors
shall be elected at the next annual meeting held. The term of office of each
director shall be from the time of his election and qualification until the
election of directors next succeeding his election and until his successor is
elected and qualifies.
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Section 4. Resignation. A director of the Corporation may
resign at any time by giving written notice of his resignation to the board or
the chairman of the board, if any, the president or the secretary. Any such
resignation shall take effect at the time specified therein or, if no time is
specified, immediately upon its receipt; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 5. Removal of Directors. Any director of the
Corporation may be removed in accordance with the charter of the Corporation.
Section 6. Vacancies. Any vacancy on the Board of Directors
for any cause other than an increase in the number of directors shall be filled
by a majority of the remaining directors, even if such majority is less than a
quorum. Any vacancy on the Board of Directors created by an increase in the
number of directors may be filled by a majority vote of the entire Board of
Directors. Any individual so elected as director shall hold office until the
next annual meeting of stockholders and until his successor is elected and
qualifies.
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Section 7. Place of Meeting. The directors may hold their
meetings and keep the books of the Corporation outside the State of Maryland, at
any office or offices of the Corporation, or at any place as they may from time
to time determine; and in the case of meetings, as shall be specified in the
respective notices of such meetings.
Section 8. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and on such notice, if any, as the
directors may from time to time determine.
Section 9. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the chairman of the board, if
any, the president or by two or more directors by oral, telegraphic, telephonic
or written notice duly given to each director not less than one business day
before such meeting or sent or mailed to each director not less than three
business days before such meeting.
Section 10. Quorum.
(a) One-third of the directors then in office (but in no event
less than two directors) shall constitute a quorum of the Board of Directors for
the transaction of business. If at any meeting of the Board of Directors there
shall be less than a quorum present, a majority of the directors present may
adjourn the meeting from time to time without further notice until a
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quorum shall be attained. If, pursuant to law, the charter of the Corporation or
these Bylaws, the vote of a majority of a particular group of directors is
required for action, a quorum must also include a majority of such group.
(b) The directors present at a meeting which has been duly
called and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
Section 11. Voting. The action of the majority of the
Directors present at a meeting at which a quorum is present shall be the action
of the Board of Directors, except as may be otherwise specifically provided by
applicable law, the charter of the Corporation or these Bylaws.
Section 12. Telephone Meetings. The members of the Board of
Directors, or any committee of the Board of Directors, may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
Section 13. Executive Committee. The Board of Directors may
appoint an Executive Committee consisting of one or
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more directors. Between meetings of the Board of Directors, the Executive
Committee, if any, shall have and may exercise any or all of the powers of the
Board of Directors, except (a) as otherwise provided by law and (b) the power to
increase or decrease the size of, or fill vacancies on, the Board of Directors.
The Executive Committee may determine its own rule of procedure, and may meet
when and as the Executive Committee determines, or when directed by resolution
of the Board of Directors. The presence of a majority of the Executive Committee
shall constitute a quorum. The Board of Directors shall have the power at any
time to change the members and powers of, to fill vacancies on, and to dissolve
the Executive Committee. In the absence of any member of the Executive
Committee, the members present at a meeting, whether or not they constitute a
quorum, may appoint a director to act in place of such absent member.
Section 14. Other Committees. The Board of Directors may
appoint other committees, which shall in each case consist of such number of
directors (not less than one), which shall have and may exercise such powers as
the Board of Directors may from time to time determine, subject to applicable
law. A majority of all members of any such committee may determine its action,
and the time and place of its meetings, unless the Board of Directors shall
provide otherwise. The Board of Directors shall have the power at any time to
change the members and powers of, to fill vacancies on, and to dissolve any such
committee. In
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the absence of any member of such committee, the members present at any meeting,
whether or not they constitute a quorum, may appoint a director to act in the
place of such absent member.
Section 15. Informal Action by Directors. Except to the extent
otherwise specifically prohibited by applicable law, any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting, if a consent in writing to such action
is signed by all members of the board or such committee, and such written
consent is filed with the minutes of proceedings of the board or such committee.
Section 16. Compensation. Directors may receive compensation
for services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board
of Directors.
Section 17. Valuation Procedures. The Board of Directors shall
not exercise the power set forth in Section 5.9 of the charter of the
Corporation to require, 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 a designated constant share
value. This Bylaw provision may only be amended
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by a majority of the votes cast at a meeting of stockholders duly called and at
which a quorum is present.
Section 18. Independent and Disinterested Directors. A
director of the Corporation who with respect to the Corporation is not an
interested person, as defined in the 1940 Act, shall be deemed to be independent
and disinterested when making any determination or taking any action as a
director of the Corporation.
ARTICLE IV
OFFICERS, AGENTS AND EMPLOYEES
Section 1. General Provisions. The Board of Directors shall
elect the executive officers of the Corporation, which shall include a
president, a secretary and a treasurer and may include a chairman of the board,
one or more vice presidents, one or more assistant secretaries and one or more
assistant treasurers. The chairman of the board, if any, shall be selected from
among the directors. The Board of Directors may also in its discretion appoint
assistant vice presidents, assistant secretaries, assistant treasurers, and
other officers, agents and employees, who shall have such authority and perform
such duties as the Board of Directors may determine. The Board of Directors may
fill any vacancy which may occur in any office. Any two offices, except those of
president and vice president, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument on behalf of the Corporation
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in more than one capacity, if such instrument is required by law to be executed,
acknowledged or verified by two or more officers.
Section 2. Term of Office. Unless otherwise specifically
determined by the Board of Directors, the officers shall serve at the pleasure
of the Board of Directors. If the Board of Directors in its judgment finds that
the best interests of the Corporation will be served, the Board of Directors may
remove any officer of the Corporation at any time with or without cause.
Section 3. President. The president shall be the chief
executive officer of the Corporation and, subject to the Board of Directors,
shall generally manage the business and affairs of the Corporation. If there is
no chairman of the board, or if the chairman of the board has been appointed but
is absent, the president shall, if present, preside at all meetings of the
stockholders and the Board of Directors.
Section 4. Chairman of the Board. The chairman of the board,
if any, shall preside at all meetings of the stockholders and the Board of
Directors, if the chairman of the board is present. The chairman of the board
shall have such other powers and duties as shall be determined by the Board of
Directors, and shall undertake such other assignments as may be requested by the
president.
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Section 5. Other Officers. The chairman of the board or one or
more vice presidents shall have and exercise such powers and duties of the
president in the absence or inability to act of the president, as may be
assigned to them, respectively, by the Board of Directors or, to the extent not
so assigned, by the president. In the absence or inability to act of the
president, the powers and duties of the president not otherwise assigned by the
Board of Directors or the president shall devolve upon the chairman of the
board, or in the chairman's absence, the vice presidents in the order of their
election.
Section 6. Secretary. The secretary shall have custody of the
seal of the Corporation, and shall keep the minutes of the meetings of the
stockholders, the Board of Directors and any committees thereof, and shall issue
all notices of the Corporation. The secretary shall have charge of the stock
records and such other books and papers as the Board of Directors may direct,
and shall perform such other duties as may be incidental to the office or which
are assigned by the Board of Directors.
Section 7. Treasurer. The treasurer shall have the care and
custody of the funds and securities of the Corporation and shall deposit the
same in the name of the Corporation in such bank or banks or other depositories,
subject to withdrawal in such manner as these Bylaws or the Board of Directors
may
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determine. The treasurer shall, if required by the Board of Directors, give such
bond for the faithful discharge of duties in such form as the Board of Directors
may require.
ARTICLE V
CHECKS, DEPOSITS AND CUSTODIANS
Section 1. Checks and Drafts. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation shall be signed by such officer or agent of the
Corporation in such manner as shall from time to time be determined by the Board
of Directors.
Section 2. Deposits. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors may
from time to time determine.
Section 3. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors may from time to time determine. Every arrangement entered
into with any bank or other company for the safekeeping of the securities and
investments of the Corporation shall contain provisions complying with the 1940
Act and the general rules and regulations thereunder.
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ARTICLE VI
STOCK
Section 1. Certificates. Stock certificates shall not be
issued unless authorized by the Board of Directors. Within a reasonable time
after the issuance or transfer of uncertificated stock, the Corporation shall
send to the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to Section 2-211 of
the Maryland General Corporation Law.
Section 2. Transfer of Shares. Shares of the Corporation shall
be transferable on the books of the Corporation by the holder(s) thereof, in
person or by such holder's duly authorized attorney or legal representative,
upon surrender and cancellation of certificates, if any, for the same number of
shares, duly endorsed or accompanied by proper instruments of assignment and
transfer, with such proof of the authenticity of the signature(s) as the
Corporation or its agents may reasonably require. In the case of shares not
represented by certificates, the same or similar requirements may be imposed by
the Board of Directors.
Section 3. Stock Ledgers. The stock ledger of the Corporation,
which may be maintained by means of computer
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systems, containing the names and addresses of the stockholders and the number
and class or series of any class of shares of stock held by them, respectively,
and the dates when they became record owners thereof, shall be kept at the
principal offices of the Corporation, or if the Corporation has appointed a
transfer agent, at the offices of such transfer agent.
ARTICLE VII
FISCAL YEAR
The Board of Directors shall have the power, from time to
time, to fix the fiscal year of the Corporation.
ARTICLE VIII
SEAL
Section 1. Seal. The Board of Directors may authorize the
adoption of a seal by the Corporation. The seal shall contain the name of the
Corporation and the year of its incorporation and the words "Incorporated
Maryland." The Board of Directors may authorize one or more duplicate seals and
provide for the custody thereof.
Section 2. Affixing Seal. Whenever the Corporation is
permitted or required to affix its seal to a document, it shall be sufficient to
meet the requirements of any law, rule or regulation relating to a seal to place
the word "(SEAL)" adjacent
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to the signature of the person authorized to execute the document on behalf of
the Corporation.
ARTICLE IX
INDEMNIFICATION AND ADVANCE OF EXPENSES
Section 1. Indemnification of Directors and Officers. The
Corporation shall indemnify its directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify its officers to the same extent as its
directors and to such further extent as is consistent with law. The Corporation
shall indemnify its directors and officers who, while serving as directors or
officers, also serve at the request of the Corporation as a director, officer,
partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, real estate investment trust, trust, other
enterprise or employee benefit plan to the fullest extent consistent with law.
The indemnification and other rights provided for by this Article shall continue
as to a person who has ceased to be a director or officer, and shall inure to
the benefit of the heirs, executors and administrators of such a person. This
Article shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross
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negligence or reckless disregard of the duties involved in the conduct of such
person's office ("disabling conduct").
Section 2. Advances. The Corporation shall advance payment to
any current or former director or officer of the Corporation for reasonable
expenses incurred in connection with any proceeding in which the individual is
made a party by reason of service as a director or officer in the manner and to
the fullest extent permissible under the Maryland General Corporation Law upon
receipt by the Corporation of a written affirmation of his or her good faith
belief that the standard of conduct necessary for indemnification by the
Corporation has been met and a written undertaking to repay any such advance if
it should ultimately be determined that the requisite standard of conduct has
not been met. In addition, at least one of the following conditions must be
satisfied: (a) the individual shall provide security in form and amount
acceptable to the Corporation for the foregoing undertaking, (b) the Corporation
shall be insured against losses arising by reason of the advance, or (c) a
majority of a quorum of directors of the Corporation who are neither interested
persons, as defined in Section 2(a)(19) of the 1940 Act, as amended, nor parties
to the proceeding ("disinterested non-party directors"), or independent legal
counsel in a written opinion, shall have determined, based on a review of facts
readily available to the Corporation at the time the advance is proposed to be
made, that there is reason to
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believe that the person seeking indemnification will ultimately be found to meet
the requisite standard of conduct.
Section 3. Procedure. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have been met.
Indemnification shall be made only following: (a) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct, or (b) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct by, (i) the vote of a majority of a quorum of disinterested
non-party directors, or (ii) an independent legal counsel in a written opinion.
Section 4. Indemnification of Employees and Agents. Employees
and agents who are not officers or directors of the Corporation may be
indemnified, and reasonable expenses may be advanced to such employees or
agents, as may be provided by action of the Board of Directors or by contract,
subject to any limitations imposed by the 1940 Act.
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Section 5. Other Rights. The Board of Directors may make
further provision consistent with law for indemnification and advancement of
expenses to directors, officers, employees and agents by resolution, agreement
or otherwise. The indemnification provided for by this Article shall not be
deemed exclusive of any other right, with respect to indemnification or
otherwise, to which those seeking indemnification may be entitled under any
insurance, other agreement, resolution of stockholders or disinterested
non-party directors, or otherwise.
Section 6. Subsequent Changes to Law. References in this
Article are to the Maryland General Corporation Law and to the 1940 Act as from
time to time amended. No amendment of these Bylaws shall affect any right of any
person under this Article based on any event, omission or proceeding occurring
prior to such amendment.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of
the Corporation or these Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of
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such notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting shall constitute a
waiver of notice of such meeting, except where such person attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE XI
AMENDMENT OF BYLAWS
Except with respect to Section 17 of Article III of these
Bylaws which may only be amended as provided therein, the Board of Directors
shall have the exclusive power to adopt, alter or repeal any provision of these
Bylaws and to make new Bylaws.
27
Exhibit 99.B5(b)
Schedule A dated February 20, 1998
to the Investment Advisory Agreement dated
April 1, 1997 between
PBHG Insurance Series Fund, Inc.
and
Pilgrim Baxter & Associates
Pursuant to Section 5 of this Agreement, each Portfolio shall pay the
Adviser, at the end of each calendar month, compensation computed daily at an
annual rate of the Portfolio's average daily net assets as follows:
Portfolio Fee
--------- ---
PBHG Growth II Portfolio .85%
PBHG Large Cap Growth Portfolio .75%
PBHG Select 20 Portfolio .85%
PBHG Technology & Communications Portfolio .85%
PBHG Large Cap Value Portfolio .65%
PBHG Mid-Cap Value Portfolio .85%
PBHG Small Cap Value Portfolio 1.00%
Exhibit 99.B5(d)
Schedule A dated February 20, 1998
Pursuant to Section 4 of this Agreement, the Sub-Adviser for
each Portfolio listed below shall be entitled to compensation, to be paid by the
Adviser, which shall be computed daily and paid monthly at the annual rate
specified below with respect to each Portfolio's adverage daily net assets:
Portfolio Fee
--------- ---
PBHG Small Cap Value Portfolio 0.65%
PBHG Large Cap Value Portfolio 0.40%
PBHG Mid-Cap Value Portfolio 0.50%
less 50% of any fee waivers borne by the Adviser.
Exhibit 99.B6(b)
SCHEDULE A
PBHG INSURANCE SERIES FUND, INC.
PBHG Insurance Series Fund, Inc. consists of the following
Funds:
PBHG Growth II Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
Date: April 1, 1997
PBHG Mid-Cap Value Portfolio
Date: February 20, 1998
Exhibit 99.B9(c)
SCHEDULE A
PBHG INSURANCE SERIES FUND, INC.
PBHG Insurance Series Fund, Inc. consists of the following
Portfolios:
PBHG Growth II Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
PBHG Mid-Cap Value Portfolio
Date: February 20, 1998
Exhibit 99.B9(e)
SCHEDULE A
The Portfolios of the Fund that will receive services pursuant
to this Agreement are:
PBHG Growth II Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
PBHG Mid-Cap Value Portfolio
Date: February 20, 1998
Exhibit 99.B9(f)
AMENDMENT TO SUB-ADMINISTRATIVE SERVICES AGREEMENT
This Amendment dated this first day of May, 1998 hereby amends
the Sub-Administrative Services Agreement (the "Agreement") dated April 1, 1997
made by and among PBHG Insurance Series Fund, Inc., a Maryland corporation
("Insurance Series"), PBHG Fund Services, a Pennsylvania business trust (the
"Administrator"), and SEI Fund Resources, a Delaware business trust ("SEI");
(collectively, the "Parties").
WITNESSETH
WHEREAS Insurance Series operates as an open-end management
investment company registered under the Investment Company Act of 1940, as
amended, (the "1940 Act"); and
WHEREAS pursuant to its articles of incorporation Insurance
Series offers separate series of shares representing interests in separate
investment portfolios (the "Portfolios") as set forth on Schedule "A" attached
hereto; and
WHEREAS under the terms of the Agreement, SEI provides certain
services to Insurance Series on behalf of the Administrator; and
WHEREAS the Administrator and SEI hereby amend the Agreement
as set forth below.
NOW THEREFORE in consideration of the premises and mutual
covenants and agreements hereunder and for good and valuable and consideration
the sufficiency and receipt of which is hereby acknowledged, the Parties hereto,
intending to be legally bound, hereby agree as follows:
1. Incorporation by Reference
The terms of the Agreement are hereby incorporated into and
hereby become part of this Amendment provided if any such term or terms of the
Agreement is/are in conflict with any term or terms of this Amendment, this
Amendment shall control the contractual obligations of the Parties.
2. Duration and Termination of this Amendment. The terms of this Amendment
shall become effective on May 1, 1998 and shall continue and remain in effect
until December 31, 2000 (the "Initial Term"). After the Initial Term, the terms
of this Amendment shall continue on a year to year basis (a "Renewal Term")
subject to further amendment or termination. After the Initial Term, this
Amendment amy be terminated as follows: (a) by the mutual written agreement of
the Parties; (b) by either
<PAGE>
Party on 90 days' written notice as of the end of the Initial Term or the end of
any Renewal Term; (c) by either Party hereto on such date as is specified by
written notice given by the terminating Party, in the event of a material breach
of this Amendment by the other Party, provided the terminating party has
notified the other party of such breach at least 45 days prior to the specified
date of termination and the breaching party has not remedied such breach by the
specified date; (d) effective upon the liquidation of SEI; or (e) upon the
liquidation of Insurance Series or any Portfolio thereof, as the case may be.
For purposes of this paragraph, the term "liquidation" shall mean a transaction
in which the assets of SEI, Insurance Series or of a Portfolio thereof are sold
or otherwise disposed of and the proceeds therefrom are distributed in cash to
the shareholders in complete liquidation of the interests of such shareholders
in the particular entity.
3. Year 2000 Warranty. SEI warrants that all software code owned or under
control by it, used in the performance of its obligations hereunder will be Year
2000 compliant. For purposes of this paragraph, "Year 2000 Compliant" means that
the software will continue to operate beyond December 31, 1999 without creating
any logical or mathematical inconsistencies concerning any date after December
31, 1999 and without decreasing the functionality of the system applicable to
dates prior to January 1, 2000 including, but not limited to, making changes to
(a) date and data century recognition; (b) calculations which accommodate same-
and multi-century formulas and date values; and (c) input/output of date values
which reflect century dates. All changes described in this paragraph will be
made at not additional cost to Insurance Series or the Administrator.
4. Compensation of SEI. In compensation for the services provided to Insurance
Series, the Administrator agrees to pay to SEI fees based upon the greater sum
(higher value) which results from making the following calculations:
o A. Asset based fee calculated upon the combined assets of
Insurance Series, The PBHG Fund, Inc. and PBHG Advisor
Funds, Inc. (the "Companies") at the rate of
0.040% on the first $2.5 Billion of combined assets
0.025% on the next $7.5 Billion of combined assets
0.020% on combined assets in excess of $10 Billion
o B. A fee based on the aggregate number of Portfolios and
classes of each Portfolio of the Companies calculated at the
sum of
$35,000.00 per Portfolio, plus
$5,000 per additional class of shares of each Portfolio.
2
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment to
be executed by their respective officers duly authorized on the day and year
first written above.
PBHG INSURANCE SERIES FUND, INC. PBHG FUND SERVICES
BY: /s/ Brian F. Bereznak BY: /s/ Lee T. Cummings
-------------------------- ------------------------
TITLE: Vice President TITLE: Treasurer
----------------------- ---------------------
SEI FUND RESOURCES
BY: /s/
TITLE: Vice President
3
<PAGE>
SCHEDULE A
The Following Portfolios are included under the terms of this Amendment:
1. PBHG Growth II Portfolio
2. PBHG Large-Cap Growth Portfolio
3. PBHG Small-Cap Value Portfolio
4. PBHG Large-Cap Value Portfolio
5. PBHG Technology & Communications Portfolio
6. PBHG Select 20 Portfolio
7. PBHG Mid-Cap Value Portfolio
4
Exhibit 99.B9(h)
SCHEDULE A
This Agreement relates to the following Portfolios of the Fund:
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
PBHG Small Cap Value Portfolio
PBHG Large Cap Value Portfolio
PBHG Technology & Communications Portfolio
PBHG Select 20 Portfolio
PBHG Mid-Cap Value Portfolio
Exhibit 99.B9(i)
SCHEDULE B
This Agreement relates to the following Portfolios of the Fund:
Fund Expense Limitation
---- ------------------
PBHG Growth II Portfolio Annual: no more than 1.20% of average
daily net assets
PBHG Large Cap Growth Portfolio Annual: no more than 1.10% of average
daily net assets
PBHG Small Cap Value Portfolio Annual: no more than 1.20% of average
daily net assets
PBHG Large Cap Value Portfolio Annual: no more than 1.00% of average
daily net assets
PBHG Technology & Communications Annual: no more than 1.20% of average
Portfolio daily net assets
PBHG Select 20 Portfolio Annual: no more than 1.20% of average
daily net assets
PBHG Mid-Cap Value Portfolio Annual: no more than 1.20% of average
daily net assets
Exhibit 99.B11(a)
[Letterhead of Ballard Spahr Andrews & Ingersoll, LLP]
CONSENT OF COUNSEL
PBHG Insurance Series Fund, Inc.
We hereby consent to the use of our name and to the reference
to our firm under the caption "Counsel and Independent Accountants" in the
Prospectus for PBHG Insurance Series Fund, Inc. (the "Company"), which is
included in Post-Effective Amendment No. 4 to the Registration Statement under
the Securities Act of 1933 (Reg. No. 333-19497) and Amendment No. 5 under the
Investment Company Act of 1940 (Reg. No. 811-08009) on Form N-1A of the Company.
/s/ Ballard Spahr Andrews & Ingersoll, LLP
Philadelphia, Pennsylvania
April 28, 1998
Exhibit 99.B11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post- Effective Amendment
No. 4 to the Registration Statement under the Securities Act of 1933 on Form
N-1A (File No. 333-19497) of our report dated January 28, 1998 on our audit of
the financial statements and financial highlights of PBHG Insurance Series Fund,
Inc. as of, and for the period ended, December 31, 1997 in the Statement of
Additional Information. We also consent to the reference to our firm under the
headings "Financial Highlights" and "Counsel and Independent Accountants" in the
Prospectus and under the heading "Financial Statements" in the Statement of
Additional Information.
/s/Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 27, 1998
Exhibit 99.B24(a)
POWER OF ATTORNEY
We, the undersigned Directors of PBHG Insurance Series Fund, Inc. (the
"Company"), whose signatures appear below, hereby make, constitute and appoint
Harold J. Baxter, John M. Zerr and William H. Rheiner, and each of them acting
individually, to be our true and lawful attorneys and agents, each of them with
the power to act without any other and with full power of substitution, to
execute, deliver and file in each undersigned Director's capacity as shown
below, any and all instruments that said attorneys and agents may deem necessary
or advisable to enable the Company to comply with the Securities Act of 1933, as
amended, including any and all pre-effective and post-effective amendments to
the Company's registration statement, and any rules, regulations, orders or
other requirements of the Securities and Exchange Commission thereunder in
connection with the registration of shares or additional shares of common stock
of the Company or any of its series or classes thereof, and the registration of
the Company or any of its series under the Investment Company Act of 1940, as
amended, including any and all amendments to the Company's registration
statement; and without limitation of the foregoing, the power and authority to
sign the name of the the Company on its behalf, and to sign the name of each
such Director on his or her behalf, and we hereby grant to said attorney or
attorneys, full power and authority to do and perform each and every act and
thing whatsoever as said attorney or attorneys may deem necessary or advisable
to carry out fully the intent of this
<PAGE>
Power of Attorney to the same extent and with the same effect as if we might or
could do personally in our capacity as aforesaid and we ratify, confirm and
approve all acts and things which said attorney or attorneys might do or cause
to be done by virtue of this Power of Attorney and his and her signatures as the
same may be signed by said attorney or attorneys.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ HAROLD J. BAXTER Director 10/10/97
- --------------------------
Harold J. Baxter
/s/ JOHN R. BARTHOLDSON Director 10/10/97
- --------------------------
John R. Bartholdson
/s/ JETTIE M. EDWARDS Director 10/10/97
- --------------------------
Jettie M. Edwards
/s/ ALBERT A. MILLER Director 10/10/97
- --------------------------
Albert A. Miller
Exhibit 99.B24(b)
POWER OF ATTORNEY
We, the undersigned Officers of PBHG Insurance Series Fund, Inc. (the
"Company"), whose signatures appear below, hereby make, constitute and appoint
Harold J. Baxter, John M. Zerr and William H. Rheiner, and each of them acting
individually, to be our true and lawful attorneys and agents, each of them with
the power to act without any other and with full power of substitution, to
execute, deliver and file in each undersigned Officer's capacity as shown below,
any and all instruments that said attorneys and agents may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, as
amended, including any and all pre-effective and post-effective amendments to
the Company's registration statement, and any rules, regulations, orders or
other requirements of the Securities and Exchange Commission thereunder in
connection with the registration of shares or additional shares of common stock
of the Company or any of its series under the Investment Company Act of 1940, as
amended, including any and all amendments to the Company's registration
statement; and without limitation of the foregoing, the power and authority to
sign the name of the Company on its behalf, and to sign the name of each such
Officer on his behalf and we grant to said attorney or attorneys, full power and
authority to do and perform each and every act and thing whatsoever as said
attorney or attorneys may deem necessary or advisable to carry out fully the
intent of this Power of Attorney to the same extent and with the same effect as
if we might or
<PAGE>
could do personally in our capacity as aforesaid and we ratify, confirm and
approve all acts and things which said attorney or attorneys might do or cause
to be done by virtue of this Power of Attorney and his signatures as the same
may be signed by said attorney or attorneys.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ GARY L. PILGRIM President 1/21/98
- ----------------------------
Gary L. Pilgrim
/s/ PAUL J. HONDROS Executive Vice 1/25/98
- ----------------------------
Paul J. Hondros President
/s/ BRIAN F. BEREZNAK Vice President 1/21/98
- ----------------------------
Brian F. Bereznak
/s/ LEE T. CUMMINGS Treasurer, Chief 1/21/98
- ----------------------------
Lee T. Cummings Financial Officer
and Controller
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<NAME> PBHG Insurance Series
<SERIES>
<NUMBER> 060
<NAME> Select 20 Portfolio
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<S> <C>
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<FISCAL-YEAR-END> Dec-31-1997
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<PERIOD-END> Dec-31-1997
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</TABLE>
